Customer Referrals – Strategic Advantages and Application

by Natasha Ambavle |

Customer Referrals – Strategic Advantages and Application

How often have you purchased something that your peers and family strongly recommended? Chances are that you have purchased such products, and quite often as well.  More often than you think, brands and companies rely on the patronage of their loyal customers to acquire new customers and expand the brand’s reach. This is precisely what Customer Referrals are.

Referral marketing is a marketing approach centered on motivating existing customers to recommend a brand to their network of peers, friends, and family. To execute this strategy, companies incentivize their customers for every referral they make. According to Nielsen, 92% of consumers trust referrals from people they know; this is precisely why established brands like Tesla, Uber, PayPal, and Evernote, among others, invest in referral programs.

Important Features of a Good Customer Referral System

The core of a good referral system is the reward or incentive the company promises to its customers in exchange for the referral. Needless to say, the reward must be enticing. It must embody your brand values and be symbolic of the brand itself. The Airbnb program is a good example: they allow customers to earn coupon credits through referrals, which can be redeemed during their next booking.

The referral program must also be easy to comprehend and have achievable goals. A customer referral that has too many terms and conditions or seems like a huge undertaking to customers is bound to fail.

Lastly, brands that adopt the referral system need to ascertain that the program they create is well-publicized. Most of the time, customers are unaware of a referral program and consequently, the system fails to gain traction.

Why Does it Work?

Generally, referrals are an organic marketing tactic resulting from good quality products and customer experience. Referral programs also have a high conversion rate, simply because a potential customer is bound to trust their friends and family network more than a paid advertisement.

Customer referrals amplify the brand’s reach by successfully penetrating a trusted circle of peers. Plus, a referral customer joins a certain program because his referrer believes in the brand’s credibility and by extension has the referrer’s vote of confidence.

Benefits of Customer Referral Programs

  • Excellent ROI – A company that has created a successful referral campaign will save sales cost significantly. The cost of referral rewards is a minimal investment that ensures excellent ROI. Although customer referral is an organic process, if you stimulate it with the right incentive, you are bound to receive more than you have invested. Companies that have adopted referral programs see 70% higher conversion and note a 69% faster close time.
  • Referral Customers Are More Valuable – Referral customers are more likely to convert to brand loyalists. They already have a positive image of the brand and have seen the brand’s credibility through its referral system; hence they begin to trust and associate with the brand in more than a transactional way.
  • Targeted Marketing – A referrer is most likely to recommend members they think might be interested in the product or service. This helps the brand to attract and acquire potential customers through targeted marketing.
  • Increases Engagement – A referral program will give you access to valuable customer data. Once you analyze the data at hand, it becomes easier to generate relevant communication and keep customers engaged.
  • Deeper Market Penetration- Referral systems have an amplified reach, enabling brands to reach audiences that may or may not have even heard about the brand before. Tupperware’s referral program is a great example of this.
  • Increases Brand Credibility And Provides Exposure – Referral programs provide better exposure than paid campaigns. A referrer is not only highly engaged with the brand but acts as a brand advocate. They help you to expand your reach while also boosting brand credibility.

Shortcomings of Customer Referral Programs

Although referral marketing offers numerous benefits, it is crucial to be mindful of its shortcomings as well.

  • Time-Consuming – For a referral system to work, it requires ample time. The referrer may take some time to join the referral program, even once they’re made aware of it. Also, mass penetration is a slow process and requires ample patience.
  • Tracking Issue – There is no way of gauging whether the referral communication is in motion. The communication has reached and has negatively responded (or ignored it) is difficult to monitor in a referral program.
  • Negative Reviews – Referral programs have two sides: if it is successful in projecting a  positive brand image, it also has the power to hamper the brand’s progress via negative publicity.

How to Setup a Successful Referral Program

  • Have A Predefined Objective – Before you lunge into referral programs, ask yourself, ‘Why am I doing this?’ and ‘What am I seeking to achieve?’ Having a predefined and clear objective will help you formulate a lucrative customer referral plan that ensures high ROI.
  • Establish what your brand Stands for – To stand out in the pool of companies that already have a referral system in place, you need first to have a distinct identity and brand story. Once you have a created an unmistakable brand identity, it becomes easier to influence like-minded consumers and then enables the brand to create a niche for itself.
  • Choose The Right Reward – The backbone of a referral program is the reward itself. If what you are offering is substandard and not worth the hassle, customers will notice it immediately and lose interest. It is crucial to offer something of value that adds to their experience and motivates them to refer your product to their respective network.
  • Cut Down The Process – If your referral link has too many steps, the customer will likely drop the idea. E-commerce specialist Richard Lazazzera stresses the importance of making referral programs easy for customers, stating, “You always want to ensure you’re making it as easy as possible to share your products and refer your brand.”
  • Invest In Your Customers – In a referral system, customers drive engagement and sales; even customer acquisition relies on existing customers. Therefore it is imperative to identify and understand your customers. Understand their preferences and what things they value. Invest in your customers to keep them content and engaged with your brand.

Why Choose Annex Cloud Customer Referral?

Annex Cloud‘s referral program is strategically designed to maximize the sphere of influence of each customer that engages with the brand. By implementing the latest technologies and practices in the business, such as referral requests, referral notification, A/B testing, and optimization, etc., Annex Cloud ensures that your referral program fetches optimum ROI and noteworthy conversion rates.

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