Referral marketing is a strategy that entails a brand rewarding its current customers for recommending a company to their friends, family, and new clients for joining the company’s customer base. It helps reach more consumers, improve customer retention, engagement, and reputation.

In this article, we’ll uncover the importance of referral marketing, its types, benefits, examples, and how it works. We’ll also compare affiliate and referral marketing, unveil the guide on how to create a successful referral program, and implement it into a referral strategy.

Why is referral marketing important?

To reach SMART goals and increase customer base, marketers search for effective approaches. Referral marketing helps grow quality leads fast and in big volumes. Brands get referrals — the most valuable prospective customers who stay loyal to a brand and purchase big. According to Social Media Today, 78% of B2B marketers admit that referral programs help grow high-quality leads.

By making customers word-of-mouth promoters of brands, companies increase the volume of potential customers, reduce the cost per lead, establish credibility and trust, and improve customer loyalty. Trust also brings high ROI to a brand. One of the main benefits of referral programs is that they don’t require any additional costs but effectively generate new prospects.

This marketing technique is one of the most effective and fast for driving prospects to brands’ websites. Moreover, it helps boost organic traffic. The strategy is especially useful for startups that just have started collecting their customer base.

Now that you know the importance of referrals, let’s proceed to the next section to review how the strategy works.

How does referral marketing work?

The approach works based on promotions of existing customers. Brands ask their clients to recommend their products and refer friends. As a reward, these companies provide customers with attractive gifts. Referral programs can be presented in a variety of forms. The majority of businesses offer leads to fill in the form where they mention people they want to refer.

Trust is the basis of brand-customer relationships and loyal clients are the driving force of the strategy. They promote companies and increase their customer base. As you know, word-of-mouth marketing is the most effective approach since recommendations from friends are the most credible source of information when it comes to purchasing. To be precise, 92% of people say that they rely upon the advice of their close people.

The process is clear, so it’s time to unveil the types of referrals. You need this information to understand which of them suits your business purpose.

Types of Referral Marketing

Referrals are beneficial for both parties and let them win. However, you should consider that there are different types that bring different results. Let’s explore each of them in more detail.

  • Direct referrals. This type is a perfect choice if you want to promote your company in a cost-effective way. The approach implies asking your customers for word-of-mouth promotion and referrals. Since 92% of consumers rely on recommendations, direct referral is the most valuable source of new customers. You can also consider hiring a brand ambassador to present your company to a wider audience and instantly see visible results in the number of new consumers and revenue.
  • Email referrals. The power of email marketing can’t be underestimated because the number of active email users amounts to 4 billion. 64% of marketers turn to email campaigns to reach their consumers. With email marketing, brands can inform about promotions, support engagement, update on the product launches, and referral programs. To increase the level of engagement, companies often send email newsletters.
  • Referrals from reviews. Product reviews can serve as referrals as well. That’s why you should ask customers to leave reviews so that potential customers can see them and decide to purchase. According to Oberlo, 79% of shoppers equally trust online reviews and personal recommendations. Consider letting your customers leave reviews under product cards or create a special page for reviews and feedback. Think of allowing shoppers to leave reviews on special platforms people use to find appropriate brands and products.
  • Social media referrals. Probably every person uses the benefits of social media networks. Some people can't even imagine their everyday lives without them because of the opportunity to communicate, share photos and videos, shop for various products, and explore profiles of influencers who always recommend something useful. Since social media platforms are crucial for our society, entrepreneurs use them for referrals. They select advocates who have good profiles and influence the public to share a brand’s content, attract the target audience, and encourage people to become customers.
  • Incentive-based referrals. The main feature of these programs is that companies reward customers for their loyalty with incentives like coupons, gift cards, and digital rewards. It’s always a good idea to reward people who invite friends and those who accept the referrals.

Now let's find out what opportunities these types of referrals provide.

Benefits of Referral Marketing

Marketing departments use new channels and methods to attain new consumers. Due to this people are overwhelmed with advertising clutter and don’t get brands’ main ideas. Since the competition is high, some startups don’t have the opportunity to effectively reach their target audience. People have little trust in brands they find in ads. Yet, referral marketing always works since people are more inclined to listen to the recommendations of their family and friends. Except for trust, this marketing strategy brings some other advantages.

The other benefits of referral marketing include:

  • high customer retention rate;
  • wide customer base;
  • improved trust;
  • better customer lifetime value;
  • great ROI;
  • customer loyalty;
  • high customer engagement;
  • improved brand awareness and good reputation;
  • wide social media reach.

