Types of Referral Rewards and How to Choose the Best One

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A Nielson study revealed that 92% of global consumers trust recommendations more than advertisements.

But how do you motivate your customers or supporters to promote your products in their network? By offering personalized and exciting referral rewards for all their efforts. 

In this blog, we will explain the different types of referral rewards. Plus we’ll share examples of the best referral programs run by ecommerce stores.

What are referral rewards?

Referral rewards are incentives brands offer to their affiliates for successfully promoting their products. For example, a brand could give its affiliates 5 points for every customer they refer. The goal here is to encourage participants to help bring in new business through personal recommendations.

Here's what a referral process looks like -

• You share a unique referral code or link with the program participants or your satisfied customers.
• They promote your products and encourage their friends and family or followers on social media or other marketing channels to buy using that unique referral link.
• The referred friend gets the discount for their first purchase. The referee gets rewarded.

From expanding your existing customer base and tapping into new markets to improving your brand's customer loyalty, thoughtfully implementing referral program rewards can offer multiple benefits:

• Referral rewards reduce customer acquisition costs and increase profit margins.
• Referral rewards incentivize customers to spread the word about your products in front of potential customers, which in turn improves your conversion rate. 
• Personalized referral rewards create a sense of appreciation, fostering satisfaction, boosting brand loyalty, and increasing retention as well as repeat purchase rates.
• Attractive rewards bring in more brand advocates, leading to exponential growth and maximizing the real value of referral programs.

Types of referral rewards

Your reward program has to be relevant and exciting for your customers. Here are some primary types of referral rewards you can choose from: 

Amount discount

Some brands offer specific discounts as referral rewards. Whenever a referred customer buys something from your store, the referrer gets a set amount off on their next order. Such rewards are often offered as discount coupons, exclusive discount codes, and gift cards.

For example, mattress brand Leesa offers a $50 discount to brand advocates for referring their products to peers. To make it even more appealing, the referred customer also gets a $75 discount on their first order.  

Discounts incentivize the referrer to make future purchases. Unlike cash rewards, which may not directly bring the customer back, this reward encourages further engagement, increases LTV, and boosts customer retention. 

Free products or samples

Who doesn’t love gifts? When your loyal advocates get free products, it feels like a thoughtful gift from their favorite brand. Such incentives create excitement, encouraging more word-of-mouth. Moreover, free samples let them try new products before committing, generating trust and continuous sales. 

This type of referral reward is mostly prevalent among businesses with refer-a-friend programs, such as skincare, grooming, makeup, and food brands.

For example, Men’s grooming company Harry’s offers free products and services as a referral reward option. 

The key to nailing this referral reward is to balance the sample’s relevancy to the referrer and its cost. You must offer products that align with the brand advocate’s preferences and purchasing patterns. However. It’s important to make sure the reward is relatively inexpensive and fits your profit margins. 

Percentage off

In this structure, ecommerce brands offer a specific percentage off on the total purchase value of the product. For instance, for every sale your referrer gets you, you can reward them with 5% off on their next purchase. The percentage can be customized as per your brand requirements and budget. 

Free shipping

Some brands don't want to give a discount on the total value of the product. So instead, they can reward their referrers with free shipping as well.

Tiered rewards

Tiered referral rewards are structures in which the value of the reward increases as the referrer refers more people and reaches specific milestones. This format creates a sense of achievement, encouraging customers to continue participating in the program.

Such rewards are divided into different levels or "tiers." For example, an affiliate might get a small reward for their first referral, but the reward increases in size or quality after referring five, ten, or more people. In short, reaching each referral milestone unlocks higher rewards.

This is what a tiered referral reward structure may look like: 

Tier 1: Refer 1 friend, and get a 5% discount on your next purchase.

Tier 2: Refer 5 friends, and get a 10% discount on your next purchase.

Tier 3: Refer 10 friends, and get a free product sent to you.

Factors to consider when you're choosing referral rewards for your program 

There is no lack of options when it comes to designing referral rewards. But you can’t just choose one blindly and expect it to impress your participants. To do that, here are some factors you must keep in mind: 

1. Customer preferences

Your rewards will motivate loyal customers to refer your brand only when it resonates with them. Some may prefer discount rewards, while others might value free products, or free shipping. So, tap into your buyer profiles to understand what motivates them, analyze their purchasing history and tailor your rewards to get better results.

2. Profit margins

Referral marketing is one of the best strategies to acquire customers for ecommerce stores. However, it's not very useful if the cost of running your program outweighs your ROI. 

So it's important that you keep a close eye on the amount you're spending on your referral rewards. This includes the discounts, the cost of free gifts, and the shipping costs that you're bearing to get new customers. Balance the reward cost with the sales value the referrals generate.

Consider using a tiered reward system where the most engaged referrers receive the most valuable rewards. And the ones who don't contribute to your sales consistently, receive less value rewards. So you'll be able to motivate people while maintaining your profit margins. 

3. Brand alignment

Referral rewards should reflect your brand’s identity. That way, they reinforce your brand’s messaging and core values consistently, building a stronger, more recognizable brand image.

