Referrals…the ultimate expression of customer loyalty. With an effective referral marketing strategy in place, you can significantly improve brand advocacy in your customer base.
In this blog, we’ll share our top 11 tips for building and implementing an effective strategy. As well as explore some of the benefits of referral marketing, mistakes to avoid when implementing your strategy, and success stories.
You’ll be on your way to building and implementing your own effective referral marketing strategy in no time!
Contents
What is Referral Marketing?
Referral marketing relies on customers referring your product, service or brand to their colleagues, friends and family. Word-of-mouth marketing is a powerful form of advertising and the most trusted by consumers. That’s due to the fact that it’s satisfied customers – rather than the business itself – actively promoting the brand.
Customers trust recommendations from other customers and people they know. Businesses that realise this have a great opportunity to encourage loyal customers to endorse the brand and acquire new leads cost-effectively.
How Does Referral Marketing Work?
Businesses deploy referral marketing programmes that offer rewards to customers to endorse the brand. Behind the scenes, the business pinpoints certain behaviours along the customer journey of each individual interacting with the brand. They keep an eye out for customer activities such as repeat purchases and engagement levels.
The referral programme itself will have detailed actions in place. So should a customer display a certain type of behaviour, a trigger inside the programme will activate. This system of incentives, rewards and guidelines, helps businesses move customers along towards brand advocacy.
Upon a successful referral, the brand advocate is rewarded. The newcomer may also be rewarded depending on the referral guidelines. We always advise businesses to reward new customers with a welcome gift as it instantly delights them and gets the relationship off to a good start.
The process of actively encouraging customers to refer friends is repeated. Various channels are used. Email campaigns, social media posts and website banners, just to name a few. A referral programme helps businesses set the pace of referral requests and when each customer should be requested for one. As well as equip customers with the necessary tools to refer others in a seamless, convenient manner.
What are the Benefits of Referral Marketing?
Referral marketing results in several great benefits for your business. It can help you increase your brand awareness with audiences that may otherwise be unreachable. In addition, it leads to higher conversion rates and is one of the most cost effective marketing strategies. A successful referral marketing strategy helps businesses achieve sustainable growth and generate positive word-of-mouth.
Increases brand awareness
Referral marketing helps your business increase brand awareness with new, potential customers. Almost half of US consumers surveyed said that they hear about brands from friends and family. By encouraging word-of-mouth marketing, you have an opportunity to reach leads who may not have been reached through traditional marketing channels.
Attracts warm leads
According to SocialMediaToday, 60% of marketers say that referral marketing generates a high volume of leads, and 78% of B2B marketers claim these are high quality leads.
Consistent satisfaction with your product or service, will encourage a customer to share their experiences with your brand with people they know.
Usually, they’ll recommend your brand to people they think will have genuine interest in it. Or they may be simply so overjoyed at the customer experience they just need to tell others. Naturally this piques the interest of the new lead and since they know and trust the brand advocate, they are more likely to convert quickly at the consideration stage.
Referred customers are more valuable and word-of-mouth is more cost-effective
Word-of-mouth is one of the most cost-effective marketing channels. Businesses with a robust referral programme in place save on substantial amounts of advertising and promotional campaigns.
Leads generated from referral marketing are also more valuable. Firstly, the low cost per acquisition increases margins as large expenses on traditional marketing channels are not necessary. Various studies and many marketers also agree that lead generated from word-of-mouth typically spend more than other leads and on average have a higher customer lifetime value (CLV).
Improves customer acquisition, retention and engagement
In research conducted by TrustRadius, the majority of tech vendors agreed that referrals are the most effective marketing tactic. This is due to consumers trusting word-of-mouth marketing the most compared to other marketing channels.
Customers acquired through referral marketing have also been shown to score a 37% higher retention rate.
This should come as no surprise as the businesses that implement a referral programme typically have a strategy in place that drives engagement – a crucial part of successful retention.
The strategies involved in keeping customers engaged vary between rewards and incentives, personalised interactions, encouraging feedback and reviews, and of course, making referrals. As a result, engagement leads to a self-sustaining referral cycle using segment lists and datasets to maximise its impact and success with the existing customer base and new leads.
11 Top Tips for Implementing an Effective Referral Marketing Strategy
You should follow these top 11 tips to build your referral marketing strategy. These will set you off on a great start and improve your chances of launching a successful referral marketing programme.
