Adopting a referral marketing strategy can help your business stand out from the competition and build strong trust with your customer base. Referral marketing uses the power of word-of-mouth and customer recommendations to spread awareness and promote a brand’s goods and services.
Still, there is more than meets the eye when it comes to implementing a referral marketing strategy. In this article, we will help you understand what referral marketing truly is, why referring is so important, and share some of the best referral marketing strategies.
What Is a Referral Marketing?
Referral marketing is a strategy in which current customers are rewarded for suggesting a brand to their friends in exchange for some incentives.
Referral marketing is valuable since it increases the brand’s ability to reach customers, simultaneously boosting customer engagement, reputation, and retention.
To put it simply, referral marketing is the process of promoting a good or service through a company’s current clients rather than through a conventional marketing strategy.
Referral marketing is a strategy that utilizes recommendations and word-of-mouth to expand a company’s customer base through the networks of its current customers.
It is quite apparent that this marketing strategy comes with many advantages when compared to traditional marketing methods. Usually, it happens because customers themselves serve as brand advocates helping to advance customer acquisition.
Key Takeaways
Referral marketing is an adaptable marketing strategy that relies on customers to spread word-of-mouth and grow marketing efforts through each new successful referral;
A referral program is an important component of referral marketing since each successful referral brings in new customers who are motivated to spread the word about your brand;
Referral marketing is very close to word-of-mouth marketing, but it is not the same. Referral marketing is an intentional customer incentivization in exchange for suggesting your business to friends.
How to Define Referral Marketing?
Referral marketing may be defined as the strategic use of incentives to promote word-of-mouth and motivate each new customer to join the referral program. Since the incentive can be a variety of things, referral marketing is a highly adaptable marketing strategy.
Several different types of businesses apply this marketing strategy. Some industries that frequently use referral marketing include:
- Retail outlets;
- Restaurants;
- Automotive service centers;
- Airports, hotel stays, and travel companies;
- Banks;
- Fitness centers and gyms;
- Doctors, dentists, and other healthcare providers.
Some businesses even collaborate with related industries in order to create cross-promotion. This tactic entails each firm giving special deals or other rewards to clients of the referring business in return for a share of the latter’s sales.
Why Is Referral Marketing Important?
Referral marketing relies on a core principle of customer behavior, which is the tendency to share thoughts and experiences with others. This type of marketing is effective because customers value other people’s opinions more than the company’s brand visibility.
Referral marketing increases ROI
A referral program is a very cost-efficient type of marketing that optimizes the costs for new customer acquisition. Thanks to referral marketing companies can:
- increase the number of potential consumers they reach,
- lower cost per lead,
- build confidence and trust,
- increase customer loyalty.
All of the above helps to lower marketing costs and lead to a higher ROI.
One of the main advantages of referral programs is that they efficiently produce new prospects while requiring no additional expenditures.
Being an affordable and versatile marketing strategy is what makes referral marketing an excellent choice even for small and medium businesses.
Referral Marketing vs Word-of-mouth
Word-of-mouth marketing and referral marketing appear to be similar, but they differ significantly. Referral marketing is more “intentional”, which is the main distinction between the two.
A company starts a referral marketing campaign on purpose, through strategic planning and the creation of incentives for customers.
Businesses that use referral marketing actively urge their consumers to recommend them to their friends. Instead of being the result of a brand’s intentional efforts, word-of-mouth marketing can be more impulsive and frequently begins with satisfied customers.
What Are The Best Referral Marketing Strategies?
A referral program is really about empowering and rewarding your current customer base to invite their friends to experience your product for the first time. Here are some referral marketing strategies that might be a good fit for your business.
1. A referral program
Making the customers aware that they are becoming part of a referral program builds trust and further incentivizes them to spread good word-of-mouth. This is an easy-to-use tactic because it boils down to telling as many clients as you can about your referral program.
2. Employee education
In addition to asking for referrals, many businesses offer a training procedure that gives staff members the skills necessary to effectively promote the referral program to every customer. Educated employees also make it much easier to conduct a new referral marketing strategy because they will have all the basics down and be ready to implement it.
3. Joint referral marketing strategy
To cross-promote one another’s consumer bases, several organizations collaborate with complementary enterprises. This tactic entails each company providing special deals or other rewards in exchange for a cut of the referred company’s sales. This strategy is an excellent way to turn fierce competitors into your greatest allies.
Additional Tips & Tricks
- Referral programs are one of the best ways to reach a new customer segment on the market;
- One of the reasons behind the success of a referral marketing program is that each successful referral pays greatly compared to the money invested into incentivizing the customer;
- Combining your referral marketing program with affiliate marketing can have excellent synergy in boosting the good reputation of your brand or business;
- Customers acquired through referrals have a 37% higher retention rate than regular customers.
The Bottom Line
Referral marketing is an effective marketing strategy that makes use of customer incentives and word-of-mouth to boost brand awareness. A referral marketing program is also affordable, making it a popular choice among many other marketing strategies.
You learned what referral marketing is, why it is necessary, and strategies for referral marketing and you’ve got a few tips & tricks in your pocket. With all this knowledge and information, you are ready to implement a referral marketing approach in your company.