For example, a luxury brand offering exclusive product samples maintains its image of exclusivity and quality. On the other hand, a budget-friendly brand might focus on practical, cost-effective rewards like store credits and discount coupons.  

Best referral program examples of brands nailing their referral rewards

Referral rewards have to be innovative enough to differentiate your brand from competitors while offering enough relevant value to the customers — and it may seem like a complicated process at first. 

To inspire you and get those creative juices flowing, here are 3 successful referral programs examples where the brand aligned their referral campaign with their marketing strategy and got them the results they're looking for:

1. HexClad 

Cookware brand HexClad has an exceptional customer referral program with rewards that drive excitement, increase motivation, and get the participants hooked with a tiered system. 

While most cookware brands in the market offer generic discounts, HexClad offers free gifts as rewards to its brand advocates. This gives them an edge, attracting more participants. The referrers keep promoting products to unlock higher tiers, boosting customer acquisition and sales. 

Hexclad offers an additional $100 product for free whenever someone buys something using referral links. This strategy taps into the advocate’s sense of fraternity, showing exactly how their referrals are beneficial for their friends as well. 

These strategies drove exponential results. Within the first 90 days of implementation, Hexclad saw: 

• Over $450K in revenue
• 92X ROI
• 17% increase in AOV for referred customers

They built the perfect referral rewards that resonated with their audience, fit their brand image, and created differentiation with Rivo (a referral program software).

They opted for our smart referral links, Klaviyo and Replo integration, and custom referral emails to streamline link generation and transparent communication. Hexclas also prevented referral fraud using our fraud protection tools. Moreover, Rivo’s industry-best referral analytics kept them on track with accurate KPI monitoring. 

2. Casper

Casper, an ecommerce brand selling sleeping products, runs a simple but effective referral program.

Once a customer refers the brand to a friend, the friend receives 25% off on ordering a mattress through the referral link. Once the order is confirmed, the referrer receives a $75 Amazon gift card. Customers can also earn cash rewards by referring Casper Pillows to peers. 

Casper’s program is an excellent example of how you can combine different rewards to make referrals more exciting and engaging. The rules are easy to understand, motivating customers to join in quickly. 

3. Frank and Oak

Menswear brand Frank and Oak combined the appeal of discounts with the excitement of collecting reward points in their referral program. 

When a customer refers Frank and Oak’s products to their peers, the referee gets a $15 discount on their first order, while the referrer receives $15 worth of Frank’s Club points. They can collect and redeem these reward points in the ecommerce store.  

Conclusion

By now, we know how the right incentives and a good referral marketing software can make or break your referral program’s success. So here are some key points to remember when youre running a word of mouth campaign for your brand: 

• Personalize rewards according to the customer’s reference and your brand identity. 
• Tap into the referrers' purchasing history to offer relevant gifts. 
• Showcase the rules and regulations of getting rewards clearly on your referral landing page.
• Create a win-win situation by offering a discount for the referred customers as well.
• Implement strong fraud detection and prevention protocols to free your marketing bandwidth.

To do all this, your marketing team needs a scalable referral software (think long term) which is customizable, and integrates with your existing tech stack — and that’s what our platform offers. 

With Rivo, you can scale your referral program, choose from an extensive range of tangible rewards, and implement a tier based program. We offer a customizable page builder where all your rewards will be live within hours.

Want to reduce CAC and get the best referrals? Request a demo today and choose referral rewards that impress customers, strengthen brand identity, and boost sales. 

Frequently asked questions 

1. What types of referral rewards work best for ecommerce stores?

Some referral incentives or reward types that work best for ecommerce brands include: 

• Cashback
• Discount coupons and vouchers
• Free products and samples
• Redeemable points

The most effective type often depends on your target audience’s preferences. Running A/B tests on different reward types can help determine the best fit for your store.

2. Should I reward both the referrer and the referee?

Yes, if your budget permits, consider rewarding both the referrer and the referee. It creates a win-win situation, enhancing your brand awareness, loyalty, and revenue because :

• Referrers will spread the word when they know they will get rewarded handsomely.
• Referees are more likely to take action when they see they’re gaining value too, not just the person making the referral.

For instance, offering a discount to both the referrer and the referee (e.g., "Give $10, Get $10") creates a balanced incentive for both parties.

3. Why are tiered referral rewards so effective?

Tiered referral rewards are a great way to structure your referral program because they provide a sense of achievement to the customer. They gamify the experience, keeping them motivated to increase their number of referrals and unlock higher tiers. 

For example:

• First referral: 10% off.
• Second referral: $20 amount off.
• Third referral: Free product or higher amount discount.

This system does three things:

• Pushes customers for multiple referrals to reach higher tiers.
• Tiered rewards encourage ongoing interaction with your referral program rather than one-time participation.
• Over time, customers become more invested in your brand as they earn increasingly valuable rewards.

4. Why is program transparency important for running successful referral campaigns?

No matter how exciting your rewards are, if you're not transparent about your rewards with your affiliates, sooner or later, they'll realize that and it will lead to a negative reputation for your brand. So make sure to create a landing page with all these information and share them with your participants for clarity:

• How can customers sign up for the program?
• How to refer to a friend?
• What are the types of rewards they would get?
• How many referrals would they have to make to get a specific reward?

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