Using Referral Marketing

Your most valuable marketing asset is your brand reputation. If your customers love your products and services, they’re likely to tell their friends and family about your business and encourage them to also enjoy everything you have to offer.

Sometimes, even your most loyal customers might need an extra push to spread the word about your business to their friends and family online. Enter referral marketing — a tactic to build brand buzz and spread your products faster.

What Is Referral Marketing?

Simply put, referral marketing is a tactic to encourage your current customers to refer your business to their peers, friends, and family. Similar to word of mouth marketing, this tactic is all about building buzz through your current customer base. It makes sense to invest in building this brand loyalty: word of mouth is the primary factor behind 20-50% of purchasing decisions.

Referral marketing differs from word of mouth in that it often involves incentives for a referral — in this type of referral, both the new customer and the existing customer would get a discount or reward for a purchase that came from a referral. In the digital age, many brands use unique links or referral promo codes generated automatically in order to track referral efforts and give the appropriate reward to the referring customer.

Building a Referral Marketing Program

In order to build a referral marketing program, there are a few core things to keep in mind:

1. Goals for your referral marketing: Make sure that the goals you’re setting are realistic. A 10% conversion rate on referral efforts is typically a good place to aim for, depending on your business size.

2. Potential referral sources: Your referral marketing program can have a wide mix of potential sources. You may choose to open up your referral marketing program to all customers, focusing on a limited group of loyal repeat buyers, or include social media influencers through either paid or free product partnerships. Whatever mix you choose, make sure you have a clear idea of how many customers will potentially be involved.

3. Clear referral incentives: Your referral marketing should have incentives both for new customers and for the referring customer. This is typically a percentage discount on their first purchase, and store credit or a small discount for the referring customer. This is why referral marketing is particularly effective for B2C brands and subscription services — if a customer can get discounts on repeat transactions or future subscription installments, they’re more likely to keep sharing your brand.

4. Understand your timeline: You need to decide if you’re going to make your referral marketing program a permanent fixture of your marketing strategy, or if you’re going to run it as a limited-time promotion. Both strategies have their merits: a limited-time referral marketing program can create a sense of urgency for both new and existing customers, while a long-term program can build brand awareness steadily over time but may plateau. A good example of a long-term program is Uber — the rideshare service has offered a referral discount program since its inception but has likely seen diminishing returns as their service becomes more of a household name.

5. Consider an automated referral marketing platform: While not necessary for a referral marketing program, automation can help you manage new and existing customers, generate unique referral codes and links, serve content to prospective and existing customers as well as notify members of your referral program about other upcoming promotions. If you’re interested in this type of automation, you may not need a dedicated referral marketing software. You can often find referral marketing features as part of your overall marketing platform.

Benefits of Referral Marketing

When compared to other marketing channels and tactics, referral marketing is generally a low-cost, high-impact way to drive new business from your existing customers. An effective referral marketing program will help you see greater brand awareness and brand trust, both of which are critical to growing your business. If you’re working within a marketing automation platform, you can syndicate your referral efforts across channels, manage customer data and serve content to referral customers very easily as part of your overall marketing strategy.

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