Referrals: Back then, today & in the future
A brief history of referrals
Going back in time
Let’s take a look at ancient times, where we used to live as a community, we invented fire and eventually built houses. Do you think these were possible by a single person? Or did they teach one another and eventually grow?
Let’s take an example. Someone stumbled upon a wildfire. While this was scary at first, fire helped in cooking meat, which was far more delicious and nutritious than raw meat. Further, rubbing two stones together resulted in the creation of fire! This fire provided warmth, light and the ability to cook food. Similarly, the idea of the wheel was conceptualized by seeing a stone roll down a hill. These could be used to travel from one place to another. The sight of an intimidating animal was shared amongst villagers. They told each other to be aware and be cautious. These discoveries were repeatedly shared amongst close ones over centuries. The common thread amongst these discoveries was that over time, words from close ones were valued due to a trust factor.
This word of mouth may have marked the beginning of referrals. Referrals encourage people to talk about the good and bad experiences of a product or service. This trust factor is used to encourage users to try a product. If we have a good experience, we are wired intuitively to tell our circles about it. This is because we want our family and friends to enjoy the great things that we’ve experienced. Similarly, if we have had an unpleasant experience, we share this as well, as this is the best way to avoid pain and frustration.
By learning from other people’s mistakes, we learn how to avoid those mistakes. Let’s see how this ancient idea is used by many tech giants and companies today!
History of employee referral
Have you ever thought about when and how an employee referral came into being? It was around the 4th century BC where there were a lot of jobs to be filled in the Roman army even though there weren’t enough candidates and many of them were poorly qualified. It is believed that the first employee referral was done by Julius Caesar, where he offered 300 Sestertii to any soldier recruiting another into the Roman army. The reward was almost one-third of a soldier’s annual pay.
This is the earliest documented story of referral bonuses in the history of the world. Even though people knew the risk of these jobs but having the opinion of an experienced friend increased the trust of the person. So we could say that the psychology of referral may have existed since 400 BC. And since then, many companies have used it effectively to onboard users onto their platform.
Why do we refer employees? So that we get people that we know and people we think are fit for the organization’s culture. It also reduces the effort of the company management to search and hire suitable employees. Sometimes the person who is referred might get some benefits as well.
As time flies, the core concept of referral remains the same but it is transformed from one form to another. We could see different types of referrals based on the target audience. Some referrals may include rewards and benefits and some might not. The one thing we can all agree on is referral increases the trust factor of a particular product or service. That’s one of the main reasons why everyone likes to refer or be referred to. The truth is you could find referrals everywhere. It is in the air!
Referrals are in the air
As we saw in ancient times, referrals are not something that we can limit in digital products such as apps, websites, etc. Having a positive opinion of a friend/family on a particular product will help others to understand more about the product. And referral is not only for products. When a student goes to a school or college, people seek the review of the seniors or the alumni of those institutes. Also having a referral from the alumni or seniors sometimes helps the students to get into the college. Referral also plays a major role in industries like politics, films, etc.
Consider a situation where a student is searching for a college for higher studies. The first thing we do is to search on Google and find more information about the college, but we won’t be satisfied with that Google search. We need to know the opinion of the people who went there before but we won’t put a lot of trust in the opinions of unknown alumni members of the college, we try and seek the review of people close to us.
The same thing is applicable when we use any product or service. If someone says good things about a particular app, we are more likely to give it a shot. Also, if there are rewards involved in the program, where both parties will get some rewards on referrals, most of us would be willing to try it.
Companies invest a large amount in referral programs mainly for customer acquisition. They need to onboard as many people as possible to the platform, and that too at a fast pace. One of the ways they are achieving this is through referral programs. You can see “Invite and earn”, or “Tell a friend” options in most of the apps. Some referrals will give you benefits, and some may not. But all companies try to sell their USP through referrals.
My experience with referrals in digital products
The easiest way to increase the number of users on a platform is to encourage referrals. Let’s take a look at a few examples:
- Example 1: How I found out Gpay
Friend: “Hey bro, I found this app to simplify making payments by inviting someone! Both of us can get ₹50! Want to try?”
Me: “Sure, let’s try it out!”
- Example 2: How I joined Clubhouse
Friend: “Bro, there is this app called Clubhouse. But it seems to be an invite-only app, do you want to join ?”
Me: “Yeah, I’ve been desperate to join it, send me an invite!”
- Example 3: How I used Jupiter money
Initially, when Jupiter money launched, I really wanted to use the platform. But I was on the waiting list. I could improve my waiting list position by referring someone, thus giving me access to the app.
- Example 4: How I joined Dribbble
I came to know about Dribbble through some design communities but again, needed an invite onto the platform. So I reached out to some friends who could invite me.
To sum up
Just like myself, I could see many people facing FOMO (Fear Of Missing Out). Most people either want to stand out or join the trend. That ‘Fear Of Missing Out’ urged them to try different products so that they also discovered what the hype was about. Apart from FOMO, users need the best experience with a product or service. Getting positive feedback from their close friends might convince them to get onboarded onto a platform. The point to keep in mind is that most of the referrals only onboard the user onto the platform and the customer retention depends on how well the apps can give the experience to the user.
Some platforms use referral to maintain their standards, that is only people who are part of the platform can refer others. Companies are also using referrals to create scarcity and demand for their product. Referrals help to build trust for the product and increase the pace of customer acquisition. Many companies use different types of referrals depending on their USP (Unique Selling Proposition) and business.
Here we saw how referrals play an important role in our daily lives. To understand different types of referrals, keep watching this space.
Thank you, Lavanya Gopalaswamy, Kshitij Pandey, Aakansha Menon, Ramakrishna Venkatesan, and Anoop Sethumadhavan for the constant support and feedback for this blog.
