Affiliate program? Referral program? ..or both?
In this article we’ll look at various strategies on getting new customers and retaining them. I will go through a couple of classic methods, analyse these with their strengths and weaknesses, and then try to conclude how best to use these methods. So, on today’s menu we have referral programs and affiliate programs (note that I do not say “Referral VS. Affiliate” 😉 ).
What is a referral program?
A referral program in all its simplicity is a marketing tool whereby you award your customer when they bring in a new customer.
How do they work?
They work quite simply by having a program where you reward someone for getting you a new customer. The reward can be a discount on the next purchase, a free product, you name it. The main idea is to harness the power of a person giving a recommendation to someone they know. There are only few things as powerful as that.
Why are they good?
Simply put, because a referral is an actual person telling another actual person that they like product/service X and thus recommend it to someone they know. It is a very effective way of getting your message out there by someone who the new customers can relate to and trust.
As in most things in marketing (and life in general to be honest), there simply is no one silver bullet. You have a set of tools, and it is up to you how and when to use them. In the case of referral programs one of the main weaknesses would be reach. Sure enough, we have many great examples of referral programs that work and have great reach, but to get your message and product/service out to all potential customers, simply relying on referrals will seldom take you the whole way.
What is an affiliate program?
An affiliate program is quite simply media buying. You purchase spots on various online media to get customers to your webstore/service where they purchase something. The main difference between affiliate programs and say programmatic media buying is how you pay for the traffic: In media buying you normally pay for clicks or impressions, whereas in affiliate programs you normally pay for leads (CPL) or sales (CPS) or some form of hybrid of these, so you are paying for performance where performance is defined as a lead or sale.
How do they work?
There are various methods of running an affiliate program. The classical style of doing so is through an affiliate network where you sign up as an advertiser and tell the affiliate network to do their magic and bring you sales.
Why are they good?
Affiliate programs can be incredibly effective tools to get your message out to a broader audience than in referral programs by paying for actual results. This means that you combine performance-based marketing (you are paying for results!) and branding (you are seen by a larger audience). On top of that you normally only pay for actual sales/leads that the affiliates deliver, so the more you pay affiliates, the more you are making in sales.
What are the weaknesses?
Simple right? Well yes! …but no.
Simply launching an affiliate program with an affiliate network and then thinking it will fly on its own might not always bring the best results. “Why is that?!” you may ask since you are only paying for results. Well, the incentive for the network is to maximise your costs and use any means necessary to bring, or at least seem to bring, you a sale. This might not always end up being the best long-term strategy for you and your business for obvious reasons.
This problem with affiliate programs can, however, be tackled fairly easily. How? By in-housing your affiliate program with a partner that you trust, and then building it together with them to achieve long-term profitable results. I examined this closer in a previous blog text, so please feel free to check it out if you haven’t already.
So, by now we’ve quickly gone through both concepts and found both pros and cons in both. As you can see by now, both are tools in your marketing mix and can be used differently depending on what you want to achieve.
I personally recommend using both approaches. If you are running your affiliate program in-house together with a trusted partner, I would not even shy away from using both simultaneously where e.g., the affiliate program runs high-quality converting traffic to your store that then turns the customer into an ambassador. We have done so successfully with many of our partners and will be happy to do the same with you.
The key to success here is to have a clear strategy on what it is you want to achieve, to communicate that clearly with your partners, and to build it steadily from the ground up. Remember! No silver bullets exist, and one tool cannot solve all your challenges. We will, however, be happy to discuss the tools at your disposal and how to use them best. Let’s talk!