In today's digital age, word-of-mouth marketing or referral marketing has never been more powerful.
In fact, 82% of consumers seek recommendations from their peers before purchasing.
And with the average referral generating four times more sales than a non-referral lead, the increasing popularity of referral marketing among businesses of various scales is not surprising.
But where do you start?
How do you create a successful referral program that drives results?
Well, fear not!
In this extensive guide to referral marketing, we'll cover everything, from identifying your ideal customer to crafting compelling incentives and measuring your success.
Let’s dive right in!
Understanding Referral Marketing
Referral marketing is when existing customers promote a product or service to their friends and family for incentives. It helps gain new leads and increases customer loyalty.
Such recommendations frequently occur independently, but firms may influence this through suitable techniques.
Although they seem the same, word-of-mouth and referral marketing are different.
The primary distinction between referral marketing and word-of-mouth marketing is that referral marketing is "intentional."
A company intentionally begins a referral marketing campaign. Using referral marketing, companies urge consumers to tell their friends about them.
Word-of-mouth marketing can be more spontaneous, typically initiated by delighted consumers rather than by any planned effort on the part of the business.
Referral marketing is one of the most critical marketing strategies for marketers today.
Before COVID-19, just 3% of worldwide e-commerce decision-makers thought referral was the greatest marketing channel for ROI.
During the COVID-19 epidemic, however, 49% of B2B sales companies and IT providers agreed that client recommendations were their most successful marketing approach.
Types of Referral Marketing
There are various forms of referral marketing. Here are a few:
Direct referrals occur when your current client base contributes to brand exposure with minimal to no marketing efforts.
It is the most conventional and honest kind of referral marketing. There are no incentives, freebies, or commission payouts. The consumer is just pleased with your company.
The most common sort of recommendation is rewarded. A person has the incentive to suggest your items to their audience under this scenario.
When the referrer purchases or becomes a subscriber, they will receive a discount, cash kickback, or another incentive.
Several referral schemes provide two types of incentives. Companies might opt to compensate both the referral and the new client for participating in the program.
For example, you may provide recommended consumers a $15 coupon code on their first purchase while the referrer earns extra points or money off their next buy.
PayPal, Uber, Tesla, Instacart, and Dropbox are well-known for their two-way referral marketing.
Email is one of the most effective tools in your referral marketing arsenal, with over 4 billion active users globally.
You may use email marketing to deliver targeted communications about specials or referral programs to consumers and prospects.
Email newsletters may also be used to keep contacts up to date on new products and services.
Email is the second most popular referral method among all. See for yourself:
A recent customer poll found that 49% of individuals consider online reviews to be equally trustworthy as personal recommendations. This implies it's critical to establish a strong internet reputation through consumer reviews.
Encourage customers to leave reviews on your referral marketing website, Google My Business page, and other review sites like Yelp. But don't stop there - actively work on building up your Amazon review scores for the products you sell.
Social networking may be an effective tool for referral marketing. Your brand advocates may share their experiences, upload promotional content and messaging, and even conduct live streams to interact with other consumers and prospects.
You may set up a referral program with specific rewards for anyone who brings new clients, or you can reward loyal followers for participating with you on social media.
Simply use a custom URL or hashtag when consumers refer others so you can track and measure the performance of your campaign.
Referrals based on a brand's reputation occur when customers confidently suggest your high-quality products/services. This can happen even before the client has experienced their own customer experience.
This is only sometimes the simplest approach to receiving these kinds of references, especially for startups and small businesses.
These referrals often occur due to having a solid reputation for offering excellent products and services. You should also aim for a high rate of client retention.
Referral vs. Affiliate Marketing
Although referral and affiliate marketing have similar functions, several significant differences exist.
While both systems rely on incentives to attract new customers, the underlying strategy and methodology differ greatly.
The primary distinction between the two strategies is that affiliate marketing relies on brand supporters to refer clients to your company for a commission. Affiliates can be found through an affiliate network, online marketplaces, and social media.
The number of referrals received via your affiliate marketing program should be recorded, and affiliates should be compensated accordingly. As a result, the approach is closely associated with ecommerce, SaaS, and online business.
Referral marketing is less expensive since it rewards current consumers for inviting their friends and family to try your product/service.