Marketers leverage the approach for certain pros for their companies and now you know them all. The terms “affiliate” and “referral marketing” are often misinterpreted, so we decided to shed light on the features that help differentiate them.

Affiliate Marketing vs Referral Marketing

These terms are widely used by marketers and we hear them all the time in the business surroundings. Yet sometimes they evoke confusion since some people don’t understand the key difference.

The main difference between affiliate and referral marketing is that the first one implies using the services of third-party brand advocates who bring clients to your company for payment whereas referral marketing includes a brand that rewards current customers for inviting their friends to become clients as well.

Now that you know the key difference, let’s proceed to the next section to discover how to develop a successful referral program.

How to create a successful referral program?

Now when you understand the value referral programs bring to businesses, it’s time to develop your own. We’ll show you where to start.

  1. Develop a program that can make leads convert. Once you have clear objectives, an understanding of your customers’ needs, and a high-quality product, you can start developing a referral program. You should create a program that has a clear message and reflects your company’s values. To do it, you need to create a catchy headline. It will help you attract your target audience. Secondly, make sure to create one as simple as possible. Provide clients with the possibility to invite their friends with a help of a link through different channels: email, social media platforms, or a direct message. Finally, track and evaluate the success of your referral program.
  2. Choose rewards for your new and existing customers. To encourage customers to join a brand, you need to entice them with attracting offers. Consider giving them a reward incentive. First of all, you need to decide who will get the reward. You can appreciate your existing customer, the referred customer, or both. This way, you’ll be able to motivate both parties to stay with your brand and become loyal. Secondly, choose interesting and useful rewards clients will like. Finally, determine when and how to give rewards to your consumers.
  3. Leverage special tools. Setting up a referral program is easier with software solutions. With these platforms, you’ll be able to smoothly run all your referral programs. Consider leveraging tools like Referral Factory, Friendbuy, InviteReferrals, and Advocately to create professional referrals that convert.
  4. Utilize reviews to increase the customer base. Reviews are a perfect complement to a good referral program. They help boost customer engagement, credibility, trust and increase the customer base. Nowadays, before buying any product people often look for online reviews to choose the best available options. To trust a business, a customer needs at least 10 positive reviews. Ensure a smooth customer experience and high-quality products so that clients can leave only positive reviews.

The process requires you to do everything possible to make clients satisfied. Do your best to develop a great referral program that will bring in many people and boost revenue. Next, we’ll uncover how to implement referral marketing into your strategy.

How to implement referral marketing into your strategy?

Numerous methods help gain good revenue and reputation. You should remember several tips that will enable you to implement the strategy successfully.

  • Be close to your customers. To encourage consumers to do something for you, make sure that you have strong relationships. These clients should demonstrate loyalty and choose your products over others. You also need the personal information of these customers to tailor the personalized experience and make them satisfied.
  • Establish transparency and credibility. To build strong relationships with your customers and then ask them to refer friends is a process that requires big efforts from your marketing team. You should prove to your customers that your brand is transparent and can be trusted. Trust is the number one stimulus for consumers to recommend a certain company.
  • Show clients that you appreciate them. Besides establishing trusting relationships and credibility, you should also be able to demonstrate your appreciation to customers. Show them that you value and need them. When you ask clients to refer friends, you need to give something valuable instead. For example, discounts, gift cards, or coupons.

These tips will help you implement the strategy effectively. To see how famous brands succeeded to do it and get inspired, let’s jump into the examples.

Referral Marketing Examples

The practice of using referrals is widely used by brands. That’s why you can find a lot of great examples. We offer you to review several successful referral programs to get some inspiration.

GrubHub

Everyone now needs food delivery and GrubHub comes to the rescue. The company delivers food to locations you need. The app encourages customers to bring in their friends and receive a special reward. The details of the referral you can see below.

GrubHub's referral program

Source: MaximizingMoney

Dropbox

The famous file hosting service succeeded to create one of the most profitable referral programs and gained 3900% growth. Everyone wonders how they managed to do it. The answer is simple: the program rewards those people who refer friends and those who accept the invitation. Besides, the onboarding process with the service is simple, the benefits are clear, and the invitation is easy.

Dropbox referral program

Source: Viral Loops

Congrats, now you know the importance, types, benefits, and examples of referral marketing. It’s time to get the most out of this marketing technique!

References:

  1. This article defines the term and unveils how referral marketing works.
  2. In this article, you’ll find 3 referral marketing strategies.
  3. This article provides readers with some great examples.
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