Referrals benefit most businesses, big or small. They are the most powerful form of marketing because they rely on relationships and the customer experience, whether that be online or in person. Referral marketing is not just encouraging customers to recommend your product or service to their peers, friends, or social media followers, it’s about building connection with customers so they think of you warmly.
On social media, referrals can look like an influencer endorsing a product or service on their social media feed. In real life, referrals look like two friends at lunch and one saying they need a haircut and the other recommending a great salon they know and love.
Referral marketing can come in many forms and is one of the best ways to get more business. Why? Because 84% of consumers trust recommendations from people they know. Word of mouth marketing is a very powerful opportunity to generate new customers.
In this guide, we will discuss how to foster referrals for your business. By the end, you can use our actionable tips to plan and execute your referral marketing strategy.
Before we discuss how we can create a referral marketing strategy, let’s start with the why.
The Case for Referral Marketing
Here are some important considerations to have when discussing referral marketing:
- A word-of-mouth recommendation generates 500% more sales, on average, compared to advertising
- Leads that come via referral convert 30% better on average and has 16% higher lifetime value compared to all prospects
- Customers acquired via referral and word of mouth marketing spend two times more in sales and also make more referrals themselves.
- 64% of marketing executives believe that word of mouth is the most effective form of marketing
In short, referral marketing is effective, trusted, and cost-effective with potentially high return on investment (ROI). When someone recommends a product or service, we tend to trust this recommendation more than any advertisement.
Plus, many types of businesses benefit from referrals. The hospitality industry benefits greatly. Airbnb offers discount codes to people for referring to a certain home and I know I have been tempted many times to go stay at a beautiful Airbnb that I see on Instagram with a discount code attached. Consultancy agencies benefit too. Lots of times legal or wealth consultants reach new people through their brick and mortar space, so referrals really help them reach more people. Ecommerce companies, movers, real estate agents, food companies and more all benefit from referrals. I can’t think of any type of business that would not benefit from referrals.
Referral vs Affiliate Marketing
The terms “affiliate marketing” and “referral marketing” are often used interchangeably, and indeed, both strategies rely on a pretty similar concept: offering incentives for others to market our product.
However, the key difference is that in affiliate marketing, one drives third-party affiliate marketers (not necessarily customers) to market products, while in referral marketing, the focus is on encouraging existing customers, whether that be through rewards or simply excellent service, to recommend your product to their friends and peers.
How To Generate Referrals
- Optimizing Your Offer
A very important aspect of a referral marketing strategy is what you offer as incentives for your referral marketers. If your offer’s value is high, you will attract a lot of people, but you’ll also risk getting more low-quality, spammy referrals. Also, obviously, if the cost of referral marketing is too high, it might disrupt your profitability.
On the other hand, if your offer’s value is too low, you might not attract anyone to join the program and so you won’t get anything. Let’s look back at the salon example. Maybe they say that if you refer someone and they schedule an appointment you get a free bottle of shampoo. If they offer a free haircut, that cost is too high and will disrupt profitability.
In referral marketing, you need to offer various type of offers or rewards, but here are five of the most common:
- Added value: free delivery or additional services
- Gifts/freebies: merchandises like stickers, T-shirts, or anything related to your brand
- Bonus points: can be accumulated for future purchases
- Discounts: pretty self-explanatory, lower prices
- Credit/voucher: customers can spend it on their next purchase
Whatever incentive you offer has to be what you customers want. The best way to find out where your customers want is to ask them! Send out a survey or ask them in person. There are other ways to get feedback as well. Look at where visitors spend the most time on your website or what your most popular products are. If a ton of people visit your blog about email marketing tricks and tips, offer an email marketing template as an incentive. If your most popular products are sunglasses, offer a a buy something get a pair of sunglasses for free
Above anything else, the key to an effective referral marketing strategy is to find the right balance between too much and too little and, of course, deliver the offer in a personal way. Sending a generic email is a bit spammy, but as a customer is saying how much they appreciated your service, thank them and tell them how much a referral would mean and what they would get out of it.
- Have a Great Product Story, and Make it Shareable
If you had not yet picked up the theme, referrals flow when personality shows. Make referring easy by making your product’s consumer experience easily shareable.
The easiest way to do this is to have a content marketing strategy with long form articles that can easily impress users. For example, an attractive short video that your referral marketers can post around. However, it’s going to be much more effective when the experience of the product itself is shareable. For example, unboxing a new MacBookPro is certainly a shareable experience, which can be an effective referral marketing strategy by itself.
Personalization is a very effective approach. In general, the more you can personalize the experience for customers, the more likely they are to share your product. For example, you can send out a personalized freebie for the specific user based on what you know about them. This is very effective in creating a more engaged and loyal customer base.
Brands that can generate an emotional response in their audience tend to receive 3 times as much referral marketing than other businesses. Designing a product experience that can inspire positive emotional reactions is very important.
- Improving Your Customer Service Experience
Still related to the above point of creating a positive customer experience, we can’t deny the importance of proper customer service in today’s world of social media where everybody can easily share their bad customer service experience online. In fact, many people nowadays seek customer service on social media.
Here are some tips to ensure your customer service is well optimized for your referral marketing strategy:
- Fast and responsive. Don’t let questions, comments, and reviews go unresponded for too long. Even if you don’t have the solution yet, make sure to respond ASAP, as long as you show sympathy, customers will be more accepting when there are issues.
- Consistency: Ensure every possible customer is getting equal attention and set an SOP for customer interactions. Make sure you have a proper system in place that helps organize the customer interaction process.
- Authenticity and sincerity: The more sincere and authentic you are, the more likely you can satisfy customers. Don’t be pushy, and always try to be as helpful as possible.
Remember that every customer interaction is different and each customer is unique. The key to receiving referrals is to deliver the best possible customer experience from actually delivering a valuable product or service, maintaining customer service excellence, and also ensuring your product is shareable by today’s social media standards.
Referral marketing can be a very effective player in growing your business’s revenue, but if you can’t provide a quality experience for your customers, you simply won’t succeed. Make sure to get this right first, and after that, referrals will start pouring in.
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