1) Digitise and automate your referral programme
By implementing dedicated software to automate customer referral programmes, businesses can streamline the entire process, eliminate manual tasks, reduce the risk of errors, and efficiently scale their referral initiatives. This automation allows businesses to prioritise the nurturing of customer relationships, while the software handles the logistics of tracking, rewarding, and analysing the success of their referral marketing efforts.
Here's a more detailed explanation of how it works:
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Generates unique referral links or codes: Referral marketing software provides each customer with a unique referral link or code that they can share with their friends, family, or colleagues.
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Tracking referrals: When someone clicks on a referral link or uses a referral code, the software tracks this activity. It records details such as the referrer's identity, the referee's information, and the time of the referral.
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Notifying referrers and referees: Once a successful referral is detected, the referral tool automatically sends notifications to both the referrer and the referee. These notifications can be personalised and include information about the referral and any applicable rewards.
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Reward management: The process of managing rewards, keeping track of the requirements for earning rewards, such as successful conversions or purchases that come from referrals, is simplified. The software automatically calculates and distributes rewards, guaranteeing precision and timely delivery.
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Analytics and reporting: Analytics and reporting features track the performance of the referral programme. Businesses can gain insights into referral activity, conversion rates, and the effectiveness of different channels or campaigns. This data helps optimise the programme for better results.
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Integration and customisation: Integration with existing customer relationship management (CRM) or e-commerce systems, make it easy to sync referral data with other business operations. Additionally, it allows customisation of programme rules, rewards, and branding to align with the business's specific needs and goals.
2) Focus on customer experiences
In an article by PWC it’s reported that....
73% of consumers rank customer experience closely behind price and quality of the product as the main factor behind their purchase decision. For your referral programme to succeed you need to ensure customers enjoy a positive CX.
That means a frictionless referral process, clear and understandable terms, robust and convenient technology, omnichannel support and exciting incentives. To truly enhance CX however, you should focus on the customer journey.
Where is your customer on their buyer’s journey? Are they close to advocating your brand on your behalf? If so, what kind of rewards could just push them enough towards referring others?
A discount on their favourite product would be an ideal solution since you’d be tapping into the other two main factors of their purchasing decisions. Firstly, they must be happy with the product’s quality to repeatedly purchase it. Plus the discount on their favourite product is a benefit in terms of price.
Together, these become a great incentive that you could leverage in return for advocacy, whilst keeping the customer satisfied, delighted and engaged.
3) Cultivate a community around your brand
Community building and referral marketing walk hand in hand. After all, you’re relying on brand advocates to represent your brand in their social circles. Together, these social circles make up a community of people around the brand champion.
Setting up a forum or board for your customers to discuss products, services, experiences and reviews is absolutely essential for a brand community to thrive. When that community consists of brand advocates primarily surrounded by people they know, it pretty much guarantees community growth.
You need only look at social media platforms like Facebook. That grew exponentially due to our desire to connect with people we know and love. It relied on the natural social links and bonds we share with family and friends in order to build a global community.
Your referral programme could utilise a community to express a friendly brand persona or family-orientated ethics e.g., “welcome to the X family” upon signing up. Okay, that sounds a little cliche, but your imagination is the only limit. What’s important is you’d be cultivating a community with a sense of kinship and cohesion and those are fundamental in referral marketing and customer loyalty.
4) Use social media to connect with advocates and leads
Social media is a major part of billions of lives across the globe. Love it or hate it, there’s no denying it’s influence on our society. Businesses can use it to great effect to connect with consumers. In fact, there’s hundreds – if not – thousands of examples when businesses have thrived from using social media.
In relation to a referral programme, social media can be used to encourage feedback and reviews, promote social proof, and drive engagement.
According to Exploding Topics, 88% of American consumers want incentives for sharing products on social media.
This tells us that for the majority of consumers, social media is a preferred platform for advocating brands. Using social media in tandem with a referral programme is a great avenue for your overall strategy. As some customers may not want to or feel ready to sign up to your referral programme. Providing incentives for your customers to share products on social media serves as a sensible middleground.
In addition, connecting with your customers on social media fosters stronger relationships with them and your brand.
5) Work with influencers to boost brand exposure
From the same Forbes article linked in the previous section, there’s an incredible stat that shows 50% of Millennials trust the views of influencers. Your product or service doesn’t have to solely be the star of the show. Any influencer you work with could also promote your referral programme.