Instead of affiliate marketing management, referrals are easier to obtain and more honest. The most outstanding referrals will come organically if your product is excellent and your customer service is responsive.
Why Referral Marketing is Important
Referral marketing is essential for many reasons, including-
High Customer Lifetime Value
According to research by the Wharton School of Business, recommended customers had a 16% greater lifetime value than regular consumers. This means that clients who arrive via a referral will bring in more money over time than those from other sources.
Remember that every new consumer you bring in costs your company money, whether through advertising, promotions, or other marketing methods.
Referral clients have a more excellent lifetime value than paid customers, so they can pay off those expenditures faster and help your firm save money in the long term.
Likelihood of Conversion
Compared to more traditional promotion types, referral marketing frequently results in greater conversion rates.
Customers who receive word-of-mouth referrals receive individualized suggestions from someone they trust. This increases their likelihood of acting on the advice and making a purchase.
According to McKinsey research, 63% of Gen Z customers believe that referrals from friends are their most trustworthy source for learning about products and businesses.
People have faith in one another. It is simply a fact.
Consider this: if you're searching for a new product or service, you're far more likely to buy if you get a suggestion from someone you know.
You could even study internet reviews before purchasing to get precisely what you want.
This is sometimes referred to as social proof, which is the belief that if others are doing something, it must be okay for us to do the same.
People wait for the latest Jordans or Supreme releases to be so popular. They may not be giving the finest product on the market, but it is the most desired since everyone else is buying it.
Empowers Word of Mouth
Referral marketing allows for scalable word of mouth. Through a referral marketing campaign, you gain access to a vast pool of individuals you would not have access to otherwise because you encourage your largest brand champions to suggest you to others.
You may transform word-of-mouth marketing into a channel and increase brand recognition by implementing an automated referral and reward system.
Builds Social Proof
People make decisions based on the views of others more often than they know. People answer questions like what items to use, where to purchase, what to eat, and even what TV series to watch by looking at others.
People would automatically conclude that if everyone is going toward a specific brand, it is also the perfect one for them.
Referrals are one of the components of social proof. They assist in priming potential consumers, resulting in speedier transactions and improved conversion rates based on trust.
Uses Social Currency
People are always eager to share anything that makes them appear excellent or calm - they are willing to "spend" their social currency on a company, product, or content if they believe it will improve their reputation.
They will use this currency to endorse brands they believe others would enjoy. Hence, if they promote you, this immediately puts your brand in a favorable light (it's reasonable to assume that no one would spend their social currency on a business that makes them appear terrible.)
Furthermore, because your company is being suggested by a reputable source (someone they already know), referral marketing helps develop your brand and its social currency.
Grows a Targeted Audience
A business usually comes up in discussion because someone is talking about a new brand or product they discovered. This puts the company in front of high-quality, targeted leads, which most marketers want.
No one will suggest you to every one of their friends; they will only refer those who need or may be interested in your goods.
Even if a person publishes their referral link on social media, only those interested friends will click to learn more.
49% of consumers find the perfect product by seeing a targeted ad, and almost 34% find them by researching social media.
This implies that referral marketing employs a natural filter. Your current consumers spread the word about your business to their friends and family, already screening out those who they believe will benefit from your products and services.
Only those most likely to become consumers are directed to your company. And because these possible new clients heard about you from a reliable source, they are more likely to test your product.
Increases Loyal Customers
Referrals who become new clients are frequently some of your most ardent supporters. You're already in a positive light from the first moment they hear about you (from a friend).
And if you give dual-sided benefits, which means the new client also receives a reward, the odds of them becoming a pleased customer continue to stack in your favor.
Because recommended customers have better customer loyalty, they have a higher total customer retention rate and a higher lifetime value - 16% higher than other customers.
Adds Another Form of Engagement
Emails, social media, and customer service may all be used to promote referrals. For example, you may email blasts or publish material on social media.
Referral marketing provides another incentive to publish on these platforms and engage with your clients beyond simply inviting them to join your program.
You may also interact with current referral program members by giving them social media shout-outs and expressing gratitude for their assistance. Public adoration is just what a consumer needs to keep referring to.
Extends Your Business Reach
Because a referral marketing program is owned media, it is a legitimate method for interacting and engaging with your customers.
Not only is it a marketing channel over which you have total control, but it also helps you to expand fast because each new customer can lead to numerous sales.
