A New Take on Customer Referral Programs

By Hillary Kelbick

In bank marketing, what’s old can often become new again. Take an idea that stretches way back to the era of free toaster giveaways, one that may now be poised for a major comeback: the customer referral program.

The strategy behind customer referrals is classic and rock-solid. Satisfied customers will always be your best, most trusted advocates. It’s been proven in a number of studies over the years, most notably by the influential Harvard Business Review article, “Why Customer Referrals Can Drive Stunning Profits.” Many financial organizations have remained true believers as well, using them year after year with considerable success. It’s particularly popular among smaller local banks that have built their reputations on personalized service.

But what makes it look like customer referral programs are ready for a wider audience in the banking industry today? There are two key factors at work:

  • A major demographic shift in people’s social attitudes towards their finances
  • The ease and convenience of making referrals digitally

The social shift

Over the years, there has been a slow but steady change in people’s attitudes toward personal privacy—and this shift has accelerated dramatically thanks to the transformative power of apps like Facebook, Instagram and Snapchat. What once was private is now shared among friends—and often, that includes activities with financial overtones like shopping, restaurant choices and vacations.

Today, people can surmise more than ever before about the finances of friends and acquaintances. They’re also more willing to share financial plans and dreams with each other. Which means that each customer’s pool of potential referrals has increased considerably over the years, as has their willingness to broach financial subjects with friends. It’s a one-two punch that makes customer referrals more likely.

The digital shift

These days your website can become a powerful tool for generating customer referrals. In fact, it doesn’t have to be a short-term promotion; it can be a permanent button on your website. Or better still, you can create a simple pop-up that appears occasionally once your customer signs on to your online banking platform. Why not use your digital capabilities to make referrals a simple, spur-of-the-moment decision for customers?

In addition, you can use digital alternatives to eliminate one of the biggest traditional drawbacks to customer referrals: the actual referral process itself. People are justifiably reticent to ask a friend to fill out a paper form that may contain sensitive questions such as age and income range, then hand it back to them. All of this can be handled much more seamlessly and conveniently with proper digital design of referral forms that can be forwarded to the prospect, then directly to the bank.

Three keys to success

If you’re thinking about implementing a referral program, here are a few key elements you need to consider:

  1. Make your brand the hero.

These days there are many off-the-shelf referral programs available, and they can be quite economical and simple to implement. But if you choose one of these programs, make sure it offers a level of customization that lets your own unique brand shine through. If not, commit to creating the referral program yourself. After all, your brand is what you’re selling, and it’s your unique level of service that customers are praising to friends. Do you really want your referral program to look just like the one at the bank down the street?

  1. Choose your reward structure wisely.

When choosing a gift or cash reward, consider that you’re not just positioning yourself against other referral programs in the marketplace. You’re also competing against cash incentive campaigns aimed directly at new customers. Many banks offer a hefty incentive for new customer relationships these days—often in the hundreds of dollars.

You’ll also need to balance the level of your reward with the level of commitment you’re asking. Can new customers open any new account to qualify, or will you require a new primary checking account? Will you also specify minimum balance levels, time commitments or different types of account activity? The bigger the ask, the bigger the reward.

Finally, keep in mind that the vast majority of referral programs these days are structured so that the referrer and friend are both rewarded equally. Dual reward strategies are considered a best practice because they make both parties feel more comfortable with referral process.

  1. Leverage your customer life cycle

While most banks run their customer referrals as bank-wide campaigns for a specific promotional period, another intriguing idea is to run a referral campaign continuously, timing your offer within the customer life-cycle.

For example, a referral offer to all new accountholders within a 30-60 day window can often bring exceptional results because customers are in a honeymoon phase, and a referral becomes a way of validating their own good decision.

Similarly, customers are often most satisfied with their bank at significant financial turning points like closing on a mortgage or paying off a loan. Even the act of paying a month’s worth of bills online with just a few clicks can be a very satisfying moment. These are the times when customers are most likely to feel positive about their bank. Make it part of your marketing agenda to search for those moments and devise ways to make your referral pitch at exactly the right time. You’ll increase your response rates, and perhaps generate a steady stream of new customers year-round.

Hillary Kelbick is president of MKP communications inc., a New York based agency specializing in financial services marketing and merger communications. Email: hillary@mkpteam.com.

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