What is Referral Marketing & How Does it Work?
If you buy something and you like it, you talk about it. You blab to friends via text, you tell your mother on the phone. You shout it to your favorite cashier at the grocery store. Humans are social creatures and when we are happy with a purchase, we become influencers. The words flow from our mouths in advocacy.
No other efforts are necessary on behalf of the brand to further advertise. That’s the magic of word-of-mouth i.e. referrals. Existing customers support your new ones.
The Word of Mouth Marketing Association reports that every day in the U.S., there are approximately 2.4 billion brand-related conversations. The New York Times found that 65% of all new business comes from referrals.
See a pattern here? It’s a marketing channel that shouldn’t be skipped.
What is Referral Marketing?
Referral marketing has boundless potential. It’s one of the oldest and most credible forms of marketing that has existed. How can you not trust your grandma’s advice on that brand of butter or your neighbor’s on the new grill?
It’s the method of promoting products/services to new customers through existing channels. This is usually through people who have bought into the brand. A successful referral comes from word-of-mouth marketing and although it usually happens spontaneously, companies can influence it through appropriate marketing strategies.
Structured referral marketing is more like SEO or content marketing. Customers are encouraged and rewarded based on the actions they take as a referral. This can include recommending products or services on ecommerce or social media pages, product reviews, and even offline methods like events or conferences.
An eCommerce referral marketing program is a means of incentivizing current customers to refer new people to the site. When the new customer makes a purchase, the referrer is rewarded with a credit, discount, gift, or other valuable offers. This leads to happy customers all around!
Referral marketing works. It simply requires patience.
Referral Marketing Strategy in Action
Word-of-mouth marketing is the principle behind content going viral. A prime example of this digital marketing in action are the Old Spice commercials with Isaiah Mustafa. Originally released just on the YouTube platform, they were so funny that people told their family, friends, and shared them like crazy.
It resulted in the fastest growing online viral referral marketing campaign in history and racked up 23 million+ views in just 36 hours. It’s astounding. The traffic pushed their conversion rates through the roof. It increased sales by 103% for the brand and forever changed the way they approached marketing and customer acquisition. Potential customers became loyal customers overnight because of simple referral marketing techniques.
Developing a Referral Program
When word-of-mouth marketing is structured by a brand, it becomes a referral program. It’s a deliberate and systematic way to reward people for speaking about your business. To get people more interested, an incentive to “speak up” is offered. This can be a discount, gift, cash, etc.
It should be duly noted, even with incentive involved, a customer referral program will only work when people are genuinely gratified with your product/service. A small business should ensure they are offering top quality stuff to satisfied customers before ever considering a referral campaign.
A digital marketing referral program can only be implemented with proper research. It’s there to help drive profits up while keeping costs low. Your initial discovery should uncover what customers really want. If your referral incentives are worthless to the existing customer base, your marketing plan will fall flat.
The beginning research can look at a variety of things like buying habits, preferred products or services, times of day/week/month sales happen, etc. This will help determine the various incentives that will work on your customer base.
Surveying customers is another effective way to cut to the chase. Many of these surveys are positioned to simply ask people what kind of rewards and incentives they prefer. This takes the guesswork out of it when creating a referral program.
A referral partner program is slightly more complex, yet can generate tons of new customers. A business posts a product or service from another brand on their site. They send prospective leads to the seller’s site through the use of their homepage as a jump-off. Partners also use other media like landing pages, blogs, and social channels to refer people.
Employee incentive programs also exist. They are often centered around recruiting but can also align with particular marketing campaigns. In fact, these types of programs are one of the most underutilized forms of any compensation and benefits packages for employees in any industry.
Tools for Referral Marketing
To establish an effective program, a business needs the right tools. Referrals must be credited and measured in a multitude of channels. Otherwise, there is no real way to determine a successful referral.
Online and social media marketing is one key strategy for spreading the word on a referral program. Email marketing is another great method. Follow-up activities to track the success of these campaigns should be implemented early on to drive smart decision-making. Then, concentrate efforts on the strategies that generate the most referrals.
Referral marketing software helps to automate a lot of remedial tasks. These tools can simplify workload and offer other features like:
- Automate review generation campaigns
- Develop reward programs
- Post to target markets through sites like Google and LinkedIn
- Track and fulfill rewards to referrers
- Provide templates to maximize automation
- Measure performance of referrers in real-time
- Detailed analytics and reporting
The right software helps to curb repeatable processes and create a consistent look and feel for your referral program.
According to Nielsen, people are four times more likely to buy a product or service when recommended by a friend. It’s simply a more trustworthy means of gathering information before buying. Most people are safe to assume their friends and family won’t lie to them.
A brand can tap into the power of consumer testimonials through strategic referral marketing. This places a structured business process over the timely marketing tactic of word-of-mouth and optimizes the lifetime value of your offering.