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When consumer word of mouth pays off

Marketers know the power of word-of-mouth recommendations and pay large sums to get consumers to promote their brands

There’s no better publicity than word of mouth. Companies know this, and many have launched “recommend a friend” schemes. These enable customers to earn (in some cases) hundreds of pounds by referring friends to the firm in question.

Some schemes enable you to save money on your bill or give you vouchers to spend. Others offer people the chance to earn hard cash by recommending their friends to sign up. But are these schemes really a good reason to pick a particular product or service?

There are certainly plenty on offer, especially when it comes to broadband and telecoms. Highly regarded BE Broadband gives customers £15 credit on their bill for every friend they persuade to sign up. You can recommend up to six people a year and, if all six sign up, the referrer gets an additional £15.32 – taking the maximum you can earn in a year over the £100 mark.

Rival Plusnet runs a scheme called My Referrals, which gives customers a monthly discount for every person who joins following their recommendation. The discount depends on the product your friend signs up for, but is normally 50p or 75p off your bill for each month the friend stays as a customer. “The more people that join because of your recommendation, the more money you’ll save. We’ll even start paying you if you recommend enough people,” says the company.

Virgin Media will knock £50 off a customer’s bill if they recommend the firm to a friend who then subscribes to its service. And the new customer gets free installation worth up to £49.95.

Mobile phone company giffgaff runs a scheme where customers get £5 for every member they recruit. They can also earn money by answering customer queries online. This week the company announced that its most recent payout to customers totalled £665,000. Usman Aslam, 17, from Birmingham, was the top earner, receiving an impressive £13,703 for the past six months, says the firm. To date, he has introduced around 3,000 customers to the network.

Utility Warehouse, a brand owned by Telecom Plus, has an army of “distributors” (effectively salespeople) which earns commission by encouraging people to become customers of the phone, broadband and energy company.

Michael Phillips at price comparison site says these incentives can be a great perk, but they shouldn’t be the determining factor when choosing a broadband or digital TV package. “Do your research first, comparing important things like price, broadband speed, digital TV channels etc through an Ofcom-accredited comparison site. Switching to a better deal could save you over £300 a year, so make sure you don’t throw away big savings for the sake of £50 worth of vouchers,” he adds.

Elsewhere, a customer of private health insurance company Simplyhealth who recommends a friend receives £30 in Boots vouchers, as does the friend if they sign up. And people who buy contact lenses online from GetLenses can get £10 credited to their account, while the friend gets £10 off if they spend over £30 on the site. Sharon Richardson, 53, from Finchley in north London, has recommended six friends to the site, earning £60, which is enough for a year’s supply of some of the cheaper monthly lenses.

For those people who don’t have many friends, or at least few friends who are in the market for new products, there is a website that matches up referrers and “friends”. Refer Me Happy lists products and services from various companies, including Ocado and Sky, and introduces existing customers to potential new customers, enabling both to benefit from the deals on offer. The site also provides a list of the various refer-a-friend incentives. A quick check showed that some of the deals listed were out of date, but the site is still worth a visit.

Another firm that could, in theory, end up paying money to customers who refer lots of people is FreeAgent, a provider of online accounting software. Everyone who signs up to FreeAgent gets a referral code. If they pass this code to other businesses and they sign up using the code, both parties receive a 10% discount. “If you refer 10 people who go on to become subscribers, you’ll be using FreeAgent for nothing,” says the website.

High street bank Santander’s recommend-a-friend scheme, which launched in May, is not currently available, but other financial firms running offers include Tesco Bank (Tesco credit cardholders and car insurance customers can earn Clubcard points or gift cards) and American Express (UK cardholders can earn points or cashback).

However, before signing up to a contract for any type of service, it is a good idea to shop around and be sure the product is right for you, rather than being swayed by incentives or a friend’s recommendation.

Andrew Hagger at personal finance site Moneynet warns that the problem with this type of marketing is twofold. “Firstly, some people who are extremely motivated by making a quick buck will bombard all their friends/relatives, even if the account/product is not relevant, as well as it being just run of the mill,” he warns.

“Secondly, the person on the receiving end of a refer-a-friend offer may trust the judgment of the person suggesting it, and so won’t check out the market to ensure it’s a good deal. If a product or service is genuinely very good, it doesn’t need a financial incentive for people to spread the word.”

Even controversial payday loan firms are getting in on the act and offering cash for recommending friends. QuickQuid offers £20 credit for a successful referral. However, some would say these types of loan are only appropriate in a small minority of cases, so those people referring friends to payday lenders could be introducing them to a spiral of never-ending debt.

Inevitably there are certain terms and conditions attached to every recommend-a-friend offer. You usually have to follow a set procedure to benefit from the incentive – for example, filling in an online form with both your details and your friend’s, rather than your friend simply calling up to say that you recommended them. Unsurprisingly, your friend will have to buy the product for the referral to count, and in some cases commit to remaining a customer for a minimum period. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds