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I recently debated with a friend over whether ballet was the same as theater. While both are performed on a stage and use similar techniques for storytelling and world-building, the skills are seldom interchangeable.
I think the same can be said for affiliate and referral programs. While someone from the outside might consider them to be, essentially, the same strategy, there are several ways they differ.
Understanding the differences can help your company decide if it's more of a dancer or actor. Either way, using word-of-mouth marketing is a stellar way to bring your audience to their feet.
What is An Affiliate Program?
Before we get too deep into comparisons, we should have a clear understanding of these two strategies. Let’s start with affiliate programs!
Affiliate programs allow companies to partner with individuals or other businesses to promote their products or services. This is done in exchange for a commission or a percentage of the sale.
To understand how this works, let’s take a look at one of the most successful, and longest-lasting affiliate programs around, Amazon.
Amazon’s affiliate program got its start back in 1996 and has grown to be synonymous with the strategy. Here’s a look at the steps involved in setting up this level of affiliate program.
Step One: Create the Program
When they set up the program, they needed to build the behind-the-scenes tech from scratch. Luckily that isn’t the case anymore, as there’s powerful software like ReferralHero to do the heavy lifting for you.
With the tracking system and programs in place, they were able to set commission rates, payment methods, and marketing guidelines. Amazon offers anywhere from 1% to 20% commission for their affiliates, but you can also offer a set rate per lead.
Step Two: Attract Affiliates
It’s time to bring in people to start promoting your brand. Amazon is largely able to do this through its brand recognition and range of products, but you can also offer a great commission rate, know your niche market, and set up discounts and promotions for customers.
Affiliates can come from anywhere, so you might want to look into
- Content Creators
- Other Companies
- Pro Affiliate Marketers
You’ll want to make sure the people representing your brand will fit your image, so there’s usually a vetting process. Amazon does this by asking how exactly affiliates are planning to market their products, and giving them six months to make at least three sales.
Step Three: Affiliate Links
Each affiliate within a program needs a unique link so you can track their progress and ensure they are compensated for their work. Amazon allows affiliates to create their own links for each product they promote.
These links can then be embedded in any promotional materials people use. You’ll need them to have cookies, or time-sensitive trackers. This allows people to get a commission even if a lead takes a few days to think about the purchase.
Amazon’s cookies last 24 hours, but some companies offer cookies for months and months. The difference is how long your conversion pipeline usually takes.
What is a Referral Program?
Referral programs are entirely different beasts, but they do have one primary goal: acquisition.
At their core, referral programs incentivize current customers to refer their friends and family to try a product or service. This can be done through rewards, discounts, or even cash.
Referral programs are a cost-effective marketing strategy that harnesses word-of-mouth and social proof to bring in new, excited customers.
A brand that has used this strategy to grow exponentially is Uber, which has been using referral marketing since its inception. With a focus on dual-sided rewards and easy sharing, they’ve mastered the art of connecting to their users’ networks.
Let’s break down the steps involved in referral marketing.
Step One: Planning The Program
There are a ton of decisions that need to be made before the launch of a referral program, including
- Reward - This could be a discount, free products or services, VIP experiences, or even cold hard cash
- Success Criteria - What counts as a referral? A free trial, a sign-up, a download, a purchase? Are there different rewards for each?
- Back-End Software - How will you be keeping track of everyone’s referrals? You can use software like ReferralHero to avoid costly programming and creation
Uber offers a two-pronged reward, meaning that both the referrer and their friend get credits toward a free ride. Simply signing up was enough to trigger this reward.
As time went on, the reward amount fluctuated, but they never dropped the two-pronged approach. This made it way more enticing for new users to sign up at their friend’s request.
Step Two: Promotion
It’s time to let your customers know about the referral program so they can start bringing in leads and earning rewards! There are so many ways to do this depending on how your company is set up.
You might use
- Website Banners
- Email Campaigns
- Social Media Posts
- Popup Ads
The most important thing is reminding users of the program when they have a positive interaction, like making a purchase. This way they have lots of good things to say to their friends.
Uber uses lots of tactics to remind users to refer. Their newest strategy is baking it into their AI chat feature.
