The psychology behind a referral program

There are constant referrals everywhere. Whether it’s asking a friend for a recommendation or using a referral code from your favorite micro-influencer, referrals happen even when we’re not thinking about it. Some of our favorite products we buy come from being referred to us by friends or family, but why do we do that? It turns out there’s a psychological explanation for the effectiveness of a referral program, and even a few tricks you can use to strengthen your own.

Here are the three driving psychological principles behind a referral program.

1. Social proof shows new customers that they can trust you

There’s a reason why certain things are trending in culture today. Whether it’s an old popular song that’s trending on TikTok or a fashion trend that’s making its way back into closets (hello sweatpants), there’s a reason people will always go back to what they’ve done before. Humans are creatures of habit and prefer to do what has already been done before. The more something has been done by others, the more we want to do it ourselves.

A referral program helps you create social proof for future customers in two ways.

1. The more they see people referring your store to others, the more familiar they become with your brand and products. If they think that a large group of people already like and buy from you, they will most likely do it themselves. This is why something grows in popularity and trends.
2. If those referrals come from those already in their social groups (friends, family, colleagues), the power of social proof is even stronger. We all want to be included in a group, especially if that group is close to us.

How to Build the Best Referral Program in 2023

Implementing a world-class referral rewards program gives your customers the incentive they need to start recommending your store to their friends.

2. The more trustworthy the person sharing, the stronger the referral

The key to good referrals is trust and authenticity. The more trustworthy the person is in sharing the link, the more trust you will have in the brand, especially as a first time customer. It is estimated that “92% of consumers worldwide say they trust recommendations from friends and family over all other forms of advertising.” Your circle of influence is the strongest form of community you can build (and have).

If someone is more knowledgeable than us about a topic or subject, we are more likely to take their advice. This also applies to brand recommendations.

This is also the reason why micro-influencers are more influential than mega-influencers with more than 1 million followers. More followers doesn’t necessarily mean more influence. According to Built In, “A micro-influencer has a larger social media presence than the average person, but is smaller than a celebrity, with between 1,000 and 100,000 followers.” Micro-influencers are becoming more influential in providing recommendations and referrals to their community and are often seen as unbiased, even if it’s a paid partnership they’re promoting.

What is a Micro Influencer and do you need one for your brand?

A micro-influencer has fewer followers and takes up more space than an influencer. Learn how to incorporate micro-influencers into your social media strategy.

How can eCommerce brands get started with micro-influencers? Identify your strongest customers who have left reviews. Who are the people who are already engaged with your brand? Find your best customers and build a community with them. When your best customers share your store, their circle of friends and family will trust it.

3. Reciprocity creates a two-way exchange of value

A referral program should reward both the referrer and the person receiving the referral. A referral program that rewards referrals is really a win-win for you and your customers. they bring you a new customer (a win for you) and you reward them with value in your store (a win for them). This is known as the principle of reciprocity.

When asked, many customers are willing to share your business with others. The problem is, very few actually do, and that’s simply because they’re not given a reason to either. Offering a reward for a referral is the best way to encourage action.

You can make customers more likely to refer you to your brand by offering a reward to both the sender and receiver. If a friend tells you to check out a store, you can. If a friend tells you about an amazing new shoe store and they give you a 20% discount, now you’re really interested.

Where Should Customer Referrals Land?

Customer referrals are only valuable if they convert into purchases. Get referrals started on the right foot (or page) with the best referral landing page.

Psychological tips to supercharge your referral program

Everything we’ve talked about up to this point explains how a referral program works from a psychological perspective. The tips below will help you use the mindset of people to get more out of your referral program.

Encourage customer public engagement

Have you ever been obsessed with something and had to tell your friends about it? Maybe it was an amazing restaurant or shop. After you told them to go, did you notice that your attachment to the place increased? Maybe they got your order wrong, but you were more understanding. This behavior is due to the consistency principle.

You can easily make consistency work for you with a referral program. Most referral tools allow you to create a default stock message for your customers to use. When preparing this message, be sure to use statements that create a public commitment. Words like “my” and “I” are central to this commitment. Check out how to create the best referral message with Smile.

Here are some phrases you can try in that message:

• In: love the products [your store].
• Follow up my referral link to get 20% off [your store].

Encourage a public commitment from your customers to not only get more referrals, but to be more loyal to your store and brand.

Customize referral social share message

How to customize the message shared by the referral client

Create a branded referral message

Familiarity breeds love. Be sure to include your logo and name in social referral messages sent by your customers

Even if people don’t click on the links, they’re still exposed to your brand.

It is estimated that there are an average of 4.48 billion people on the social media platform. Brand referrals on social media platforms still work. If you place your logo and brand messages in every common social referral, you get significant and inexpensive brand impressions. Not only that, but you can turn your existing customer base into powerful marketers by building brand awareness for yourself.

Give the recipient a reward

Referred customers are estimated to have a 37% higher retention rate compared to other customers acquired through other marketing channels. A very powerful force in motivating someone’s behavior is to show them what it means to them.

People are willing to refer friends when prompted to do so, and the same goes for those who accept the referral. With referrals, you can guarantee loyal customers, high retention rates and brand recognition. Reward both the sender and receiver to get the most out of your referral program.

Editor’s Note: This post was originally published on March 1, 2018 and was updated on March 17, 2023 for accuracy and comprehensiveness.