Word-of-mouth, referral marketing continues to be one of the most effective ways for brands to grow their business. After all, who better can a prospective customer trust than a happy, existing customer willing to share a positive experience?

While many people are happy to provide recommendations with no expectation of compensation, offering your customers an incentive to refer their friends and family can be a good reminder to talk more about your brand, all while getting something valuable in return.

What is a peer-to-peer referral program?

Peer-to-peer marketing is where your current or previous customers promote your business by sharing their experiences with people they know. 

It’s one of the oldest forms of marketing there is — even the proliferation of digital marketing hasn’t lessened this. In fact, it’s only grown the influence that peer-to-peer referrals have had on business as a whole.

Customer reviews, testimonials, and positive social media posts are all examples of organic peer-to-peer marketing that naturally happens when people share their experiences online. But a dedicated peer-to-peer referral program can be a lucrative way for brands to leverage existing goodwill among customers and thanking them for their support, while incentivizing them to continue spreading the word about the brand and their products.

How do peer-to-peer referral programs work?

Unlike brand loyalty programs, where customers receive compensation or perks for being a customer themselves, peer-to-peer referral programs offer benefits for both the existing customer and the incoming customer.

When someone sends their referral link to a friend or family member, the new customer will typically receive money off their first purchase with the brand. As a thank-you to the customer who referred them, brands will then give the existing customer a free product or discount toward the product after a fixed number of referrals.

This approach is commonly used with retailers, like swimwear company Monday Swimwear. Their current offer for customer referrals is $15 off a new customer’s first order of $60 or more, while getting $15 in credit to your account as a referring customer when friends or family make a purchase.

Similarly, athletic equipment brand Peloton offers existing customers a $100 credit to their online apparel store when they refer a friend who goes on to purchase either a bike or treadmill. The more expensive the product, the more generous the customer reward should be. .

Referral programs are effective because of simple human psychology — we’re more likely to trust a personal recommendation than mass advertising. And when our friends have something that we might have been considering buying, we naturally feel more inclined to make a purchase too. Social proof plus authority is a powerful combination.

Peer-to-peer referral programs are also an important part of reciprocity between brands and their customers. Happy customers are always beneficial to a brand, so rewarding them when they didn’t expect it adds even more positive feelings to the customer’s experience with your brand. Ultimately, the amount of money “lost” on free or discounted products sent as referrals is significantly smaller than the increase in sales revenue that these programs generate. 

Percent of and peer-referred programs: what’s the difference?

Affiliate programs, or “percentage of” referrals, are another type of referral program that often happens peer to peer, but can also be used more broadly with influencer marketing campaigns. These programs usually work on a commission basis, where the customer or influencer receives a percentage of the final sale if someone buys a product via their affiliate link.

While affiliates are usually customers of the brand, this isn’t always the case. Affiliate links can be created exclusively for use in influencer marketing, where the influencer shares their code or link directly with followers. A peer-to-peer referral program usually results in specific rewards for both customers, rather than a fixed commission.

Percent of affiliate programs are also easier for brands to manage in a more formal way, particularly as part of brand partnerships and influencer campaigns. Where peer referrals are usually an option available for every customer who purchases from the brand, percent of affiliates are more selective and used with only approved individuals or other business. 

Brands making referrals work for them

Beverage company OLIPOP uses both affiliates and peer referral programs. Their refer a friend program currently offers new customers $15 off their first order, with a $15 credit for the referring person. Existing customers can continue to accrue credits until they have enough for a free case of drinks, or add them as credit to their next order. 

On the affiliate side, the brand offers up to a 20% payout, coupon codes to share with followers, and samples for select partners for affiliates, social media influencers, and creators who partner with them and are looking to earn a more consistent income via the affiliate program and the content they share online.

It’s not only retailers, though, who have seen success using peer-to-peer referral programs. Money management brand Betterment also uses a referral program that helps customers lower their investment management fees. These fees can quickly add up, so this is an enticing offer for those who want to benefit from the current investment plans they already have within the platform. 

Use your current customers to bring in more business

Recommendations for brands work for a good reason and have for as long as businesses have been marketing themselves. By rewarding customers with unexpected perks, you can make them more likely to share your brand with others in their network. And when you reward both existing and incoming customers, you’ll get the most out of your peer-to-peer referral program and continue to expand your reach through a happy, loyal audience.