Wikipedia defines referral marketing is the method of promoting products or services to new customers through referrals, usually word of mouth meanwhile referral marketing is defined by Amplifinity as the process of leveraging different referral sources such as partners, customers and influencers, to refer target buyers they have a relationship with to your product or service. Simply put, referral marketing, sometimes also called word-of-mouth marketing, is just people purchasing products based on someone else's opinion or influence.
According to McKinsey, referrals influences up to 50% of all purchasing decisions. Not only that, referrals generates more than two times the sales of paid advertising while Nielsen's study shows that 92% of consumers trust recommendations from people they know. Plus, according to another study published in the AMA Journal of Marketing, referred customers are more loyal, and bring higher profit margins as high as 25%.
1. Asking for Referrals
This simple and effective strategy involves mentioning a referral program to as many customers as possible. A computer repair company used this strategy effectively by stamping “We Crave Referrals” on every paper customers received including newsletters, marketing material, and invoices.
2. Employee Training
The employees are the greatest ambassadors. Many companies have a training process that equips employees with the knowledge to effectively market the referral program to each and every customer. They provide incentives to employees for promoting their products. In banks, clerical staffs are given monetary incentives to promote some saving schemes or mutual funds. The best performers among them may be periodically recognized by giving a gold coin on a monthly or quarterly basis.
3. Joint Venture Referrals
Some companies partner with complementary businesses to cross-promote to each other's customer bases. This strategy involves each business offering discounts or other incentives to customers from the referring company, typically in exchange for a percentage of sales from referred business.
1. Precision Targeting
A great marketing campaign involves two key components, a great message and laser targeting. Referral and word-of-mouth marketing tend to be much more targeted because people tend to know their friends and social audiences pretty well. This allows your brand message to spread more effectively than with most other marketing channels.
2. Trust Factor
Studies have shown that people almost always trust these people's opinions over generic advertisements and sales pitches carefully crafted by the brand themselves.
Referrals aren't just limited to friends and family. They can come from a variety of sources, provided the receiver of the message trusts them.
The major types of referral channels:
a. Friends/Family
b. News Publications
c. Customer Reviews and Opinions Posted Online
d. Influencer Opinions (Bloggers, Social Media Influencers)
e. Testimonials
3. Market Reach and Acceleration
With the advent of social media, the average consumers' reach is much larger and for many people with strong social followings, it can be enormous. For instance, just with a simple Facebook post, Twitter tweet or Instagram selfie, the average consumer can now reach hundreds or thousands in a matter of seconds.
Dropbox, an online file storage company that offers both free and paid services, implemented a referral program in 2009 asking users to tell their friends about the service. The program offered rewards for both sides of the referral coin—those who signed up for a referral link would get additional free space, and the person who referred them would also get more space.
By 2010, referrals accounted for around 35% of their daily signups, and Dropbox signups had permanently increased by 60% overall. The company estimated that within a 30-day period (April 2010), their users had sent more than 2.8 million direct referral invitations.
A study conducted by the Goethe University Frankfurt and the University of Pennsylvania, on referral programs and customer value which followed the customer referral program of a German bank that paid customers 25 euros for bringing in a new customer, was released in July 2010. The study found that referred customers were both more profitable and loyal than normal customers. Referred customers had a higher contribution margin, a higher retention rate and were more valuable in both the short and long run.
In addition, according to the New York Times, 65% of all new business comes from referrals. That means on average, two-thirds of consumers make purchases because someone they know recommended a particular product or service.
1. Customers Trust Referrals
Recent consumer polls indicate that recommendations and reviews are trusted more than conventional advertisements. Meanwhile, people are four times more likely to buy when referred by a friend.
2. Improved Customer Retention Rate
Customers who participate in referral programs are much more likely to stay with your company. Referral programs help the company establish long-term relations with customers. The company can match motivations with consumer expectations and raise the effectiveness of market programs. Referral programs are among the least expensive marketing strategies and can also be regarded as a tool for retaining current customers.
3. Referred Customers Are More Valuable
Referred customers already have a positive opinion of your company because they’ve been referred by a peer. Customers that have been referred by a friend, family member or colleague have a lifetime value that is, on average, 25% higher than that of other customers.
4. Great ROI Value
While discounts and gifts will have a small cost to your company, referral marketing is a cost-effective way to advertise when compared to other modes such as traditional online ads. You can save even more by streamlining your referral marketing system rewards into your general loyalty rewards program, which will allow you to award points rather than an immediate gift or discount per referral.
5. Boosts Sales
Referral-based customers are better matched as the referred customers are likely interacting with people similar to themselves.
Existing customers know the purpose of marketing and understand the need for potential clients. The referrers can measure a good fit between the two and the well-matched customers can help the company produce more profits at a lower cost.
The value and contribution of customers acquired through referral campaigns are higher than those of non-referred customers.
6. Indicator of Customer Satisfaction
According to an Advisor Impact study, 83% of your satisfied customers are willing to refer you to their friends. As such, referral programs are a good method to define consumer satisfaction. If comparatively few consumers are willing to act as referrers, a company's customer satisfaction may be low.
The referral program may be abused by opportunists. They may recommend unsuitable products to other people to acquire referral fees. The financial motivation of the referring customers may harm the sincerity of their recommendations.
Referral marketing is a powerful and important component for every business. Implementing some basic tactics can help encourage and facilitate the referral process which can be a major source of new sales.
Read more:
1. What's Affiliate Marketing ?
2. The Difference Between Affiliate Marketing and Referral Marketing
3. Why Word of Mouth Marketing Is Important ?
Edited by: 浪子
Bibliography
Wikipedia. (2018). Referral Marketing. Retrieved from https://en.wikipedia.org/wiki/Referral_marketing
Si Quan Ong. (2018). The Ultimate Guide to Referral Marketing. Retrieved from https://my.oberlo.com/blog/referral-marketing
Richard Lazazzera. (n.d.). Referral Marketing 101: 7 Tactics to Launch Your Own Referral Campaign. Retrieved from https://www.shopify.com/blog/15679636-referral-marketing-101-7-tactics-to-launch-your-own-referral-campaign
Marketing Schools. (n.d.). Referral Marketing. Retrieved from http://www.marketing-schools.org/types-of-marketing/referral-marketing.html
Amplifinity. (n.d.). Why Referrals? Retrieved from https://amplifinity.com/why-referral-marketing
Grace Miller. (n.d.). 14 Benefits of Referral Marketing to Inspire Your Strategy. Retrieved from https://www.annexcloud.com/blog/14-benefits-referral-marketing-inspire-strategy/
Educba. (n.d.). 9 Ways For Referral Marketing Strategy | Example | Meaning | Statistics | Definition. Retrieved from https://www.educba.com/referral-marketing-strategy/
Referral Marketing
Reviewed by 浪子
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December 27, 2018
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Reviewed by 浪子
on
December 27, 2018
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