At their core, referrals are also earned media since your consumers choose to promote you.
A referral marketing program qualifies as paid media when you reward clients for sharing. As a result, you'll reap the benefits of paid, owned, and earned media.
Builds a Cycle of Sharing
One particularly compelling aspect of referral marketing is its ability to initiate a sharing loop. Customers already referred are four times more likely to suggest their friends, partly because they wish to pay it forward.
These friends will likely suggest their peers, perhaps starting a never-ending sharing cycle.
Creates a Cost-Effective Marketing Strategy
Conventional marketing may be time-consuming and costly. On the other hand, referral marketing is a low-cost strategy to promote your business and spread the word swiftly.
You're capitalizing on established relationships by engaging existing consumers to help market you.
According to a recent survey, more than half (54%) of marketers believe that referral programs are a cost-effective method for generating leads compared to other marketing channels. (social media marketing today).
Once your referral program is in place, it may be used as a performance marketing channel.
It is only necessary to pay out rewards once you acquire a new customer after the initial setup charges.
Referral Marketing Statistics
Let’s explore some of the exciting stats about referral marketing. Research shows that:
- 18% of Gen X consumers rely on recommendations to discover brands.
- Recommendations from friends increase a person's likelihood of purchasing by 4 times.
- The lifetime value is 16% higher for a new referral customer.
- 92% of people trust referrals from friends.
- 77% of consumers are more likely to buy a new product when recommended by someone they know.
Referral Marketing Strategies
Referral marketing strategies rely on the power of word-of-mouth to promote a product or service. These strategies typically involve incentivizing current customers to refer their friends or family, creating a cost-effective and reliable source of new business.
Define Your Goals
Objectives provide direction for firms and aid in measuring progress. Consider what success means to you while developing your referral marketing campaign.
Consider the following:
- How many referrals do our program need to generate?
- What kind of clients do we want to contact through referrals?
- Are there any specific geographic locations you'd like us to focus on?
After you know what you want to accomplish, you may concentrate on techniques to assist you in getting there.
If you want to target clients in a specific area, give coupons solely to folks in that area.
Plan Your Campaign
With your objectives in mind, developing your referral marketing campaign is time.
This includes selecting the right platform, implementing monitoring and analytics tools, designing an email plan to drive referrals, and creating incentives to encourage consumers to share your business with their friends.
Consider the following while developing your campaign:
- How long will the program be active?
- What kinds of incentives would you provide for referrals?
- How will consumers be able to monitor their referrals and earn rewards?
- Will there be limits on where your referral link may be shared?
- How will you track performance and ROI?
After establishing a strategy, you may get creative with your referral marketing strategies. There are several ways to spread the news about your firm, ranging from clever email marketing to social media competitions.
Use Referral Links
Referral connections are important for developing a successful referral campaign. Customers may easily send their friends to your website via any channel because they can be copied and pasted anywhere.
You can attach prizes to the link for both the referrer and their friend, and these rewards will be activated when the buddy makes their first purchase. Furthermore, each customer's referral link is unique.
You can track recommendations back to the individual who made it. This makes it simple for your company to identify who made the referral and reward them appropriately.
Tap into Social Media
We live in a world obsessed with social media.
- Internet users spend over two and a half hours daily on social media, equating to over two and a half hours of daily surfing and sharing.
- According to Nielsen research, 60% of respondents discover a certain brand or shop through a social networking site.
Why not take advantage of this?
Every day, numerous referral marketing efforts are posted on social media, and these postings reach many people at once.
You may enhance your chances of getting seen by new clients if you make it simple for current customers to socialize with your brand.
Furthermore, if someone reads a referral post and is intrigued, they may share it with their friends, thus starting a viral sharing loop.
Use Email Marketing
Email is more reliable than social media because it goes straight to the receiver's inbox. It's a great way to stay in touch with friends and colleagues and is vital for businesses to communicate with their customers.
Sending emails is an effective way to promote your referral program and its rewards. It's a great opportunity to encourage your current customers to spread the word and share the benefits with others.
Furthermore, referral marketing complements your present marketing activities. A brief referral note may be effortlessly included in any email you send.
You may include a referral link in the customer thank you confirmation email or a modest banner in your next corporate newsletter. While asking for feedback, you may also ask for recommendations.
