7 Key Fraud Prevention Tips for Referral Marketing Programs

by Grace Miller |

7 Key Fraud Prevention Tips for Referral Marketing Programs

Referral marketing programs are a great way to bring new consumers to your business, and brands are recognizing this. Between 2006 and 2016, loyalty memberships increased by half a billion accounts in the United States alone. By offering existing customers rewards for referring their friends, you get more business and they get a bonus. Everyone goes home happy.

Unfortunately, there are always going to be those who take advantage of systems like this, and online scammers love the opportunity to infiltrate well-meaning businesses. Here are seven ways you can avoid being taken advantage of while still enjoying the benefits of referral marketing.

Reasonable rewards

As tempting as it might be to shower your loyal customers with rewards for sharing your awesome product with others, this could actually do more harm than good. Scammers are drawn to high-reward fraud because they’re taking a risk by scamming people. Don’t put a target on your head. Make the reward for each referral large enough to keep the customer interested yet small enough to discourage people from trying to cheat the system.

Have a waiting period before doling out rewards

One of the most common tricks people use when trying to cheat their way toward referral rewards is placing an order, then canceling it after the rewards are given. This way they get free reward points (or, in some cases, even cash) without having to pay anything. An easy way to combat this – and to make sure your true loyal customers are rewarded – is to have a waiting period between purchase and shipment. Once the item has shipped, the customer gets their reward, cutting back on the opportunities for you to get scammed.

Monitor overall account activity

Many people interested in fraudulent dealings will repeatedly hit the same business over and over again, scamming the rewards referral program under the same account and the same IP address. If there isn’t an immediate consequence for their behavior, they’ll continue to take advantage. By simply tracking your user account numbers and making sure that no accounts display continuous unusual activity, you can cut out a substantial number of dishonest people without hurting your honest customers.

Referral Marketing Programs

Offer points instead of cash

If you offer points which are valid only for your products or services, you will make your customers happy and cut down on fraud. Because most fraudsters are more interested in gift certificates or cash, limiting your rewards to points within your own business will benefit your loyal consumers and weed out those who only want to prey on your generosity. Customers who are not trying to take advantage of you will appreciate this since they already love your product.

Limit rewards

There might be a couple of rockstars who bring in large numbers of referrals, but most customers won’t be referring hundreds of people. Putting a limit on the number of points a referrer can obtain at a time will discourage scammers. This limit should be high enough that most normal buyers will never reach it. If scammers know that they will only receive a limited amount of credit for their fake referrals, they will be less likely to choose your business to scam.

Eliminate bots

Successful infiltrators are able to build bots that can spam multiple referrals at once in order to optimize returns. If you set a limit on how many referrals one person can receive credit for within a certain time period, you’ll be able to reduce – and in many cases eliminate – bot exploitation. Depending on how high your flow of customers is, there will be a certain limit to how many people will be using referral codes from a real customer. Because of this, you’ll likely be able to infer how many referrals are legitimate and how many are fraudulent.

Refer A Friend

Block existing account holders from using referral discounts

Sometimes, customers you trust will create alternate accounts and use their own referral codes to get discounts on your products. Most of the time, however, this won’t happen. Nevertheless, make sure to keep an eye out for the few customers who will betray your trust. For instance, older accounts that have already used a referral code should be banned from using another. Those who try to use multiple referral codes are most likely trying to cheat the system.

Referral codes can be a great way to expand your business if used correctly. As long as you’re on the lookout for those who might abuse your system, you should feel comfortable using referral codes to get the word out about your business. More than anything else, it’s important to be vigilant while realizing that most of your customers love your brand and want to share it with the people they care about. Safely using referral marketing can expand your company’s business and help you grow larger and more profitable.

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