What is a referral program?
A referral program is a marketing tool whereby you reward your customer when they bring in a new customer. The reward can be a discount on the next purchase, a free product, loyalty points — you name it. The core idea is to harness the power of a real person recommending your brand to someone they know. There are very few things as powerful as that.
Why are they effective?
Because a referral is an actual person telling another actual person that they like product or service X and recommend it to someone they know. It's a highly effective way of getting your message out through someone the new customer can relate to and trust.
Limitations
As with most things in marketing, there's no single silver bullet. In the case of referral programs, the main limitation is reach. Even great referral programs rarely take you all the way to your customer acquisition goals on their own.
What is an affiliate program?
An affiliate program is essentially performance-based media buying. You purchase placements on various online media to attract customers to your store or service. The key difference from programmatic media buying is how you pay: in affiliate, you pay for leads (CPL) or sales (CPS) — i.e., you pay for performance.
Why are they effective?
Affiliate programs can reach a much broader audience than referral programs by paying only for actual results. You combine performance-based marketing (you pay only for results) with branding (you're visible to a larger audience). And the more you pay affiliates, the more you're making in sales.
Limitations
Simply launching an affiliate program with a network and expecting it to run itself may not deliver the best results. The network's incentive is to maximise your costs and use any means necessary to generate — or appear to generate — a sale. This may not serve your long-term interests.
This problem can be solved by in-housing your affiliate program with a trusted partner and building it together for long-term profitable results.
The winning strategy: run both
Both referral programs and affiliate programs are tools in your marketing mix, to be used in different ways depending on what you want to achieve.
The recommended approach is to run both simultaneously. If you're running your affiliate program in-house with a trusted partner, there's no reason not to stack a referral program on top — for example, having affiliate marketing drive high-quality converting traffic to your store, which then turns the customer into a brand ambassador.
GrowthLift has successfully deployed this dual approach with many partners. The key to success: a clear strategy on what you want to achieve, clear communication with your partners, and steady execution from the ground up.
