Humans are social creatures by nature. So, it’s no surprise that a referral marketing strategy is one of the most tried and true promotional plans used in marketing today. This strategy has been deployed by some of the most successful brands like Tesla, Red Bull, and HelloFresh to generate acquisition and brand loyalty. Odds are, you’ve probably encountered it.
If you’ve ever sent or received an “enroll a friend” email with an attached referral code to unlock a special discount or favor, you’ve encountered referral marketing.
If you’ve ever scrolled instagram and seen one of your favorite influencers touting a pair of shiny new sunglasses, fancy lip gloss, or another product, you’ve encountered referral marketing.
If you’ve ever taken a walk across a U.S. college campus and encountered chipper brand ambassadors in brightly branded t-shirts handing out discount codes from a booth, you guessed it–referral marketing.
When you think about those brand interactions–scrolling instagram, walking across a campus, clicking the link to endless discounts–Did they seem effortless? Did they make a loyal customer out of you? Do you still remember them?
If you answer yes to any of these questions, you already have a basic understanding of how referrals can become potent marketing strategies.
What is referral marketing?
Referral marketing is a method of promoting your brand, products, or services through consultations or reviews. Referrals are often doled out by passionate customers or brand advocates who are offering glowing reviews and, occasionally, referral codes or free gifts.
Usually, referral marketing utilizes recommendation and word of mouth marketing to grow acquisition via the network of pre-existing customers. The way that a company chooses to encourage their customers to share and entice new customers to join can vary; but, the most successful referral campaigns are tailored to the needs and habits of your target demographic.
Why it works
Who do you trust more: the pop-up add that stands between you and that delicious cookie recipe, or your mom? The paid results at the top of your SERP page or your best friend? Your favorite influencer or a door-to-door salesman?
The answers are easy, right?
It’s no surprise that we are more likely to trust those in our inner circle than even the cleverest and most expensive marking schemes. This is because the advice and recommendations given to us by family, friends, or even acquaintances carry a social, emotional, and practical weight.
Regardless of if you know them personally, engaging with someone whose values align, or appear to align, with yours is generally more impactful than the curated ads that float across our screens.
If you have a bad experience with a product, you’re probably going to tell your friends or family about that product because, generally as humans, we hope to keep those we care about from negative experiences.
On the flip side, if we have a positive experience, we want them to share in those positive things.
Referral marketing allows companies to capitalize on these social-emotional bonds to establish rapport before you even download their app or step foot in their store. A cost-effective and potent strategy, referral marketing is the reason brands seem to be contagious.
What are the benefits of referral marketing?
Implementing a referral marketing strategy can have several benefits. The first and most obvious is that it’s highly-cost effective. The most low-cost program is simply providing an exceptional customer experience to generate high satisfaction rates and get people talking.
Consider these facts:
- 4x more likely to buy a product referred by a friend
- Word-of-mouth marketing drives 5X more sales than paid advertising
- Referred customers have a 37% higher retention rate
- Referred customers refer 5x more than non-referred customers
- Referrals end up creating 65% of new business opportunities in corporations who implement them.
While these numbers are impressive, referrals also generate some broader benefits.
1. Target a more precise audience
Your existing customers aren’t going to recommend your product to just anyone. They are tapped into exactly who in your target demographic is in need of your product. As a result, you’re going to be able to efficiently acquire higher quality users.
2. Higher-value customers
Building rapport can be one of the biggest challenges for a company seeking to build a loyal customer base. By recruiting the close friends and family members of already loyal customers, you’re more likely to engage more long-term–and therefore, more high-value–customers.
3. Greater brand awareness
Even if you aren’t generating all that many new customers, referral marketing offers you the chance to expose potential customers to your brand story in an authentic way. When satisfied customers tell your story, you build a positive reputation among consumers.
How to create a referral marketing strategy
After you’ve decided to implement a referral marketing strategy, it’s essential to pinpoint a few basic outlines and points to ensure that your strategy is on-track and effective every step of the way.
1. Identify your target audience
This one might seem obvious; however, knowing the markets and submarkets that you are hoping to gain referrals from will help drive your strategy in a more precise direction.
Offering referral or discount codes is a great way to generate engagement, but it can also open you up to being taken advantage of. Being sure to target your established market, the customers with whom you have a relationship can help mitigate the potential for disaster and maximize the cost-benefit of promotional offers.
2. Identify your mode of action
The best referral plans are the ones that have your customers in the center of them. It doesn’t make sense to embark on an influencer marketing scheme if your product caters to a population that doesn’t use instagram.
An easy way to choose a mode of action is to do something you already do: consider your ideal customer. What are their values, hobbies, triggers, and where do they spend most of their social energy? This will provide you a platform to jump off of when building out your program.
You will also want to consider the amount of available resources and effort that your referral campaign is going to require of you. Duration and scale are essential to nail down before you begin.
