Turning Customers Into Salespeople

How companies like Roku boost sales with referral marketing

Roku was one of the first companies to bring online movies to people's living rooms. Three years ago, the Saratoga, California-based company started selling remote-controlled devices that can stream online media content, such as Netflix movies and Pandora radio, to TV sets. When competitors began to emerge, they were formidable: Microsoft, Apple, Google. Unlike those giants, Roku, which has about 100 employees, didn't have deep pockets for advertising campaigns.

What Roku did have was fans. Through surveys, the company had learned that about a quarter of its one million customers were so smitten with their Roku players that they had encouraged friends to buy one. "We knew we had an engaged customer base that was passionate about the product, and we wanted to tap into that," says Lomit Patel, Roku's senior director of direct marketing.

Last year, Roku launched a refer-a-friend marketing campaign, which rewards customers for recommending the company's video players to people they know.

Word-of-mouth marketers have long touted the power of customer referrals. Recommendations from friends are among the top influences of purchases, according to a recent study by ForeSee Results, a market research firm in Ann Arbor, Michigan. Now that sites such as Facebook and Twitter have made it easier than ever to tap one's entire social circle, companies like Roku are experimenting with new tools and incentives to get customers chatting about their products.

To get the conversation started, Roku hired Extole, a San Francisco-based company that specializes in refer-a-friend marketing campaigns. Roku now sends an automated e-mail to customers 45 days after a purchase, offering them one free month of Netflix service if someone they refer purchases a Roku player. Each customer who participates gets a unique Web link, created by Extole, to share with friends via e-mail, Twitter, or Facebook. In the first three months, 15,000 customers recommended Roku to their friends using Extole's system, and 1,500 customers bought Roku players after clicking on links sent to them by pals.

The refer-a-friend marketing campaign has already proved to be more effective than online banner ads or paid search ads, says Patel. People who were referred by friends were three times more likely to purchase than visitors who clicked on online ads. "It has that implied endorsement before they even come to the site," he says.

Between the Netflix giveaway and Extole's monthly fee of $1,500 (an introductory rate for being an early customer), Roku spends about $12 to acquire each customer, who, in turn, spends an average of $97.

Other companies aren't waiting as long as 45 days to get customers talking to their friends. Abe's Market, a Chicago-based online retailer of food, clothing, and other products made from natural materials, wants its shoppers to spread the word before they even make a purchase. Last year, Abe's Market added a Share It feature to its website. The feature offers shoppers 10 percent off their orders if they agree to tell three friends about the products in their online shopping carts.

After a customer enters three e-mail addresses, her buddies get a message that she is "shopping for natural products on AbesMarket.com, and wants to share some great finds." The e-mail includes photos of the products in the customer's cart as well as a coupon code that lets the friends save 10 percent on any order, too. It took two of the company's programmers just a few days to create the feature. Because the project was done in-house, Abe's Market can easily make changes like tweaking the amount of the discount, says Jon Polin, the company's co-founder.

So far, the strategy is paying off. About half of Abe's Market customers use Share It, and those who use it spend about 30 percent more than those who don't. Polin says Abe's Market is on track to hit $1.5 million in sales this year, thanks in part to customers who found out about the site from their pals. Eventually, Polin wants customers to be able to share their purchases with their friends on Twitter and Facebook, too.

Other companies are making Facebook their primary focus. The Step2 Company, a Streetsboro, Ohio-based maker of children's playhouses and furniture, recently added tools to its website that make it easy for customers to tell their Facebook friends about the company's products.

Step2 uses software from Power-Reviews, a San Francisco-based company, to manage customer reviews on its website. The application, which starts at about $3,000 a month, makes it possible for shoppers to log in to Step2's website using their Facebook accounts. It also lets Step2 add Facebook Like buttons to each of its product pages. When Step2 shoppers log in through Facebook, they can see which Step2 products their friends Liked. And any reviews those customers write will also be posted on Facebook.

So far, about 7 percent of Step2's customers have registered on the company's website with their Facebook IDs, and of those who have, more than half of them have shared product reviews with their Facebook friends. In the past year, traffic from Facebook has increased 135 percent and revenue from Facebook visitors has nearly tripled.

And Step2 wants to keep people coming back. When someone writes a review, Step2 sends a coupon for 10 percent off the next purchase. But the company waits until after reviews have been written to let customers know about the discount. Otherwise, says Tena Crock, Step2's online marketing director, they might see it as a bribe. "We want them to have their own voice," she says, "without forcing them."

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