Step Three: Tracking and Rewarding
Each customer will have a unique referral link so you can keep track of who’s bringing in leads. This not only makes it easy for them to share your brand but ensures you can keep up your end of the bargain.
Once they’ve found success, you can start giving them those sweet, sweet rewards. Uber offers a unique code that can instantly be shared from the app through messenger, text, or a social media post. As soon as a sign-up happens, the credits are added to both accounts.
With both affiliate and referral programs now in clear view, we can start to dissect what exactly makes these strategies different.
- Primary Goal - While at first glance it looks as though the end goal of these strategies is the same, affiliate programs are looking for sales, while referral programs are looking for new leads
- Target Audience - Affiliate programs focus on finding influencers, bloggers, and professionals who are in the business of promoting brands. On the other hand, referral programs zero in on existing customers and their networks
- Relationship - The relationship between a company and its affiliates is mainly transactional, as the affiliate doesn’t need any personal connection to the brand. Referral programs act as a way to strengthen existing bonds with customers while simultaneously bringing in new ones
- Payment Structure - Affiliate programs offer commissions and a set payment for each sale. There’s a lot more flexibility with referral programs, as rewards can be anything from VIP perks to store discounts
- Involvement - Successful affiliates will put in the time and energy to actively promote a company’s brand. They often have an in-depth marketing strategy of their own and use multiple channels to bring in more customers. To start referring, customers need only send a link to their network and allow the company to do the rest
Ultimately, affiliates can bring in business without having any connection to a company, but referral programs leverage the positive experiences of your existing customers.
Even so, the connections between these strategies are not unfounded. Several things tie them together.
- Word-of-Mouth Marketing - Instead of using traditional advertisements to reach customers, they use personal recommendations from people audiences trust
- Benefits - Both programs offer benefits to promoters, whether it’s in the form of commissions or rewards, and build social proof for a brand
- Potential for Growth - As affiliates and customers refer more and more people, the reach of the brand can expand rapidly by tapping into individual networks
- Relationship Building - While the relationship between a company and an affiliate may be more transactional, both strategies have the potential to build and strengthen relationships with customers. This can lead to increased loyalty and retention
There’s a lot to be gained from either strategy, and some companies use a combination of both to get the most out of word-of-mouth marketing.
Pros and Cons
While understanding these systems is important, it probably hasn’t brought you any closer to deciding which is best for your business. Let’s break down the pros and cons of each to bring that end goal into view.
- Simplicity - Referral programs are easy for customers to understand and use
- Trust and Credibility - Referrals from satisfied customers boost the credibility of a business, and people trust their networks
- Cost-Effectiveness - Creative rewards can slash the cost of a referral program
- Limited Reach - Referrals are limited to the existing customer base, which may not be extensive at the start
- Lack of Control - Businesses rely on customers' willingness to talk about their experiences and refer others
- Potential Bias - Referrals may be influenced by personal relationships and biases, which can impact the quality and quantity of referrals
- Wide Reach - Professional affiliates have spent years increasing their network size
- Controlled Costs - Expenses are directly tied to sales generated by affiliates, meaning businesses only pay when there are tangible results
- Professional Expertise - Affiliates are often experts in their field, which means they bring knowledge and credibility to the brand
- Complexity - There are often more moving pieces to set up than a referral program
- Competition - Affiliates may promote multiple similar products or services
- Potential Reputation Risk - If an affiliate engages in unethical or spammy practices, it can tarnish a business's reputation. Affiliates need to be vetted and monitored
Ultimately, the decision of which strategy fits your brand comes down to the niche you’re in, the network of customers you’ve built, and how much monitoring and background work you want to put in.
The Bottom Line
Every company wants to tap into the immense power of word-of-mouth marketing, but not every path to the stage is the same.
Your business might be ready to put in the time and effort it takes to become a prima ballerina, or you might have the charisma and connections to play Hamlet. What matters is that you understand the options and are willing to find the strategy that works for you.
Whatever path you choose, affiliate or referral, having the right tools and networks in place will be the key to a standing ovation.
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