What Is Referral Marketing


So, What Is Referral Marketing?

Has your florist ever given you a prettier bouquet for telling your friends about him? Or has a restaurant owner given you friends and family discount?


Humans understand referral marketing intuitively, we’re just wired to! We already tell our friends about our experiences. So referral marketing is an organic process. It will happen whether marketers get involved or not.


So what’s the role of a marketer? His role is to be deliberate about the process and make sure that the customers tell their family and friends about how useful his products and services are. This involves the implementation of incentives and tracking and lots of careful studies. The key is to ensure that these interactions are timely, useful, and relevant.


In a broader sense, anything that encourages a customer to refer a friend to a retailer is referral marketing.


Referral marketing goes way back to the pre-industrial days when merchants earned goodwill with their associates by sending their friends to them. It gave them an advantage over any non-social, non-reciprocal competitors.


But why should you bother with referral marketing right? Read along!


Why Is It So Important?

Your satisfied customers turn into your cheerleaders through referrals. If they have gotten their money’s worth, it’s a powerful selling point to others. When they have a good experience with your products or services they are happy to share it with others. This makes the process cost-effective and trusted.


A word-of-mouth impression drives at least 5x more sales than a paid impression. Customers acquired through word-of-mouth spend 2x more and make 2x as many referrals themselves. This means more customer retention as well as acquisition.


In his bestseller Contagious, marketing professor and author Jonah Berger identified six principles of sharing and word-of-mouth:


  1. Social currency: We share what makes us look good.
  2. Triggers: We share what’s at the top of our minds.
  3. Emotion: We share what we care about.
  4. Public: We imitate what we see people around us doing.
  5. Practical value: We share things that have value to others.
  6. Stories: We share stories, not information.


These referrals are not only useful but also help you stand out in a crowd, They give you an edge over you competitors.


What Type Of Businesses Can Look Into Referral Marketing?

These strategies can be effective for a wide range of businesses. From small single-owner and entrepreneur companies to large corporations in almost any industry, can implement Referral marketing.


Some common businesses that employ referral marketing include:

Fashion eCommerce

These companies have a large customer base along with social media engagement and higher customer lifetime. These result in an interest in referrals and organic word-of-mouth.


B2B SaaS

Gmail, Evernote, Dropbox, and Trello have had exponential growth by using referrals. The brand ambassadors of these businesses can be rewarded with a cut of the revenue from the referred customer as well as other premium features.


Big Ticket Items

Big ticket items refer to products like TVs, furniture cars, etc. The referral incentives in such businesses can be more appealing because their margins and customer value tend to be higher.


Referral marketing can be highly effective in an online environment because of the popularity of social media. Online referral marketing can spread faster and to a larger base of customers as compared to an offline strategy.


A joint venture between a non-profit organization and a for-profit company is a popular marketing strategy. They use referral marketing to increase publicity and attract more donors. The for-profit company, in return, offers a percentage of profit for each referral.


For example: Through H&R Block's nonprofit referral program, organizations receive a $25 donation for each new client who signs up for H&R Block services through the nonprofit.



What Kind Of Customers Are Effectively Marketed To With Referral Marketing?

Before working on customer acquisition, you need to make sure that the existing customers you are targeting for doing so, are the right type.


Over 65% of marketers say that referral marketing attracts loyal, satisfied, and profitable customers. So these customers will in fact be referred to by your existing loyal, satisfied, and profitable customers. Such customers must be your primary target for becoming your brand ambassadors.


You can customize your referral strategies based on a variety of demographics. Customers are more likely to refer your brand to their family and friends if they get an incentive. The higher the reward for promoting your product, the more happily would the customers help you.


For example AT&T Wireless offers a referral program that provides opportunities for customers to earn up to $575 a year through referrals for different services, including high-speed Internet, home phones, wireless phones, and their U-verse packages.