How we hacked app referrals?

Let me tell you how we built what is probably the best referral program in India… from idea to going live — in a record 75 days!

Rishu
Rishu
Jan 24 · 5 min read

To give you some background, we’re Groww — a mutual fund platform based out of Bengaluru. We’re the fastest growing fin-tech startup and we’re backed by Y-combinator and Sequoia Capital.

As a product manager, before building any feature I ask myself this — why are we doing this? Do users actually need this feature?

To answer these questions, I needed to understand the basics of referrals.

Why referrals?

Referrals programs at their core are nothing but a growth hacking strategy. Something that rewards existing customers for sharing. It also incentivizes new customers to try out your product.

People are 2x more likely to pay attention to referrals from a friend. Referrals get some of the best new customers you can get with higher brand loyalty. It also increases the loyalty of your existing customers.

So it was obvious — we had to launch the referral program for our users. We studied all the successful referral programs that existed.

I’ll list down a few of them:

  1. Paypal- They literally gave away free money and it worked out great for them. This was before social media!
  2. DropBox- They achieved 3900% growth with a referral program modeled after PayPal’s. The referral program got 4 million users in just 15 months.
  3. Airbnb — A single user in China led to thousands of signups and hundreds of bookings in a single month.
  4. Uber — They’ve been in a unique position to run multiple referral programs at once — for users and for drivers.
  5. Tesla -$1,000 for both advocate and friend, with quite a star-studded list of advocates!

So, we noticed in all the successful referrals programs there was a two-way reward associated with the user where both the parties get a reward.

Now we’ve got ourselves a problem!

Dayum! We can’t incentivize both parties for investments on our platform. This is because investments in India are highly regulated by SEBI & other regulatory bodies who restrict and closely monitor such activities.

Here comes a hack…

We decided to give rewards when a user invested. Since we’re an investment platform, our end goal for the user is an investment.

Now, here comes the hack. Due to regulation, we couldn’t give a reward to the user who got referred and made an investment. So instead we gave a reward to the referrer — the user who introduced Groww to his/her friend.

We realized that for this referral to work it had to be addictive. To make it addictive we followed the rule of ‘Variable Rewards’. This is the single reason for the success of the world’s most addictive platforms like Instagram, Tinder, and Facebook.

The Recipe

There was a very famous experiment by B.F Skinner, a professor at Harvard University. In his experiment, a rat was placed in a box with a lever. As the rat moved, it would accidentally knock the lever and a food pellet would drop into the box. After the rat had been put in the box a few times, it learned to go straight to the lever and knock it: the reward reinforced the behavior. After a few days, the rat knocked the lever only when he was hungry.

The way to maximize the number of times the rat pulled the lever was to vary the rewards it received. If it didn’t know whether it was going to get one pellet, or none, or several when it pulled the lever, it pulled the lever over and over again. It became psychologically hooked. This became known as the principle of variable rewards.

We encashed one of the Seven Sins — Greed and mixed with a variable reward system to make a deadly combo for a referral. Now we made sure that reward money should be way higher than the existing referrals in the market.

We also ensured complete transparency. The users are shown the odds of winning the rewards clearly.

The money goes directly into the user’s bank account. The instant gratification because of this gives the user a dopamine hit.

This is how our referral screen looks like.

We gave the exact tracking of referrals to our users so that they are constantly updated about their referrals.

We even gave a ‘Remind’ option to the user since we know it takes 3–7 days to convert a user and a nudge from a friend can expedite the process.

Results

  1. We initially got 10x more referrals than usual and after a month it exploded — we got 100x more signups.
  2. Referral customer acquisition cost halved when compared to the CAC of the normal user.
  3. Conversion from signup to investment became 1.5x when compared to a normal user.

The referral went viral on social media & youtube. After that, we needed to scale up our servers as they were down due to the very heavy traffic.

As we deepen our understanding of consumer behavior, we are constantly identifying new areas where we can leverage the idea of a variable reward to improve the Groww as a product.

This project wouldn’t have been possible without these awesome guys Munawar Sha, Sugam Singla, Ishan Bansal, RAJAT GUPTA


Groww is always seeking outstanding people to join our team! If you are interested in working on problems such as the one in this post, please check out our open jobs and send your application!

Groww Engineering

Groww Engineering and Tech

Rishu

Written by

Rishu

Product person looking to figure out all the ways software can improve peoples’ lives, Sold my last startup to Google, BITS Pilani

Groww Engineering

Groww Engineering and Tech

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