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What is referral marketing, and how to build a successful referral strategy?

How to build a successful referral strategy for acquiring new clients? When it comes to great marketing, it's not always what you know, it's who you know

Hrachuhi Arakelyan

Aug 19, 2020 · 6 min read

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What is Referral Marketing?

Ah, the power of referrals. It’s a widely known fact that word of mouth marketing, where a person recommends a product, company or service to their friends, family and colleagues is an extremely powerful thing. In fact, it’s something akin to the holy grail of marketing.

Think about it - how much more likely are you to make a purchase if someone you trust is telling you how delighted they are with it?

Nothing comes close to the words of our friends, family and peers - people we actually know and connect with. Because they are ‘people like us’, right? So if they love something, the chances are that we will probably love it too.

In fact, 92% of people around the world said that they trust recommendations from friends and family above all other forms of advertising.*

😰 But This Creates A Marketing Challenge.

Marketers may know that word of mouth/referral marketing is the most powerful tool that they can deploy, but how can they possibly achieve that on a mass scale?

They can’t personally go around to every group of friends who might like what they are offering and tell them how great their product is (although some do try - it’s called ‘seeding’). But, if your audience is large, or you don't have a huge marketing team and budget, then how do you achieve it?

When trying to figure out how to harness referral marketing, the marketing buffs concluded that in each group of friends, there is one person who is a ‘key influencer’ and that often this one person acts as a satellite, travelling between different groups and sharing their influence.

But how do you know which person is the key influencer, and who you should be focusing on to get their attention, so they can spread the word about your greatness? Because if you can pinpoint that one person, you can save the cost of having to market to the whole group.

If you know who those key influencers are, then you can go out of your way to thank them and treat them like your businesses royalty, because if they are willing to rave about you to their friends, then they are most likely one of your most loyal advocates. If you know who they are, you can make sure they always have a VIP experience with you. They can be given special incentives and rewards as a thank you for spreading the word so well.

… If only businesses could find those people - the literal pots of gold that each and every business has - somewhere.

😅 There is a solution! (Yay)!

The good news is that marketing technology has made finding those pots of gold considerably easier in recent years.

You may have heard of ‘influencer marketing’ - where celebrities and personalities on social media promote products - it’s how the Kardashians can get paid millions for a single tweet or post. It’s like a distilled version of word of mouth. While we may not personally know those celebrities, we do feel like we know them and identify with their brand and their values.

It’s ‘a solution’ - but who has the marketing money to spend on a single post from a famous celebrity or influencer? Particularly for a business who may depend on a local audience.

So, many businesses have needed to get creative. Everyone has seen the little ‘recommend a friend’ cards that appear all over the place, from hair salons to car garages, right? Some kind of reciprocal deal is usually offered. You recommend a friend, and they and you get some kind of reward in exchange. It’s nice.

But it isn’t without problems. You may walk out from a restaurant or shop, clutching some of these cards, vowing you’re going to pass them on to all your friends. But then by the time you’ve got home, you’ve forgotten. The cards lie lurking in the bottom of your purse or at the back of your wallet. Or you manage to remember to pass them on, only for the card to suffer the same fate in the bag or wallet of your friend.

Another issue exists with these cards for the marketer too. Unless you are able to physically write on every card to know who you gave them to, you may have no idea who it was that recommended that person. So you may know that you have an influencer, but you may not know who that influencer is.

Thankfully, technology has come to the rescue again.

🏆 It’s Time for Referral Marketing Software

Thanks to modern technology, businesses of all kinds, from shops to e-tailers, can put an online referral marketing program in place. Software exists that makes collecting and tracking customer referrals really easy.

Customers can be signed up to the referral program, which gives them the opportunity to access lots of incentives, rewards and treats. It’s fully automated, without the company having to worry about remembering to send a ‘thank you for visiting’ message or handing out referral cards.

Once registered, at the touch of a button, those loyal customers can send out recommendations to just a select few friends, or a whole friendship group, without having to cut and paste or forward awkward messages. Recommendations can be made directly in their social media messaging platform, meaning there is less for them to do and they have less opportunity to forget to spread the word.

The business running the referral program gets to choose whether to send a reward each time a program member recommends someone, or when they reach a minimum number of recommendations (e.g. recommend 5 friends and get 10% off your next visit). Rewards are completely configurable, to make sure the company sees a return on any incentive that they give away for that word of mouth referral.

At a glance, businesses can access their dashboard, to see how many referrals they have received, how many of those referrals have converted into business and what the cost of each referral is. This enables them to have a clear picture of the ROI of their referral program and to understand the value that automated referrals can bring.

It also easily identifies those ‘star players’ who bring your business the most new business, by tracking a ‘net promoter score’, so that they can be recognized and given that star treatment when they visit.

In fact, recommendation programs are proven to generate up to four times more referrals than old-fashioned card schemes.

🎁 To conclude:

Why referral marketing? Marketing studies have shown the following:

92% of customers trust recommendations from friends and family over any other kind of advertising
People who get referred are four times more likely to buy products recommended by a friend
Customers who have been referred have a 16% higher lifetime value, than those who have not.
81% of consumers are more likely to engage with brands who have referral programs
Customers who are refereed have a 37% higher retention rate than those who have not.

Convinced? Speak to RetentionForce sales team and see what our customer reward program can do for your business.

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Written by

Hrachuhi Arakelyan

Co-Founder/Customer Happiness Manager at RetentionForce