Many YouTubers and influencers also share unique referral links for followers to redeem time or usage limited discounts. Since these people have a far wider reach thanks to their huge audiences, your brand stands to gain considerably high volumes of new leads.
What’s more, followers actually strike up an emotional bond with the influencers they follow. This pro-social connection is akin to real life friendships. Effectively, an influencer referring us to a brand can be the same as hearing a recommendation from a friend. So, you’ll be gaining a larger pool of higher quality leads too.
6) Encourage social proof
Trust is a central theme of referral marketing. The whole point of implementing a referral programme is to leverage the most trusted form of advertising. Encouraging social proof e.g., reviews, feedback and testimonials allow you to compound the trust earned in your referral programme.
Your social proof doesn’t necessarily have to pivot around the quality or price of your products or services. In return for a reward, you could encourage customers to leave a review specifically on your referral programme to drive interest towards it. You gain more brand advocates from your existing customer base and your referral marketing can be leveraged as an acquisition tool.
7) Co-create unique and highly relevant rewards with partners
Partnering with other brands adds another dimension to the incentives of your referral programme. Unique, highly relevant rewards are often the result of brand alliances. Co-created value helps businesses craft a truly compelling point of difference, helping them to stand out in their respective markets.
It’s this variety of choice of incentives between brands that lets both the brand advocate and the referred lead select the right incentive and welcome reward for them. For example, the brand advocate might want a reward associated with a partnered brand. Whereas the lead or referral would like a discount on your service (since they are just signing up).
By partnering up with brands whose products and services complement your own, together you can pull from a wider roster of rewards to attract a larger pool of brand advocates and keep long term brand advocates engaged with referral rewards.
Why not check out our blog here for 10 innovative partnerships to inspire your referral marketing campaign?
8) Create compelling and educational content
Compelling and educational content grows more and more in importance for brands as they realise it’s a great way to keep customers engaged. Fact is, educational content could be used to great effect alongside a referral programme. The last thing you want to do is lose your customers’ interests in a repetitive cycle of incentive/ offer > referral > reward.
By producing content you keep them engaged outside of the referral programme. Yet, there’s nothing stopping you from creating content based around your referral programme either. In our example below, you’ll see some of the biggest brands dedicate webpages solely to their referral processes.
These are an important part of enhancing the overall customer service too. As more consumers than ever want to resolve issues or queries themselves. Therefore, by supporting your referral programme with educational content, you weave in self-service and keep customers engaged even when they are outside of the referral cycle.
9) Utilise email marketing
Email marketing is another great way of promoting your referral programme and ensuring customers remain engaged with the brand. It allows you to send personalised messages to the customer, inform them on important updates about the referral programme, and the latest incentives they should watch out for.
Email marketing is also the second highest rated referral method. Surprisingly coming in above word-of-mouth referrals and social media. Perhaps this is due to convenience as the customer can forward the email to their network during a time when it suits them. It’s also easier for brand advocates to track and hold onto until they find qualified leads who may eventually need your product or service.
10) Provide opportunities for brand champions to refer offline
Although the digital world and its innovations has taken over the majority of how we conduct business strategy, there’s still a case for providing customers an opportunity to refer others to your brand offline. Particularly if your business model is B2B. After all, you spend a lot of time at conferences, events and networking sessions.
During these meet ups with potential clients you could offer them physical cards, flyers and brochures that have QR codes. These personal QR codes can be used by the brand advocate in the referral process. So that any time they attend an event they can let others scan their codes and initiate the discovery stage of the customer journey with your brand.
11) Strive to continually optimise and improve your strategy
Referral programmes, like every other type of customer loyalty programme, require consistent efforts over long periods of times. A programme will never be “completed”. Although they yield huge ROI they still require optimisation and improvements that are informed by data.
You need to know benchmark numbers (such as 2% referral rate is generally considered healthy) to understand how well your strategy is working. Any drop in numbers could indicate that the referral process is growing stale for some of your most loyal brand advocates. Therefore, you need to find ways to keep the experience exciting, engaging and nurturing a sense of loyalty.
Referral marketing examples
In spite of the great benefits referral marketing offers, only 30% of US businesses have a referral programme in place. Yet some of the biggest names in their respective industries see huge successes due to their referral marketing strategies.
