Why your Referral System Won't Work
georgesaines.com
georgesaines.com
First, if you take a look at Dave McClure's AARRR model (and if you haven't, you really should [1]), you realize that Referral is something that you only want to attempt after you've got ridiculously satisfied customers. You can't expect people to spontaneously recommend your product on to others until it is absolutely friction-free, and serving that sweet spot so sweetly that they almost can't help it.
Second: not all niches are created equal. Are folks whose itch is scratched by your particular product significantly more likely to be in touch with others having the same itch? For some niches, yes. For others, no.
Finally, in the absence of a Freemium model, you definitely need to have a well-organized Activation process; some way for people to get engaged with the product prior to a commitment.
[1] http://500hats.typepad.com/500blogs/2007/09/startup-metrics...., for example.
Your first comment about the referral only working in the sweet spot probably did kill it for us. We still aren't at the sweet spot, and the process of engaging with the product definitely isn't frictionless like it is for dropbox.
The main reason why it works is because we're helping each other achieve something; we're making an existing process easier/more convenient. It's a MUTUALLY BENEFICIAL activity (ie, it's easy for us to share files with each other).
Dropbox is a platform product like Facebook (ie, join this site, and we can keep in touch together easier). This strategy would work for all platform products.
As for your startup, you have to ask why would I would recommend someone a product that eases remembering japanese/chinese chars, there's no process after that at all. There's nothing MUTUAL BENEFICIAL here at all. If my friend is using your tool, why do I care? It doesn't help me at all.
As you say, it doesn't help you to recommend anyone to a site where the primary activity is independent learning. Now, we could alter that and some social features, but my best guess is that it's not just "social features," because tacking that stuff onto Skritter probably wouldn't help too much! To get maximum gain, we would have needed Skritter to be more easily spreadable from the get-go. :)
1. Your company has to have freemium pricing. - This is a factor that affects conversion rate. It's not so much about freemium as it is about friction. I think the idea here is that you have to have a more friction free offering for the referral, specifically the offer that the person being referred sees. If they get offered something a little extra than what they could get on their own it should be more appealing.
2. Your product has to have wide appeal. - I think what you really mean here is that your customers need to have people they can make referrals to. This is obviously a big factor in the number of referrals made. Who are your customers? A businessman learning Japanese on his own might just not know anyone that would use the product other than himself. Students might know lots of other students who might be interested - which are you dealing with?
I also like the idea tomjen3 mentioned about incentives for both parties. This helps encourage people to make the referral, do it through the system , and helps the person being referred feel some form of obligation to the referrer and see that they can get something out of it.
I'm not saying that "you're doing it wrong" or that if you make some changes it will work, just that maybe there are some deeper reasons as to why it won't work in your situation.
Regarding the rewards, we did offer both the customer and the person being referred free time on the site as a reward, but either we didn't do a good job making that clear (very possible) or it wasn't compelling enough. To be honest, we're still not sure which it was.
You can find plenty of places out there that do a refer-a-friend in exchange for the referrer receiving something in return. My gym (24 hour fitness) does this and I have referred people to it before.
I suspect in this case the problem mostly lies in the product being too niche, not that it costs money.
For instance, if your gym had a "2 weeks free" and didn't require me to take out my credit card, I think I would be more likely to try it out all things being equal.
Then again, my personal experience is often totally biased. I am trying hard to give up thinking that I know what our customers really want and let testing show the way!
Gym referrals work because it's mutually beneficial, "hey, come join 24h fitness, so we can workout together". I win, and my friend wins.
It's much easier to go the gym with a partner for motivation, etc. than to go by yourself.
Now, let's take travel, which is also not niche. If I'm lonely planet trying to sell travel books, referral won't work because it's not mutually beneficial for both of us to have the same book, etc.
Good discussion going on. I'm actually brainstorming on a referral strategy for one of my sites (travel based).
The people I referred I actually never work out with. It was just a trivial way to get $25 or whatever the bonus was at the time.
I believe Zecco (brokerage) also has a referral system going. Again, using it is beneficial monetarily - I could care less though if my friends use it.
One thing that is probably true: If there is no 'network effect', you probably need a much larger reward to get referrals.
Especially as none of them are Asian, and the whole point of the site is to learn Chinese Japanese characters (it lowers my trust in the site)
Substituting out the founders bit is something we've played with, but the previous test didn't get conclusive results one way or the other, so I need to keep trying different things with that space.
It has to have incentives for _both_ parties. I specifically didn't send my mother an invite to dropbox because I didn't want to seem to do it so I could gain something at her expense.
Dropbox actually does give something to both sides, but if I miss that how many others do you think does too?