It might be hard to imagine now, but before 2009, tapping your phone didn’t usually result in a black car pulling up minutes later to drive you wherever you wanted to go. But in only a few short years, the ride-sharing service Uber has expanded to eight million users, 160,000 drivers, 300 cities, and 45 countries worldwide. The company’s disruptive status in the industry is why some are saying Uber could have a valuation of $70 billion, according to CNN Money, which would put the company’s valuation higher than those of General Motors, Honda, and Ford.
What’s the company’s secret? It might sound too simple, but in Uber’s earlier days, customer referrals played a big hand in the company’s rapid growth. To spread the word on their ride-sharing service, Uber implemented a double-sided incentive program from Day One, which let their customers get credit toward future rides by referring their friends and family. Additionally, the newly referred customer also received credit, meaning both parties benefitted—so long as the newly referred customer took their first ride.
The program is low-risk to Uber, since discounts are only redeemable once both parties participate. In the beginning, the amount of this credit was $10 to each party, but depending on the location, the amount today can be as much as $30 to each party, per referral. That’s a pretty enticing deal for newbies and Uber veterans alike.
It’s easy to see that Uber’s business mission to “disrupt” the industry is what makes it stand apart—and its customer referral program helped the company spread brand awareness quickly early on. Even if your company’s mission isn’t as innovative for your industry, there are still ways of learning from a successful business case study like Uber. Below are four factors to keep in mind when trying to duplicate Uber’s referral program:
When each member has their own custom referral code or unique URL to share via email, Facebook, or Twitter, it streamlines the referral process. A custom referral code also makes it extremely easy to track, quantify, and identify your most active customers.
Uber’s double-sided referral program works better than the standard referral program because, simply, both parties benefit. Just take a look at Hulu Plus: they started off with a single-sided program but quickly changed their strategy to double-sided after “experiencing less-than-satisfactory results,” writes LemonStand, which advertises itself as a blog for eCommerce professionals. Now, Hulu Plus gives two weeks of free video streaming service to the referrer and the newly referred customer.
Aside from the monetary incentives associated with the referral, customers also get a “social credit,” explains Referral SaaSquatch:
“Whether it’s building a personal friendship or business connection, this referral mechanism works because it’s not one-sided. Both of us are receiving something of value and more than likely I’m going to remember it next time you need a favor.”
Additionally, a double-sided program lets customers feel good about themselves, because not only have they benefitted from their word-of-mouth support for your business, they’ve also benefitted for their friends and family. No one feels like they’re taking advantage of anyone else.
If you want to encourage customers to become evangelists for your business, consider an invite-only beta system period, which lets you really get to know your customers and create brand awareness. The process requires relatively low upfront costs with potentially big rewards, so there’s little reason not to do it if your business model fits.
It’s not a good idea to set a limit on how much credit customers can earn, but new businesses should keep in mind that no matter how fast you want to go, it’s best not to grow too fast. According to this Harvard Business Review article, “high growth can easily overwhelm the internal controls of a small enterprise.” For instance, as more customers receive credit and orders pour in, you might be challenged to meet all of those orders. As a result, it might also be difficult to offer the highest level of customer service so crucial in those early days. And finally, “rapid growth frequently put margins under pressure as the company tries to keep customers happy with such services as faster fulfillment and generous payment terms.”
Almost every business has offered some kind of reward program ever since the inception of loyalty programs about 100 years ago. Between 2008 and 2012, loyalty memberships in the U.S. increased by 10%, according to Business Insider. The bottom line is that, yes, your product or service has to be good to get the coveted, highly effective word-of-mouth advertisement, but some kind of win-win situation can also help encourage customers to become evangelists for your business.
In Uber’s double-sided incentive program, customers are incentivized for their referrals and new customers are nudged to give your business a try. In those earlier days, the more awareness you spread about your business, the more excitement you build around your product. And that rapid big-time ride might be exactly what’s needed to get a market valuation of billions.