We’ve all had those moments and that day was his.  He told me about how he was going over his goals with the CEO and you could hear in his inflection that what he really wanted to say was, “April Fools, right?” But the growth he might have pulled in three extra headcount for in the past is something that became his goal for the upcoming six months.

“So how do you propose we grow our program?” he asked.  Brute force using mass media was out of the question given the budget constraints.  He wanted to leverage the channels they’d built through their blogs and email marketing.

“How is your program currently generating customer referrals?” I asked.  “No cost marketing, I like it and we do get more than a few referrals.”

Most companies get referrals from their existing customers and his was no different.  But he added, “I think there’s more we can do to get customers signing up their friends.  Most of what we do today isn’t formal, we have a great program and they tell their friends.”

The challenge with this approach was: because there’s no call-to-action, his company has left it to chance that the customer will come up with the idea of referring a friend.

“They might not know you’re looking for referrals, or they’re busy, or —” and I paused for a second.

“One of my friends has this knack for picking the worst restaurants.  One time, a place brought all of us a platter of rice that smelled and tasted like kerosene.  We sent back the rice three times before the owner came to our table, hands in the air, protesting that he didn’t smell or taste anything wrong.  We all looked at each other, settled on getting some flat bread instead, and we haven’t let my friend live it down to this day.”

“You’re obviously not saying our program is like kerosene rice…”

“Of course not, here’s the deal: we had to have been to at least a dozen good restaurants my friend’s recommended.  But after a funny story or two, he’s now got a reputation for referring us to bad restaurants.  For you, everyone knows they take a chance when they make a referral.”

“So step one is not making them look bad.”

“Right.  The next step is getting them to overcome both their inertia and the risk they take, no matter how small.”  So we went through a few of the most popular types of referral programs.

We talked about a typical affiliate referral system where a customer gets a reward or percentage for referring another person or business.  Usually this is done with a referral code embedded in a link, from a website, blog or email campaign.  That code identifies the referrer and lets your system know that a referral needs to be credited.

“The best practice here is to give both the referrer and the referral some sort of reward.  If you only reward the referrer, then it looks like that person is trying to make a sale.  If you only reward the referral, then the referrer doesn’t have a personal incentive to refer you.”  I’ve summarized the basics; there are more nuances from this word-of-mouth communication study.

The reward doesn’t always have to be monetary, though.  “You have a program where people can show how successful they’ve been using your methodology.  Many folks would be proud to share how successful they’ve been with others as part of a community, not just people they know but others who ask about your program.  It’s similar to what I’ve done for a number of software companies that want to reward people who extend their platforms.”

“The key is to lower the barriers to entry.  Make it easy.”

A referral program can spread like wildfire if the offer is strong and easy to communicate.   “So we can leverage what we’ve done on the blog and email marketing?”  It’s not difficult to automatically generate links from a blog, web publisher, or its landing pages that pass the referral code needed for this type of program.

And email marketing systems often give you the ability to embed a specific code for each person who receives your email; that code would be the referral link needed to credit both the referrer and referral.

The technology provides automation to make getting referrals easier and more scalable.  The same technology can be used to create stronger and more profitable relationships with the customers who will be providing you referrals, and influence your prospects to move from ‘maybe’ to ‘yes’.

She brought the pile of flyers she got that day to our meeting.  “I get one of these stacks every day”, she said in exasperation.  It wasn’t that she didn’t like having to sort through piles to get to the mail she really wanted to read.  And though I noticed she put her can of Diet Dr. Pepper into the recycling bin, we’d never talked about saving the environment or greener marketing per se.

“The price of postage is going up and it isn’t any cheaper to send my flyers out than it was ten years ago.  What gives with that?  Now I need to send out a more colorful, better quality flyer to get the same attention I got before.  And it’s costing me $1.46 a piece.”

Cost is one thing and I knew she had a Rolodex of over 1,000 strong, but if it was producing good ROI, it wouldn’t be an issue.  “Do you know how many folks are reading your newsletter?” I asked.

“Couldn’t tell you, I know they end up in a pile like this.”  One of the clever things she did was hide a couple random names from her subscription list in the flyer she sent.  If that person called in, they’d win a prize.  Even so, there’d be a few months back-to-back where she didn’t get a call from any of the names she dropped.

“What if you always knew which people were reading your newsletters?” I asked.  Her posture perked up a bit and I followed up, “And that buck-forty-six you spend per shot doesn’t end up in a landfill?”

Like most people, she knew about email marketing and the huge cost differential between sending one email and sending a newsletter.  She’d also heard about the ability to see which people had opened the email, track who clicked through, and send messages automatically.

“You can also choose different follow up messages too.”  We talked about how she wanted to reward people who read her messages and that she could send a better offer by email automatically to people who clicked on a message than ones who didn’t.  Or she could send a gentle reminder message to people who didn’t open her last newsletter email.

“Different offers?”

“Different offers, I have another customer who segments his list by product lines and sends an email to upsell his other products based not only on what they’ve bought in the past but how they’ve responded to other offers.  They use their email to send folks to their website with a special referral code.  That way they can keep their emails short enough to scan quickly, draw interested people to their landing pages for more information, and hone their landing pages to get a higher conversion ratio.”

She calculated the thousand or so greenbacks she’d save by going to greener marketing and how she’d get more tools for better personalizing her marketing towards her Rolodex.

“All this for not sending more flyers to the landfill?” she asked.  “This is just the beginning.  The next step is for you to turn your customers into your evangelists.”

In this article:

• Creating a community of evangelists
• Integrating online and offline community activities
• What every business can learn from a Christmas toy drive

Let’s not call them “virtual” communities anymore.  The people interact, they speak with passion, many create friendships, and their strength together can create action both offline and online.

Virtual communities are real communities built online.

And in a time when many more people are in need, online communities are calling people to action in the real world in ways that are faster and more effective than just traditional word-of-mouth, speaking engagements and mailers.

Case in point, the vibrant online community at Willow Glen 2.0, which is made up of over 500 residents of this San Jose suburb (total population 46,782) has called its supporters to action for the local Toys for Tots drive at the Garden Theatre in downtown Willow Glen.

This community has done what many businesses that have opened online communities haven’t been able to do: succeed.  The fact is, according to Deloitte’s Ed Moran as published in the Wall Street Journal, most online communities fail.  And the main reason cited is that “businesses are focusing on the value an online community can provide to themselves, not the community.”

For Oracle, in the early part of this century, I started one of their first online communities and signed up members from over 5,000 companies around the world without an extensive budget in marketing or technology.

I’ll talk about some of the approaches we used and the lessons we learned that contributed to our success — and how all businesses can learn a thing or two from the integrated marketing done by in Willow Glen 2.0.

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In this article:

• Determining the lifetime value of a customer
• Choosing the right customers to focus on
• Developing higher value customer relationships (CARLA)
• Building an effective referral system

Earning the business of a new customer is six to seven times more expensive than retaining an existing one according to Bain & Company director emeritus and author of The Loyalty Effect, Frederick Richheld.  So it makes sense to focus marketing efforts, not only on new customer acquisition, but also on increasing the lifetime value of your existing customers.
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