Startups Learn The Hard Way In Nigeria After Floating Botched Referral Schemes

According to data from Nielsen, the global information, data, and measurement firm, “92 percent of consumers trust referrals from people they know.”

This trend is especially visible in the strategies employed by global tech companies like Uber and Airbnb, both of which partly fuelled viral growth through incentivized referrals.

Hence, it’s easy to see why many startups in various parts of the globe intentionally adopt referral strategies to acquire new customers or, at least, dabble into it every once in a while. And many times it works out as intended, well except for when the referral program is targeted at Nigerians in Nigeria, apparently.

A few months ago, a fast-rising Nigerian crypto startup known as BuyCoins Africa went the referral way, but things got sour before long.

BuyCoins had kickstarted a referral program for its peer-to-peer cryptocurrency exchange platform. It was a way for BuyCoins to reward its users for inviting people to use the app. BuyCoins saw its users soar, or so they thought.

That referral programme was cut short in June, just days before the startup suffered a system breach that cost it USD 27 K. The referral programme was discontinued after it was discovered that a number of users were trying to game the referral system by creating multiple accounts with multiple identities in order to earn referral rewards.

“There were over a thousand user accounts involved in this and we had to restrict all the accounts involved while we conducted further investigation,” the company stated in a post. “Because of this, we decided to end the referral program on Saturday, 6th of June 2020, and suspend the payment of referral bonuses.”

It’s yet another example of how certain strategies are better suited to certain climes and how some practices that work so well in some cases can prove ineffective and just short of suicidal in others.

Perhaps the biggest example of such a failure is summed up by a recent thread put up on Twitter by Gbenro Ogundipe, an Uber Partner and Associate Pastor at The Baptizing Church (TBC).

In the light-hearted but matter-of-factly post, Ogundipe revealed how Uber basically shot itself on the foot by trying to lure in drivers and riders in Nigeria with huge incentives, just as the company has done in other markets.

So I am doing a Strategy course and I want to tell a story about how Enviroments impact Strategy.

When @UberNigeria came to Nigeria, they had a world class strategy.

There was one flaw in their Strategy, it only worked “Ceteris Paribus”

Unfortunately Nigerians are not Normal.

— Pst. Gbenro (@gbenro) July 22, 2020

First, the ride-hailing company awarded new users with promo codes worth between NGN 1 K (USD 2.58) to NGN 3 K (USD 7.74). It seemed very attractive but the company was to learn the hard way.

Users in Nigeria began to do multiple signups, such that they would create a new account every time they wanted to go on a trip and ride free. Some would even do it to ride to and fro for free — because all they had to do was get a new SIM for NGN 300.00 (USD 0.77) and they would be able to complete a trip that would have cost NGN 2 K (USD 5.16).

Uber was only able to plug this hole somewhat by limiting each smartphone to a maximum of three accounts. But that’s just a tip of the iceberg compared to other examples of how Uber’s referral-backed customer acquisition programme backfired when it first launched in Nigeria.

After the company offered a reward of NGN 40 K (USD 103.20) for every driver that was referred to the platform, people would get other people to sign up even though they had no intention of driving on the platform. Uber would pay the referee and the money would be split among the conniving individuals.

Then, Uber adjusted the offer by mandating the new drivers must complete at least 20 trips before the referee gets paid. Not a problem, folks would register, drive the 20 trips, collect the bonus, and quit.

The biggest heist happened when Uber tried to undercut local taxis. A popular Airport-to-town route in Nigeria’s capital, Abuja, which typically cost around NGN 5 K (USD 12.90) with local taxis was going for NGN 3.5 K (USD 9.03) on Uber.

Drivers on Uber didn’t like the reduced fare but the company stepped in and pacified them with a tantalizing offer — Uber was going to pay its drivers an extra NGN 3.5 K (USD 9.03) for that trip, effectively bringing the fare to NGN 7 K (USD 18.06). What happened next was shocking, to say the least.

A driver would create a profile as a new rider, get the NGN 2 K bonus, request himself to the airport on cash trip, and get paid NGN 7 K. Some would even feign round trips and pocket NGN 14 K. Do the math for 10-15 such phony round trips daily.

Uber tried everything to no avail. Blocking ride requests from the same spot and geofencing the airport didn’t help much. Eventually, the company was forced to give up the incentive play.

This goes to show how certain peculiarities in a market like Nigeria make referrals/incentives an unsustainable and untenable customer acquisition strategy for startups looking to grow faster in these parts.

Featured Image Courtesy: Umaizi