A properly chosen reward is at the core of any successful referral program. But not all rewards are made equal. While some can make your customers promote you with an almost worrisome zeal, other might downright offend them. A reward that will make your customer fall in love with your referral program must possess 3 qualities: it must be valuable, relevant and attainable.
Valuable means the customer must perceive the reward as having significant value. This one is rather obvious.
Relevant means that what you offer as a reward must bear some connection to the relationship between customer and the business. For example, a motorcycle gear shop might offer a master class with a racing star as a reward and it would be very relevant. While the same reward offered by, say, a jewelery shop will generate zero response. This is also why cash rewards, while obviously valuable, almost never produce satisfactory results.
Attainable means that the customer must perceive their chance of receiving the reward as non-zero (the higher the better). Regardless of how valuable a reward might be, if it appears to be impossible to score, nobody will participate. A rather common mistake, for instance, is requiring too many referrals for a reward to be given, e.g. “Refer 20 friends to us to receive X”. It’s entirely obvious to anyone that recruiting 20 new customers for you is far beyond their reach. By the way, respecting your customer’s intelligence is a great business practice all around.
The main difficulty in designing referral program rules stems from the perception that the requirements for high value and attainability are in conflict with the need to keep the cost for the business sufficiently low. One might get an impression that a referral program with a valuable and attainable reward is by definition costly. In some cases this is true and care needs to be taken to find a proper balance that turns a positive ROI on the campaign. But more often then not a much better solution can be found once you realize that these desired qualities are perceived rather than absolute.
“Value” above, for example, refers only to the need your specific customer has at a specific point in time and not to some objective market value or even (and especially) the cost of the reward to you. In many situations digital goods or services that have essentially zero marginal cost can be used as reward with great success.
Similarly, attainability is much more about the perception than it’s about the actual numbers. For example, adding a small but guaranteed reward to an otherwise chance-based contest can boost the participation rate significantly.