Incorporating a hyperlink in your email signature or a compelling call to action in your newsletter can prove highly effective as a means of generating referrals. It serves to remind people about your program without being too obvious.
Create Viral Content
In principle, word-of-mouth marketing is appealing.
Nevertheless, it may not apply to all retailers. Some businesses sell things that are so uninteresting that no one will ever talk about them, no matter how inventive they are.
How many individuals are eager to discuss vehicle parts? Or perhaps furniture? What about socks?
You just need to figure out whatever material did well / was popular in your sector, then enhance and market it.
Implement a Referral Program
What exactly is a referral program?
A referral program is a purposeful, systematic approach to encourage customers to refer your company. It incentivizes your consumers to spread the news and encourage their friends to shop at your store.
You may use a custom-built solution (typically limited to large businesses) or an automated referral program solution like ReferralCandy, a Shopify app, to set one up.
Leverage the Power of Influencers
Influencers are those who have a vast following. They wield enormous power over their devotees, who want to appear, dress, think, and live like them.
Every suggestion these influencers significantly impact which products trend, become viral, and sell out.
Kylie Jenner reportedly caused Snapchat's market value to plummet by $1.3 billion after telling her admirers she "no longer" used the service.
This also means that collaborating with them to advertise your items to their audience - and build word-of-mouth for your business - is a significant potential.
Collaborate with them in various ways to persuade them to promote or recommend your product to their target audience.
You may start with a simple sponsorship campaign:
You may even convince them to support your goods by having them as a model for your advertisements.
It also does not have to be a large-scale, costly effort.
ModCloth, for example, is well-known for naming its gowns after notable fashion influencers.
These influencers were flattered and eventually boasted about it to their audience, resulting in free word-of-mouth.
Establish Transparency and Credibility
To build a loyal customer base and get referrals, a strategic approach is necessary that goes beyond just transactional interactions.
You should demonstrate to your consumers the integrity and credibility of your brand. The number one motivator for consumers to suggest a firm is trust.
Make the Product Experience Shareable
There are several ways to share your customers' experiences.
For example, you may customize your package and unpacking experience for social media sharing. Trunk Club is particularly good at this.
Trunk Club goes above and above to ensure the unpacking experience is memorable.
Trunk Club gently encourages consumers to write about their unpacking experience on Instagram or other social media platforms by ensuring it is "wow-inducing."
Trunk Club is so famous that consumers record YouTube videos of themselves unwrapping Trunk Club purchases, which spreads the word even further.
The unpacking experience is one of many locations where virality may be encouraged.
Can you recall your "minimum viable personality"? It's not a vanity, business school exercise in which you feel suitable for filling it full.
Your goal is to discover methods to include that characteristic. You may include elements of that personality in your referral marketing website design, writing, photos, product descriptions, etc.
It doesn’t always have to be about your product.
Provide Exceptional Customer Service
Happy customers are more likely to spread the word. How do you obtain satisfied customers?
Despite continuous reminders about how customer service can drive a company, excellent customer service is uncommon. Most businesses supply the bare minimum.
Yet, you must provide excellent customer service if your consumers want to spread the word about you.
Evaluate your whole customer service experience. Is it up to scratch?
Assume you're a consumer visiting your store. Would you, as a consumer, tell your friends about you if they used your customer service?
It also does not have to be elaborate. Sometimes all you need to do is offer post-purchase assistance.
Live chat is another customer assistance option you should explore. By incorporating live chat into your business before checkout, you may resolve objections and answer inquiries before the basket is checked out.
Customers will feel safer purchasing from you if they know a real person on the other end eager to listen to their queries if you include live chat.
Determine which aspects of your customer care process may be improved. About the preceding point, injecting a little comedy or personality into the procedure may make the entire experience more enjoyable and intriguing.
Offer Strategic Referral Incentives
Customers may like your brand, but more is needed to suggest others actively. What may be of assistance? A referral reward might help get people talking. Yet the incentive doesn't have to be expensive or provided in cash.
You may give away free early access to your new items, an invitation to your next webinar, shop credits for a future purchase, or discount coupons.
You may also offer branded stuff as The Hustle newsletter does - they purchased their referral program swag in bulk, making it very cost-effective. If the content and experiences are unique enough, they can also act as rewards.
