When we talk about fraudulent behavior, most people don’t know where to look. In this section we go over the different types of fraud that can happen with customer referral programs.
Hi, welcome to another session on customer referral programs. Today we’re going to look at the different types of fraud we see in customer referral programs and answer – What type of fraud should I look for in my referral program? We’ve broken this down into four categories.
The first category is competing ads, this is where one of your customers actually goes out and pays for ad space on either google or bing or facebook and those ads directly compete with you paid ads. There’s two major problems with this, the first one is it drives the cost of your ads up, instead of paying $1.00, you may have to pay $1.20 in order to beat out this person who shouldn’t be advertising against your name anyways. The second problem is that when they do collect a user, not only have you been bid out, they’re also taking a reward that wasn’t really the intention of the program. This is the most common type of fraud, and it is used in both customer referral programs and affiliate programs, so that’s really our number one.
Our number 2 is a self referral, so if you don’t close this gap, you run the risk of a customer being able to refer themselves, get the discount on the new account, and then shut down the old account. The whole problem with this is we have a user who hasn’t brought us new business, and in fact has just gotten a discount, once again, not the intention we’re going for.
The third most common type of fraud we see is early exit, this can be fraud and this can be normal, but you have to take care of it either way. If someone makes a referral, and that friend then quickly leaves, the economics may not work out anymore, and you may have to retract the reward you gave to the person making the referral. If I referred a friend, and received 10% off, and then that friend cancelled, it may not make sense for your economics to keep giving me that 10%, but that fraudulent part actually occurs when I didn’t make a referral to a friend at all, I made a referral to myself, paid one month, got 10% off, which actually over a year saves me 1.2 months, and then I cancelled. We just want to keep an eye on self referral loops where we see people from the same IP address and the same location constantly referring themselves.
Third Party Deal Sites
The last one we see is not actually the fault of most customers, it’s third party sites that scrape things like twitter, and websites to find potential deals,.then they take those and give them to their customers. The reason this becomes fraudulent is you end up with customers who are at the checkout who literally go to google and search for a discount for your company, which is where all these third party sites are listing off these referral links that they shouldn’t be. Those are the four most common types of fraud we see today.