The psychology behind referral systems

The psychology behind referral systems

read on rasmus.beehiiv.com

What's up, allies and acquaintances?

Today at a glance:

• product-centric referrals

The power of a referral system

Referrals are one of the most valuable forms of advertising and the core reason for it lies in the psychological triggers that they usually take advantage of.

Product-led referrals and their high effectiveness tap into two of the main principles also laid out in Robert Cialdini's "Influence: The Psychology of Persuasion":

• Social Proof - we use other people's actions as evidence and an assumption of something being good, or right to do. If a friend of yours shares a new tool, product, or game with you, you're more inclined to like it right off the bat and are more receptive to learning more about it.

• Reciprocity - this principle states that we should give back to the person who gave us something. Humans are more likely to give after they have received. Double-sided referrals give both sides a benefit and it taps straight into the reciprocity principle.

Examples of both in action:

If you've been to busy streets in cities and seen some uncannily long rows of people standing in line to buy something common (like pastries). There's a possibility that the bakery is a local hit, but it may well be that a small line of people may have grown into a big one for one psychological reason: social proof.

The row gets longer because others walking by think it's something extraordinarily good as there's a line, so they join the line. People are drawn to what others already like or have vouched for.

We recently visited a Lindt chocolate store in Spain. An employee immediately approached us with a bowl of different Lindt chocolates for us to try, for free! We happily tested some of the chocolates that she gave us for free, and of course, we purchased a bag.

We were subconsciously more inclined to purchase because of the reciprocity principle. Give people something for free and they're more incentivized to give you something back (or buy your products).

I strongly feel that these are the two main reasons why referrals work that well in so many different organizations and everyone should at least try out referral systems.

👍 Do make referral systems product-led where users have to use or get acquainted with the product being referred to. Make the referral bonuses product-related (e.g. bonus features or free subscriptions).

👎 Do not focus on monetary rewards alone in your referral system you'll just attract people interested in quick money, not the product itself (more on that in the next newsletter). You'll end up building a stale user base.

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Jamming Zone

New year, new me! Ugh, not that again, right!? Nevertheless, I took on a challenge to complete middle splits by end of January. I've been stretching for 10 minutes each morning and evening and turns out, it's really relaxing and feels very "meditative". I'll let you know if I achieve it. 🙆‍♂️

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