You can select the ideal award that matches your budget and your business with a bit of imagination.
You should also examine if your clients and their friends will be rewarded, which is known as a double-sided referral plan.
Consumers may be more likely to recommend if they receive something for themselves while giving it to their friends. Furthermore, rewarding the recommended buddy encourages them to make their initial purchase.
Make it Easy for People to Refer
Referral marketing is meant to be simple. If someone needs to go through a lengthy process before they can submit a reference (or even join your program), they are unlikely to do so.
Make it simple for them by incorporating referral marketing automation into your program. Make it feasible for them to spread your brand in as few steps as possible.
Reducing things down into three stages, as Digital Ocean does, is an excellent approach to demonstrate how simple referencing may be.
Go Beyond Customer Expectations
Customer satisfaction is essential for referral marketing. You must develop methods to exceed your client's expectations to differentiate yourself since most customers now expect high-quality items and courteous customer service.
You may, for example, surprise them with a present on their birthday, upgrade their plan for a month, or gift them when they need it.
These gestures of appreciation are awesome ways to make your clients happy and urge them to suggest their friends.
Create a Community Around Your Brand
Building a community is one approach to creating value, keeping your brand in front of customers' minds, and giving them the incentive to share. You may build a community around your business in a variety of ways.
- You might create intriguing social media or blog material that generates a lot of comments and discussion.
- Alternatively, experiment with various prompts and contests to encourage customers to contribute user-generated material promoting your items.
- You could create an online community or forum where customers can share ideas on how to use your items (or come up with different ways your product can be used, as LEGO has done with its LEGO Ideas site).
All of this will boost client trust in your business and inspire them to urge their friends to join the community.
How to Create a Referral Marketing Strategy
We will explore some proven steps to create a fantastic referral marketing strategy.
Decide What Referral Incentives You’ll Offer
Begin by establishing a client acquisition budget and designing your referral reward accordingly.
Next, determine if you'll reward the new and existing customers for the recommendation.
MeUndies, for example, provides a give 20%, receive $20 incentive to customers who refer a friend.
The buddy receives 20% off their first order, and the existing customer receives $20 when their friend purchases.
This can also be in the form of a gift with the purchase instead of a discount. Individuals on a smaller budget may opt to limit the incentive to the person who makes the recommendation, which can help save expenditures.
Choose Your Referral Marketing Software
To keep track of potential clients that come in as referrals, you'll need a system to handle referrals and give rewards.
These referral marketing tools are all accessible in the Shopify app store if you operate your business on Shopify.
Provide a Best-in-Class Product Experience
An excellent customer experience results from superb branding, a beautiful unboxing experience, good customer support, and a fantastic product. It will impact long-term and drive individuals to tell their friends about your company.
A great, consistent customer experience drives retention: if consumers know they'll have a pleasant time purchasing with you, they'll be more inclined to return.
Customer experience should be the top priority for businesses in the upcoming years.
Communicate Your Values
Client loyalty arises from a connection with a company, whether based on its goal or values, the quality of its products, the type of customer experience it provides, or all of the above.
By conveying your brand values frequently and frankly, you may establish a relationship with the consumers who share those beliefs, increasing affinity and their probability of promoting your business elsewhere.
Saie, for example, publishes its beliefs and standards on its website. It outlines its eco-friendly credentials, fantastic ingredients and why, and the ones it will never use.
Advertise the Program
After you've decided on the structure of your referral program, inform your consumers. Provide material via your primary marketing strategy, such as social media, content marketing, or email marketing.
You should also communicate program details through a readily accessible landing page on your referral marketing website.
Campaigns based on referrals might also help you spread the word.
Launch a social media campaign or send a series of SMS and emails informing them about the prizes they may receive.
Best Referral Marketing Examples
Here are 4 of the most amazing referral campaign examples you should look into:
Jeff Raider, the co-founder of Harry's (a grooming firm), outlines how they utilized referral marketing to gain over 100,000 emails in preparation for their debut in a post on Tim Ferriss' blog.
Harry's designed a two-page microsite where potential consumers could win different things based on how many friends they recommended.
This was their campaign:
Their campaign was a smashing success, and Harry's is now worth more than $350 million!
eJuices is one of the largest online e-cigarette distributors in the globe.
