Referral Marketing

As an online business, finding cost-effective ways to increase sales and expand your customer base must be one of your highest concerns on daily basis. Here we have prepared a comprehensive article about the most effective digital marketing methods, called “Referral Marketing”. 

Referral marketing is the method of motivating delighted customers to recommend your products to their friends and family. Historically, referral marketing emerged when some companies started to ask their employees to spread their word. Later, they realized that customers are willing to do the same if you provide them incentives. Today, motivating customers to spread the word is a far more popular method.

How it works

The ultimate goal of any marketing activity is convincing people to choose a specific product or service above other available alternatives. Let’s refer to psychology to learn how we can do it. The most famous theory about convincing others, provided by Dr. Robert Cialdini, demonstrates six principles by which you can convince someone to do a specific action. Here is a brief review of them:

  1. Social proof: People tend to follow others; so you make similar purchase decisions with the people around you.
  2. Authority: People tend to behave like individuals in a position of authority, such as doctors, professors, etc.
  3. Reciprocity: People will return your favor.
  4. Scarcity: When an opportunity is limited, people value it more.
  5. Commitment/consistency: People tend to fulfill the decision they have made or complete the process they have begun.
  6. Liking: People tend to accept a recommendation from those who they like.

You can take benefit of these principles in any marketing activity, but particularly, referral marketing utilizes all these principles to increase sales and brand awareness.

What businesses benefit more from referral marketing?

Although almost any business can benefit from referral marketing for growth, if your business is in one of the below categories and has an online presence, referral marketing can accelerate your growth, significantly:

  • Retail stores
  • Specialty stores
  • Restaurants
  • Automotive service companies
  • Airports, hotels, and travel agencies
  • Banks
  • Health clubs and gyms
  • Doctors, dentists, and health professionals

Why referral marketing is very efficient

There are several reasons that prove referral marketing can be your best method of marketing:

Referral marketing creates trust

Trust is one of prerequisites for your e-commerce business’s growth. Firstly, people usually ask for advice or search on the internet to gather information about a product or brand before making their first purchase. Secondly, they would have far less hesitation if they get recommendation from someone they already know. Referral marketing encourages customers to recommend your product and service to the people they know. As a result, it empowers trust among your potential customers.

It elevates brand awareness

The more people know about your products or services, the higher your sales level will be. Therefore, brand awareness is always one of the top priorities for every marketing department. When you run a referral marketing program, you give attractive incentives to ordinary people to talk about your product positively and inform others about the advantages of your products and services. In conclusion, it is the straight way to enhance brand awareness.

Referral marketing is highly cost-effective

In a post-epidemic era with limited budgets and weakened purchasing power, it is crucial to find the most cost-effective method for marketing. Meanwhile, it is a proven fact that referral marketing is an extremely cost-effective form of marketing. In most cases, running a referral marketing campaign cost you nothing! You only need to waive a small portion of your profit to increase your sales. In addition, the results are usually outstanding. According to Boston Consulting Group, such brand advocacy is about 4 to 5 times more influential than paid media.

The risk is lower

To hold a large-scale referral program, all you need, is a referral marketing software. You can start with a free trial or an inexpensive package. And, when you see your customers referring their friends and family members, you can go for higher packages and be sure that soon the money will return. Most importantly, conversation rate of referral marketing is 4 times higher than the average, and customer acquisition cost is significantly lower.

Referred customers are more loyal

Studying the results of many referral marketing programs has shown us that not only referred people are more likely to buy, but also retention rate of them is higher. What’s more, referred customers have 16% higher lifetime value (LTV) and spend 13% more than regular customers. In other word, it creates strong loyalty in your potential customers.

There is potential for viral content

Since many satisfied customers are the players of the game, there is potential for the program to become viral. The referred customers are indirectly encouraged to recommend the product or talk about positive brand experience with others. If they do it through social media, authentic UGCs will be created around your business, and some of them may become viral.

