Networks effect in referral programs
There are so many smart ways to increase the number of users on a particular website or app such as adds , sharing and likes, but referral programs are probably the most underestimated one. We’ve all seen it on social media, on mobile games or on trading apps like Robinhood. It simply consists of sending a private link to one or multiple friends to join the app or website you are using. Sometimes this method has a huge success on developing the network and in the other cases it is practically never used.
Why it works:
How you reward the users is the most important thing for this strategy to work. Most importantly you have to reward the user that brings friends to the network and it’s also proven that rewarding the user joining the network through a referral link or code will increase the probability of expanding the network. It’s a win-win situation for both ends. For example in a case of a mobile game, it’s even more efficient when you reward the new user after they reach a certain level. The reward can be 5$ worth of money in-game. Unlike shares and likes, referral programs are build on a person’s interest after they have signed up, downloaded or paid for a product or service. And when the reward system is good, referral programs accelerate growth by reducing customer acquisition costs (and therefore increasing margins that can be reinvested into growth), exposing new customer segments, creating competitive moats and increasing k-factor.
In my opinion it is one of the best ways to gain real (active) users and help the network grow exponentially. That’s why this method is used almost everywhere.
Source: https://philhsc.com/missing-the-customer-referral-opportunity/