The company's founder Billy Wilson founded it after meeting his current business partner Paul Davey. They began by selling vapes in retail locations before taking the business online.
They investigated several marketing methods to expand the firm. They tried attending trade exhibitions, selling in-store items, and creating their website.
Nevertheless, genuine exponential development occurred when they began to employ referral marketing.
Here’s their referral program:
Their consumers adored eJuices and were delighted to tell them about them. eJuices thought they had uncovered their most potent marketing channel after seeing the unending circle of consumers and their friends bringing friends.
eJuices now sells 1,700 brands with sales in the millions of dollars.
Drew Houston and Arash Ferdowsi launched Dropbox, a file storage cloud service, in 2007.
Dropbox, like many other businesses, struggled to expand its user base. They resorted to search engine marketing to solve their growth problem, but it was a colossal disaster.
It was discovered that their cost per customer was $388. Dropbox was a $99 product at the time. It made no sense.
They finally decided to follow PayPal's lead and set up a referral scheme.
How effective was their referral program?
They climbed from 100,000 to 4,000,000 users in under 15 months! Dropbox subsequently became a multibillion-dollar company and filed for an IPO on the Nasdaq.
Dollar Shave Club
Dollar Shave Club, a subscription-based grooming firm, began as a business through a referral marketing effort.
Dollar Shave Club made a cheeky and funny YouTube video titled "Our Blades Are F***ing Awesome" in 2012. It featured its CEO, Michael Dubin, delivering a scathing monologue.
How did the video perform? 25 million page visits!
Furthermore, Entrepreneur stated that over 12,000 individuals signed up for Dollar Shave Club's razor delivery service in the first two days of the video's release. They had 25,000 clients by the end of the week.
The first clients were so taken with the advertisement that they spread the word, and it became viral.
Unilever acquired Dollar Shave Club for $1 billion in cash five years later.
How to Know Your Business is Ready for Referral Marketing
A referral marketing scheme is only appropriate for some businesses. Here are some simple techniques to determine whether your company will benefit from a referral marketing strategy:
You’re Active on Social Media
Customers increasingly use social media to follow businesses they enjoy, ask questions, and communicate with other consumers.
In fact, 70% of people feel more connected to a brand whose CEO is active on social media.
If you want to engage with your top customers and urge them to spread the word about you, you must go where they are.
You may also utilize social media to publish brief articles, behind-the-scenes stories, and user-generated material.
You Have a Base of Loyal Customers
Referral marketing begins with your most devoted customers, admirers, and brand advocates. They are the most likely to suggest others because they currently use and appreciate your items (maybe they already do!).
The incentives built into referral systems are an great ways to express your gratitude for their assistance.
And in terms of loyal customers, Gen X has the most excellent referral conversion rate of the three generations.
Gen X is responsible for 56% of referrals, followed by millennials and Baby Boomers.
You Have a Good Reason for Consumers to Refer You
There's nothing to do with prizes, but they do help. Besides incentives, your brand should provide something of value.
For example, you may provide a simple way to create a website or nutritious meals in 30 minutes.
A fascinating product or brand narrative, such as why a product was created or the experiences and challenges involved in the creation, may also help to establish your brand as valued
And what if you provide a unique experience that people cannot help but share?
That's even better!
This is the value you provide to consumers and referrals, and it should be developed before commencing any marketing effort. It should be simple for customers to grasp and share with others.
In the modern world, when customers are constantly assaulted with advertisements and marketing messages, referral marketing is an effective way to cut through the noise and reach potential customers.
By utilizing social media and word-of-mouth, businesses can tap into an existing network of loyal customers and turn them into brand ambassadors.
Referral marketing is also cost-effective compared to traditional marketing methods and can generate higher conversion rates.
Businesses prioritizing referral marketing strategies can benefit from increased brand awareness, customer retention, and sales growth, making it a valuable investment in today's competitive marketplace.
So, which referral marketing strategy is more effective?
All of them are effective marketing strategies, and you may use one or the other depending on your company's objectives.
Our utmost priority is to ensure that our services are attainable to all businesses, regardless of their size. Our unwavering dedication to this approach has empowered countless businesses to achieve success.
At AI bees, our main focus is on delivering concrete results, practicing with integrity and transparency, and ensuring clear communication in all our pursuits.
Contact us if you want to get started with effective referral marketing strategies.
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