A referral campaign is an excellent opportunity to discover your advocates

Customers who join your referral marketing campaign automatically become your advocates, because they are motivated to convince others to try what you offer. In addition, through a referral marketing campaign you build a new kind of relationship with them. Thereby, they feel valued, connected and recognized, which empowers their loyalty toward your business. If you have a relatively high Net Promoter Score (NPS), you can be sure that a part of your customer-base will end up participating in your marketing activities.

It is super easy to implement and track

You can start your referral marketing program with the e-mail list you have from your sales activities. Moreover, the usage of technology and well-developed marketing software has made it extremely simple and easy to run and track the results of your referral campaign, saving you time and helping you to better plan for your future marketing plans.

Tracking and see how your referral campaign is going.
Tracking your campaign is one of the most crucial tasks that guarantee your success.

Steps to run a referral marketing program

Here is a brief overview of the most fundamental steps you need to pass to run a referral marketing campaign:

1. Setting goals and KPIs

What is the exact result you wish to achieve from your referral campaign? Is it an increase in sales, revenue, sign-ups or conversation rate?! After answering these questions and defining your goal, choose KPIs based on your goals to track the results of the referral marketing campaign.

As a rule of thumb, you can assess your campaign by comparing the customer acquisition cost of your business with the figure you get from the below formula:

CAC= The total referral marketing expense / The number of new referred customers

2. Deciding about the budget

In some cases, the budget is predefined (e.g., a reward proportional to you CAC as a reward for each referral). Therefore, all you can do is optimizing that amount to allocate it to the most effective actions. So, appropriate prioritizing of actions in each step will be essential. In other cases, however, you have more flexibility and authority to decide how much to allocate to your referral marketing program. You should meticulously estimate the costs of each required action; including the cost of hiring a software, incentives and expenses related to required human resource. 

3. Identifying the customer base to be referrers

One of the advantages of a referral marketing campaign is that you can direct the program and decide the customer persona you wish to join. They are part of your current customers who are more likely willing to provide testimonials and have a close network of potential customers to share the referral with them.

4. Specifying the incentives

Rewards of a referral campaign can be in different forms, but the point is to ensure it will be exciting enough to make your top customer participate in your campaign. You should, therefore, choose the reward based on both your possibilities and the persona of your target customers. The ideal approach is to choose two or three types of reward and test them to find out which works best.

5. Selecting the promotional channel(s)

One major criterion to choose the most effective channel to promote your referral marketing campaign is the channel by which you are already in engaging most with your customers, be it your social media account, through e-mails or text messages. The other important point is reaching out to customers with good timing. For example, an incentive in the form of “Discount for Next Purchase” should be prompted on the post purchase page. Take into consideration the principles of marketing when designing your invitation message.

6. Choosing your referral program software

Automation is like a blessing when it comes to running a referral campaign. Using a referral marketing software, you can decrease the cost, implement your campaign in large scale, measure and monitor it easily. To name one of the best automated solutions, Pukket enables you to expand your campaign in the next step and have your advocates for the long term as your marketing assistants. Make sure to check out our website on www.pukket.com to find out about our features.

7. Measuring the success of your referral marketing program

No marketing plan should be left without measuring and evaluating its success. The metrics in a referral marketing campaign are the number of converted customers, conversion rate, total ROI of the campaign, the customer acquisition cost in your campaign compared to other programs, and the value of each referred customer. Keep in mind that the outcomes of a referral campaign are not immediate. You should give it enough time (3-6 months) to see real results.

Summary

There is numerous evidence that prove the efficiency of referral marketing and its excellence above other marketing methods. However, you would need experiment with the method to get the most out of it and find out what works best for your specific business. Read this article to see some of the most successful referral programs used by e-commerce brands out there. Among the numerous available referral marketing software that make the process super easy for you and your customers, very few of them have features to expand your program to next level but Pukket is one of them. To learn more about the growth journey provided in Pukket, fill the below form out. We will contact you shortly.

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