Community Is More Important Than Ever For Consumer Brands
Community is more important than ever for consumer brands, but the rules of the game are changing. Many are asking what role human-to-human interaction should play in the age of AI-driven automation.
Forward-looking brands view data and automation advances as a way to amplify the emotional power of human connection rather than replace it. Referral programs that tap into the social relationships of a brand’s most passionate customers are a powerful place to start. Well-executed programs frictionlessly turn high-affinity, logo-wearing customers into a powerful sales channel that lowers CAC (customer acquisition costs) and increases LTV (lifetime value).
According to Peloton's Q3 2021 financial results, referrals accounted for 39% of total Connected Fitness Subscriptions during the quarter. Peloton also reported that members referred to the platform by a friend or family member tend to have higher engagement and retention rates than members who join without a referral.
The best brands keep their referral programs simple and easy to understand. WHOOP’s ‘Refer a Friend’ program is featured prominently in its app, and members are given a Referral Link they can easily share. The reward is simple and generous: ‘Get 1 free month of WHOOP membership for each friend you refer.’
Data is the other key ingredient for successful referral programs. Conversion funnel analytics for referrals should be as robust as those used for checkout and other core eCommerce activities. KPIs are enabled by data that is captured, governed, and structured to answer critical questions:
What % of Invitations convert to Referral Leads?
What % of Referral Leads participate in a Trial?
What % of Referral Trials convert to a Join?
Member segmentation is another data and analytics best practice for referral programs. CDPs (customer data platforms) and data warehouses ideally provide customer-level insights:
What segments yield the most Referral Invitations?
What segments yield the highest Join % conversion?
What segments have >3 Joins in the past 365 days?
Cannibalization and abuse are valid concerns with referrals. Programs can be exploited by friends or out-of-town visitors who want something for free but do not intend to become actual customers or members.
The answer is not to be stingy with rewards. Instead, the solution is to add data-driven guardrails that prevent abuse. For example, offer a reward for each friend that *Joins*, not for each friend that is *Referred*. Better yet, limit rewards to only those friends who hit their *60-Day Anniversary*. Data-enabled guardrails like these will encourage customers to keep their friends motivated and help ensure program incentives align with EBITDA-producing results.
