Today, when most brands sit down to forge their cross channel digital marketing strategies, ‘referral marketing’ usually has a spot at the table. In fact, many marketers are now utilizing incentivized referral programs to drive anywhere between 10% - 40% of new customer acquisition. With performance like that, the referral channel is rapidly maturing into a critical source of new business for many of America’s top brands. To help paint the picture, let’s take a look at how Dropbox reached their epiphany around incentivized referrals and the impact it had on their business.
In the summer of 2008, Dropbox was facing a competitive environment, they had limited resources and very little marketing experience driving the type of growth they were forecasting. The team invested in a big launch event at TechCrunch50, hired a PR firm, launched an affiliate program, and began to buy AdWords to hone a search engine marketing program. By early 2009 they had officially launched the product, and were enjoying some successes, but none of their traditional digital strategies were driving acquisitions at an acceptable cost.
Obvious keywords were too expensive to make sense for the startup, and long tail search wasn’t providing the type of volume they needed. Display ads and affiliate didn’t work out for them either, as their overall CPA across traditional digital channels hovered between $233 - $388 [for a $99 product]. While attempting to hone these programs, Dropbox marketers reached an epiphany - they deduced that search, etc. were great channels for harvesting demand, but were woefully inadequate for actually creating demand. With this understanding, the team mapped out their typical customer consideration funnel and then took action.
Dropbox marketers gave users better tools to share the brand with their friends and implemented a balanced incentive structure to reward both existing customers and their referred friends. They sent out surveys to their users in an effort to optimize rewards, ran split tests to improve the signup flow and encourage sharing, and made significant investments in analytics to measure results. In short order, incentivized referrals increased signups by 60%, so they abandoned other channels altogether.
In fifteen months, Dropbox grew from 100,000 to 4,000,000 registered users by leveraging word of mouth and driving it through incentives, with 35% of their daily signups coming directly through their referral program and 20% through shared folders and other viral features. Their marketing spend on traditional channels went to $0. Almost more impressive is that they’ve been able to drive sustained growth (of 15% to 20% month over month) by sticking to these strategies.
Over the past several years I have worked with dozens of companies who have had trouble reaching acceptable CPAs through traditional digital channels, but had the epiphany that referrals were the key to creating the demand they needed to drive efficient growth. Have you had such an epiphany? If so, please share, we’d love to hear your story.
Source: “Startup Lessons Learned” Powerpoint Presented by Drew Houston, Dropbox Co-founder & CEO