14 Benefits of Referral Marketing to Inspire Your Strategy
Referral marketing allows your customers to become your company’s advocates by recommending your brand to their friends and family. While referral marketing does require promotional efforts and the incentive of rewards to get customers to cooperate, there are many benefits of referral marketing, and you should certainly be using this strategy to expand your consumer base.
What is Referral Marketing?
Referral marketing is a strategy businesses use to encourage their current customers to refer their services or products in their network by offering them incentives. Referral marketing is the least expensive marketing strategy that businesses use to grow their customer base.
How Referral Marketing Works?
A company, for example, credited $100 in its customer’s wallet for referring a friend who signs up for their service, and also the referred customer received a $100credit. It is a win-win for everyone – you get free marketing for your business and your existing customer is rewarded for the successful conversion of their network.
Studies show that businesses get 65 % of customers from referrals and these customers spend 13.2 % more than regular consumers.
What are the Marketing Strategies to Increase Referrals?
Study shows that referred customers prefer only your company over others and bring high-profit margins. Referral marketing is one of the powerful cost-effective sales strategies that help you grow your business. Use these referral marketing strategies to double your sale.
Keep Your Customers Always Happy
Providing exceptional service to your customers should be your priority. When your customers have a good experience with your company, they would like to talk about your brand. This is when you can capitalize on their positive experience and introduce your referral program. Fulfilling your customers’ expectations every time sets you apart from the crowd. Going the extra mile to satisfy your customers does not mean you have to break the bank. You can offer a freebie such as a t-shirt or a small kit bag to stay top of their mind. You can also send emails as friendly reminders to your customers.
Improve Your Customer Support
Excellent customer service plays a major role in making a business successful. It is also the best way to introduce referrals. Pay attention to your customers’ comments and questions, they will not feel valued if you leave their concerns unattended. Your dedication to your customers will keep them satisfied and happy with your service. Always be sincere and helpful to keep their experience a notch above the rest.
You can train your employees to market your referral program to all your customers.
Joint Venture Referrals
You can collaborate with other businesses to cross-promote each others’ customer bases. Offer discounts or other rewards to consumers from the referring company in exchange for a commission from the referred business.
Why Referral Marketing Score a Point over others?
Despite the proliferation of new media, businesses struggle to reach their target audience. Customers who are inundated with marketing messages find it irrelevant. Although social media channels such as Facebook help connect with customers, it is difficult for businesses to cut through the noise of competing brands.
Lack of trust in mainstream advertising by consumers is another big challenge for marketers. According to a report from Nielsen, trust in marketing has dipped over the last five years. An effective referral marketing plan can help marketers conquer these issues.
Referred customers are always valuable to your brand as they purchase more than customers you connected from other channels. Also, the referred customers have a higher lifetime value.
Benefits Of Referral Marketing
- Customers trust referrals: Perhaps the most compelling benefit of referral marketing is that 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.
- Improved customer retention rate: Customers who participate in referral programs are much more likely to stay with your company. Because engaging new consumers are generally more expensive than retaining your current customers, this is often among the top benefits of referral marketing.
- Increased marketing reach: Referral marketing allows you to increase your outreach by using your customers as your company’s advocates. While there are venues and occasions that are simply off-limits to traditional advertisements, there are virtually no limits to your customer telling a friend or coworker about a good product or company. Because many people have a diverse circle of friends, customer referrals will also allow you to expand your client base.
- 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.
- Valuable data: The modern consumer loves a personalized experience. By tracking consumer referrals and engagement, you can give your customers the benefit of personalization. This also gives you a good idea of general market trends that can help your brand become better at meeting customer needs.
- 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.
- Save on new loyal customers: Compared to other forms of marketing and loyalty retention, referral marketing is a cost-effective way to gain new and loyal customers. Because people are social creatures, individuals that are referred to your company are much more likely to remain loyal customers.
- Automation: Once you’ve set up a good referral marketing platform, you can pretty much sit back and enjoy the benefits. While you will need to take several steps at the beginning, such as allotting rewards points and setting up your referral marketing promotion program, most of the work is done by your customers.
- Increased engagement: Increasing engagement strengthens your online presence and increases the chances of potential revenue. A customer who refers a friend is likely to visit your website more frequently to either claim rewards or even just discuss a product with others. The more often a customer returns to your site, the more items they tend to purchase.
- Identify and target your most loyal customers: Customers love feeling appreciated. Meanwhile, 68% of customers tend to leave because of perceived brand indifference. Referral marketing platforms allow you to track and target your most loyal customers for rewards and provide a more personalized interaction experience.
- Increase brand awareness and reputation: Referral marketing can help customers get to know your brand story and improve your overall reputation. Many modern consumers want to align themselves with brands that have a strong voice and a positive influence. 85% of consumers agree that they prefer a more authentic, honest brand. Allowing your own customers to tell your story makes that story through referrals resonate more strongly in the general consumer market.
- Customization and tweaking options: Modern referral platforms tend to be very user-friendly and easy to modify. If something isn’t working out, or if you want to experiment with a new trend, you can make the change with minimal hassle.
- Social media boost: Social media has become an incredibly important advertising tool in reaching the newest generations of consumers. Because most referral marketing platforms also allow customers to refer friends via their favorite social media site, your brand will get an additional boost in social media presence.
- Easy progress tracking: You can view user engagement and get an idea of referral success with regular progress tracking reports. An occasional glance at the reports will help ensure that you are making the best use of your customer referral strategy.
It’s true that referred customers are more profitable and loyal in the long term and although the benefits outweigh the pitfalls, there are some cons that you, as a marketer, need to know to improve your strategy.
Disadvantages of Referral Marketing
- If you don’t have a structured, tested, and optimized program that has a measurement mechanism to monitor the leads, you may not be able to control the quality of the customers you take in. Marc Benioff, CEO of Salesforce.com said it best: “Although every company knows customer references are important, most companies have a lax approach to managing them.” Automating a referral program is a recommended approach.
- Success of any referral marketing program relies heavily on a happy customer base that is willing to become cheerleaders for your business. This is why it’s critical to have satisfied existing customers. If you’re a new company with relatively new customers, it could get harder to implement it right away.
- If you have unhappy customers, that can prove to be a bottleneck. If they don’t like your offerings, they will avoid referring your services to friends and family and in some cases might end up with unflattering reviews.
- If your referral experience is complicated, they are probably going to drop off. As a smart marketer, you don’t want your customers to jump through hoops. It is advisable to have simple and straightforward programs. Also, ensure that your referral program offers them value.
- It’s a no-brainer, what’s the point of having a referral program if your customers don’t know about it? It’s important to promote the program and make it discoverable for customers to refer your business to their family and friends.
- If your referral experience is easy to hack, you could end up paying thousands if not millions to fraudsters that have found a way to take advantage of your referral marketing program.