Customer referrals are pure gold in the marketing world. According to Nielsen, potential customers trust recommendations made by friends and family 92 percent of the time. And yet relatively few companies are conscientiously leveraging the game-changing power of the referral.
When combined with online and offline marketing and advertising tactics, these word-of-mouth referrals can have an enormous impact on your bottom line. The first step, however, is getting your referral program off the ground. Here’s how to get started.
Referral Marketing 101: A Quick Primer
Also known as “referral marketing,” a referral program incentivizes existing customers to attract new customers into the business. Offering an incentive is critical because only 29 percent of customers who have a positive experience with a business actually recommend it to others.
The incentive doesn’t need to be cash; in fact, the University of Chicago found that referral programs based on non-monetary incentives are actually 24 percent more effective. For instance, you might offer free merchandise, gifts, or free or discounted services.
Interestingly, the size of the reward is fairly unimportant. The American Marketing Association reports that while rewards increase the likelihood of referrals, the size doesn’t actually matter. This would suggest that “firms need to calibrate reward size carefully and compute the expected incremental sales revenue compared to the cost of alternative reward programs.”
How Well Do Referral Programs Work?
Word of mouth marketing works because existing customers have credibility and perceived objectivity that companies will never have. But how effective are referral programs as a means of referral marketing?
A 2011 academic study published in the Journal of Marketing reveals that referral programs are incredibly lucrative. Philip Schmitt and two of his colleagues studied 10,000 accounts of a major German bank for three years. The results clearly endorsed the profitability of referral programs. Customers brought in through the referral program produced higher profit margins, showed more loyalty, and had higher lifetime values as customers than those acquired through conventional channels.
Determining if a Referral Program Right for Your Business
If your business could benefit from more customer referrals, a referral program could work for you, no matter what your industry. Some point to the risk that opportunistic customers will exploit referral programs, generating dead-end leads solely for the program’s incentives. While this is a risk, the Journal of Marketing study showed how strongly a referral program’s benefits outweigh its potential adverse effects.
Additionally, even a shoestring marketing budget can support a referral program. Part of the beauty of referral marketing is that it requires minimal effort and almost no cost. The rewards given to referring customers are a pittance compared to the returns on customers acquired without any marketing effort on your company’s part.
Finding Referral Marketing Software to Implement Your Program
There are many different types of referral programs that can be implemented to help manage your referral program. The best online referral software solutions are easy to set up and loaded with features for managing the referral program and delivery of notifications, capturing referral lead data, and managing the rewards for a low monthly fee. Here are a few examples of referral marketing software solutions to help you take action:
- ReferralCandy ($25/month): This app works by generating post-purchase coupon codes for your customers to share with their friends. When their friends purchase from you, the referring customer gets their reward. Reviewers cite the platform’s e-commerce readiness and social media integration features.
- Ambassador ($99/month): This referral software is characterized by its robust and highly customizable Referral Dashboard and Campaign Builder features. Advocates (known as “ambassadors”) are provided with unique sharing links, and reward notifications are managed via email triggers.
- Referral SaaSquatch ($99/month): This app has quick set-up options, double-sided incentives, a customizable referral widget, and a single sign-on interface. The referral management system is fully automated with reward options that can be customized.
These are just a few of the more popular refer-a-friend software solutions on the market. Before deciding, though, be sure to determine your specific needs and do your research. Finding the right software platform can make all the difference here.
Transforming Loyal Customers into Brand Advocates
If you’ve ever seen a movie because a friend or family member liked it, you’ve experienced the power of the referral firsthand. A referral program takes the word-of-mouth endorsement one step further by giving customers an incentive to share their positive experiences. Not only do referral programs succeed in acquiring new customers, they also bring in customers who are more loyal and more profitable.
At Mediagistic, we know how to get the most out of your local marketing efforts. Our holistic, turnkey marketing and advertising programs are designed to transform loyal customers into brand advocates, thereby helping to generate more of those oh-so-precious referrals. Let us help you take care of marketing your business so you can get back to running it.