Let’s take a look at some examples below to see how each of these businesses acquire new customers, increase brand awareness and drive business growth, using strategies that take into account the best practices we’ve listed above.
Dropbox
Dropbox achieved huge growth because of its referral programme. According to many online sources, the cloud storage provider grew by 3900% within 15 months of implementing its referral programme. It’s no wonder Dropbox has become the flagship example of what a successful referral programme can help businesses achieve.
Existing customers are offered additional storage space for every person they refer who signs up to the service. The referral process is simple and the incentive is extremely attractive. Both of these together create a winning formula that significantly increased user acquisition rate and made Dropbox perhaps the most famous example of referral marketing.
Uber
Uber has a dual-sided rewards programme that sees both customers and drivers receive referral rewards. From a customer’s perspective, the rewards programme offers them a free ride after the person they referred has taken their first ride. In addition to this, the new customer is welcomed with ride credits that are spread across their first several trips.
The rewards programme has seen huge success as a result of its wide promotion, omnichannel support, seamless and convenient UI and UX, and mobile-centric app. Uber is also able to track rewards and custom journeys as a result of unique codes. By doing this, they ensure brand advocates are rewarded in a timely manner and newcomers are incentivised at the right time to maintain their loyalty.
Evernote
Evernote implemented a referral programme that rewards both the referrer and new user with premium features. They’ve gone one step further and offered an affiliate incentive to their referral marketing. For every successful referral an existing customer earns money.
Brand advocates share their unique referral links with the new leads. Financial incentives are a great way to encourage brand advocacy. However, if this doesn’t suit your business model, you can select from a wide range of rewards, such as exclusive access to premium features, early access, discounts and freebies.
Mistakes to Avoid When Setting up a Referral Marketing Strategy
For your referral marketing strategy to be a success you need to be aware of potential mistakes that could undermine it. By avoiding these mistakes and following the best practices listed above, you’re guaranteed to set up a successful referral marketing strategy.
Complex referral process
The referral process should never be complicated. Friction always causes frustration. A frustrated customer will abandon the process altogether and possibly even churn. Therefore, it’s important that the referral process is user-friendly, simple to use and easy to understand. Brand advocates should also be able to track their referrals.
Frustrated customers are 13% more likely to tell 15 people or more about negative customer experiences. Negative word-of-mouth is the exact opposite of what you want to get out of your referral programme.
Not tracking or measuring results
Following best practice and implementing all of the right strategies might seem enough to bring success. However, without tracking or measuring results, you risk exposing your business to avoidable pitfalls.
Every business has its own set of unique challenges, opportunities and circumstances. Best practices and strategies e.g., personalised interactions will work more effectively for different businesses. By tracking and measuring results, you can gauge the effectiveness of each strategy you implement and adjust it accordingly.
In addition, tracking is absolutely essential for effective referral marketing. After all, you need a full picture of who is championing your brand in order to reward them. The customer journey of every individual must be assessed too. That way, you can determine how close they are to brand advocacy and push them with an incentive.
It’s through consistent analysis of data we can find so much more about our customers and their behaviours. In addition to measuring the impact of the referral programme by assessing key metrics e.g., referral conversion rates, customer acquisition costs, and ROI.
Not following up
The most successful referral marketing strategies encourage brand advocates to refer more than once. It’s for this reason that follow ups are crucial. Brand advocates should always be acknowledged. As a gesture of appreciation, businesses should contact brand advocates spontaneously.
Emails or SMS are the best option as these can be issued at scale. The messages should contain a thank you message, ask if they enjoyed their reward, and hope they’ve got a lot to talk about the brand with someone they’ve brought onboard. This ensures the brand advocate remains engaged. It also maintains a continuum between referrals so that it doesn’t feel like a one-time transaction.
This makes brand advocates feel like they are actively taking part in building your brand. A tiered reward system could be incorporated where brand advocates level up on account of how many successful referrals they make.
Thinking About Launching a Customer Referral Programme?
You should now have a clearer understanding of how to build your referral marketing strategy. Referral marketing is a great way of bringing in highly qualified leads and growing your customer base. Our 11 tips above will help you shape a successful referral marketing strategy as you consider the fundamentals and implement them without making common mistakes.
Get started by checking out our ROI calculator, which includes forecasts for increased revenue by launching a referral programme.
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