Whether helping to pioneer the electric car industry or the self-driving car industry, Tesla -- helmed by the formidable Elon Musk -- is a distinctly innovative company. Their online referral program has also been notable, not only in its success but also in its ability to drive sales with next to no help from advertising. And even while Tesla’s products undoubtedly skew big-ticket, the takeaways from this program are widely applicable to e-commerce companies at large.
The Basics
Tesla introduced the first iteration of their referral program back in July of 2015. And as it turns out, this program is virtually the only way for a customer to obtain variable or discounted pricing on Tesla products.
Why has the program been given such a distinction? Perhaps because Tesla relies so heavily on word of mouth in order to sell their vehicles. Because this referral program serves to enable and facilitate this word-of-mouth process, it’s extremely valuable to the company. Indeed, the program has very efficiently managed to generate large-scale sales. For example, the second version of the program returned a 42x ROI, and the winning referrer made 188 successful referrals (which would have generated $16 million in sales) in only two months. Even further, there has been speculation that this version generated 5,000 total referrals in those two months alone. For a company selling such big-ticket items, this number of orders is more than significant.
The program’s success has derived largely from Tesla’s ability to align the program to the company’s unique customer base, largely by offering experiential and non-monetary rewards that are exclusive, novel, and brand-centered. Before we deep-dive into this effective customer-centrism, let’s lay some groundwork and take a closer look at exactly how the program works.
The Program Rules
While the general structure of the program has remained more or less the same over time, the particular details shift with each new, short-term phase. For nearly all phases thus far, existing Tesla owners have been able to refer friends via a referral code or URL; these friends then receive perks if they purchase a Tesla car through this referral, and the original recommender also receives prizes corresponding to their total number of successful referrals.
In the current phase -- which is running from May 19th until December 31st -- invitees get $1,000 off their first purchase in addition to unlimited Supercharging. The referrers have a much wider variety of prizes available to them, and which prize they receive is dependent upon how many referrals they manage to make (up to a maximum of five). For making one referral, a Tesla owner will receive the Tesla Model S for Kids; for two referrals, they’ll get early access to Tesla’s Solar Roof product; for three, exclusive Arachnid Wheels; for four, an exclusive Founders Series Powerwall 2; and for five referrals, the owner will get a VIP invitation to the Tesla Semi Truck Unveil. Even further, each successful referral gets the recommending owner entered into a drawing for the grand prize: a P100D Model S or Model X, and a Private SpaceX tour (five second-place prizes, consisting of the SpaceX tour alone, are also being awarded).
The prizes offered in previous phases have been similar in nature to the ones that are currently available. They have ranged from free weekend trips to VIP status at exclusive events to Tesla factory visits. Rewards have consistently been program-exclusive, brand-centric, innovative, status-bestowing, or some combination thereof. And, given the characteristics of Tesla’s customer base, this is key.
The Analysis
To understand exactly how these features make Tesla’s referral program so well-suited to its customer base, let’s begin by taking a look at the typical Tesla consumer. The average incomes for Model S and Model X owners indicate that they tend to be in the top 1% and 5% of households (respectively), with respect to income. And because they are already quite wealthy, trying to motivate Tesla owners using money alone would likely be inefficient. However, non-monetary rewards -- which include both tangible products and non-tangible experiences -- can instead offer exclusivity and novelty, which are likely to be highly valued by Tesla’s base of customers (many of whom can be classified as early adopters). Even further, many of these non-monetary rewards are centered around the Tesla brand or around Elon Musk’s other endeavors (including SpaceX). Given Tesla owners’ remarkable brand loyalty, this last piece is quite critical.
Why is it so important to design a customer-centric referral program? Well, the underlying goal of any referral program is to motivate customers to -- you guessed it -- refer their friends. The program's prizes effectively serve as the incentive that provides the motivation to do so, and the most cost-efficient incentive is one that is highly valued by customers (above and beyond its monetary value, and the amount that it costs your brand to provide). Therefore, consumer-centrism makes your referral program more efficient and more powerful. A customer-centric program also provides customers with more intrinsic satisfaction, thereby strengthening their affective relationship with your brand.
What this means for your store
The biggest takeaway for e-commerce merchants may be this: know your customers, and build your referral or rewards programs around them. Even more specifically, you should know what your shoppers are motivated by, and what they value in your brand. This knowledge will help to guide the type of rewards that you offer.
You can gather this knowledge via number of methods, including customer surveys, A/B testing, market research, website demographic analysis, and by connecting with your customers in-person at industry events.
Tesla’s referral program also evidences the power of offering non-monetary rewards, especially in that these types of rewards allow your brand to motivate customers by using incentives that appeal uniquely and effectively to them. This is because tangible or experiential rewards have much more capacity to be exclusive, creative, exciting, and in-line with your brand’s value proposition. In other words, non-monetary rewards are more flexible in what they can offer, and for this reason, they're often more efficient.
For example: say that you discover that your most loyal shoppers are primarily families, and that these families highly value the practicality of your outdoor brand’s camping products. In light of this insight, you may choose to offer a portable, program-exclusive first aid kit as a program reward, instead of (or in addition to) offering $10 in store credit. Even while the production cost of this kit is probably less than $10, many customers will probably value it for more and thus be more motivated to engage with your referral program.
Finally, in the current age of constant social communication and consumer skepticism towards traditional marketing, it’s also valuable to recognize the potential for referrals to begin to do much of the job of advertising. Indeed, referrals are naturally targeted to appropriate demographics and customers, they are often perceived to be more authentic, and they can be less costly than traditional advertising and marketing efforts. Tesla is a great example of this. Of course, none of this means that referrals should entirely replace advertising (and we’re unlikely to see that happening any time soon). After all, advertising offers its own unique host of merits. Rather, an effective referral program can, in many ways, be considered an extension of more traditional marketing and advertising efforts.
Wrapping Up
Just as it has done with technology and brand loyalty, Tesla has pushed the envelope with its online referral program. It has done so both in terms of the program’s customer-centric design as well as the degree to which Tesla has entrusted its sales to referrals. For these reasons, the program provides a valuable case study for e-commerce merchants who are looking to establish or improve their own referral marketing strategy, and who are seeking to understand the benefits of tailoring a program to their unique shoppers.