3. Set tangible goals
Before you hit send on those refer-a-friend emails, be sure you have a system in place to measure how effective your strategy is. Having this set up beforehand will more easily allow you to adapt if adjustments need to be made through the process. These goals will also give you insight into the behavior and quality of the customers you are acquiring.
4. Have a long-term outlook
So, you’ve got a solid plan. You’ve sent the email and the new customers are rolling in. Now what?
The best referral programs are able to make impacts that go far beyond the discount codes and keep your customers talking about you. Of course, your budget, time commitment, and required effort are all going to be factors in considering the realistic longevity of your orchestrated referral program.
6 referral marketing strategies to boost sales
1. Leverage social media
Your first and most powerful tool when it comes to referral marketing is social media. It’s simple, low cost, and, most importantly, it’s impactful.
43% of consumers are more likely to buy a new product when learning about it from a friend on social media.
Social media adds a layer of visual social proof of your product and allows you to use user-generated content. When people see their friends talking or touting a certain brand,
they’re going to be more inclined to check them out. Your brand success will suddenly have photographic evidence.
Here are two social media referral programs you could try:
- Encourage loyal customers to tag you in photos in exchange for a feature on your instagram or website.
- Do a giveaway that centers on a theme such as a new product release or a seasonal showcase. Ask fans to tag a friend in the comments, follow you, or post the giveaway on their story in order to be entered.
Social media offers you flexibility and an efficient way to engage customers and reach beyond your customer base.
2. Double sided rewards
More than 50% of people are likely to give a referral if offered a direct incentive, social recognition, or access to exclusives.
Encourage the sharing process by offering incentives to both the referrer and the referee. It works like this:
The referred person receives a discount on their first purchase. After their friend has completed their first purchase, the person who referred them will receive the same discount on their following purchase.
With a double sided rewards program, you will have some flexibility in how you market this incentivization. Use paid advertisements, targeted emails, or offer it exclusively at the end of a purchase.
3. Goal-based rewards
Use a points system to encourage loyalty from customers and offer a wide variety of rewards for customers. Every time a customer refers to a friend, they will receive points that they can then redeem for discounts, gifts, or other tokens of appreciation.
A goal-based rewards program is a unique and long-term way to generate referrals and offer a reward that has personal value to the customers. On your end, you’ll gather a clearer picture of who your most influential and loyal customers are.
4. Waitlist referrals
A waitlist referral program works best for companies that have not launched yet, but can also become lucrative before a new product drop. In order for this strategy to be most effective, there should be some scarcity aspect to your offer (i.e. a limited number of products or spots). Unlike other referral programs, a waitlist gives you the opportunity to spend less time creating targeted emails and more capacity to experiment with new markets.
All of this to say: a waitlist strategy requires planning. Here’s how it works:
Offer customers early access to a certain product or service in advance in exchange for contact information. One of the key elements in setting up a waitlist is allowing your customers to see how many people are ahead of them in line. Now, this is where it can become tricky.
Depending on how long your waitlist is, customers, especially those who may be new acquisitions, can become tired of seeing a long line ahead of them. Curb this issue by offering “priority access” for every referral an individual makes.
Waitlist referral systems offer you the ability to exchange contact information, exclusive bonuses, and generate referrals all in exchange for goods and services.
5. Send targeted emails
In the age of endless advertising avenues, emails can quickly become overlooked. However, in a report done by DMA, they found that email marketing generated around $46 for every $1 spent and revealed that email was the preferred mode of communication for 59% of consumers.
Take time to become familiar with the customer’s buyer journey and habits in order to organize the most effective campaign. Emails are a great way to add a personalized touch to your user experience and expose current and new customers to your brand story, referral, and rewards programs.
6. Host an exclusive event
This strategy is a great way to attract new clients and reward loyal customers. It works best with companies offering niche and local services and products. Hosting an exclusive event offers you a great opportunity to make your customers feel appreciated and build trust between you and potentially new business.
By rewarding the customers who enjoy your products with invites, they will likely naturally champion your brand to those new potential customers.
Unlike other marketing strategies, referral programs don’t need large budgets or huge operating teams behind them. The referral program that is going to work best for you is the one that puts your business and your customers at the forefront of its intention. It can be as simple as an email.
The lifetime value of a referred customer is 25% higher than non-referred customers.
Depending on which strategies you pursue, referral marketing is an upfront investment strategy with some of the highest short and long term ROI.
When starting your journey into referral marketing, it’s important to remember that being available, encouraging reviews, and letting your customers know that you appreciate them are the foundational elements of good marketing and increased acquisition. At the end of the day, taking time to invest in customer experience is the best referral strategy you can offer–Happy customers talk just as much as unhappy ones.
Choosing the right referral program to fit your client base can feel like a daunting task; but, it’s essential to do in order to reach your acquisition and sales goals in 2023. Not only can a referral marketing strategy increase new customer acquisition, it can also provide you essential insights and information on your client base.
If you’re ready to start building your program, or looking for more information about what referral marketing programs will work best for you, contact us and set up a consultation. Also be sure to check out our blog for more in-depth strategies and advice from our top noch marketing team.