What Is Referral Marketing Program?

Many today don’t know what referral marketing is. In view of that, this blog,”What Is Referral Marketing Program?,” is written to not only educate about what referral marketing program is, but how it works and why it is important.

What Is Referral Marketing?

It is a word-of-mouth strategy designed by the company, that encourages an existing satisfied and happy customer, to introduce their friends, family and contacts for a reward. In a nut shell, this method utilizes the power of people to refer customers to a particular brand.

How Does Referral Marketing Program Work?

As we just mentioned, referral marketing is a word -of-mouth strategy, in which an existing satisfied customer of a company, becomes an advocate or ambassador of the brand or product/service of the company.

Who are the target audience? What is the motivation for being an advocate? Their marketing efforts are not directed to the masses of people, unlike other marketing strategies, but limited in scope, however with much potential. The company targets an existing customer, and the customer in turn targets friends, family members and colleagues.

In this model, the key player is the existing customer. Why should the existing customer be willing to share or recommend the company’s brand with friends , family and colleagues?

The first reason though, is that he or she is a happy and satisfied customer. They are what is commonly referred to as a satisfied customer. They are satisfied not only with the company, but also with the product or service. As a result, because they appreciate the benefit of the product, and the pleasant experience with the company, they will be more eager and willing to recommend or share the brand to family, friends and colleagues.

What Is Referral Marketing Program

Human Experiences And Referral Marketing

Human experiences teaches us that this is part of our nature. We as humans are always inclined to share good things or beautiful experiences with those that we love. For instance, when we see a beautiful sun set, who do we usually think of? We instantly think of loved ones. So what do we do? We take a snap shot so that we can share it with our loved ones. Is that not true?

Let us look at another illustration. This one has to do with food. When we eat a meal at a restaurant, if the meal is delicious and presents a pleasant dining experience, what will you be eager to do? Again, you will be eager to recommend that restaurant to your friends, family members and others. Correct?

Clearly then, existing customers are willing and eager to share a company’s brand to friends, family members and colleagues, because of their pleasant experience and over all satisfaction with the company and its’ brand.

Practical Lesson For You.

So what practical lesson can you draw or get from this discussion so far, as a business or potential business owner? That you make it as a goal, to create a product or service that is of high quality and that you do your very best to provide your customers, with a pleasant experience when ever they come in contact with your brand. Referral marketing then can be a clever strategy, that you must utilize in your business practices.

Incentive Factor As A Tool For Referral Marketing.

When you combine customer satisfaction with the incentive factor, referral marketing becomes even more effective and a powerful strategy for increasing brand awareness, reaching more target audience and generating more sales.

So what is the incentive factor? The incentive factor is when, an existing customer successfully refers a friend, family or colleague, and they also become a customer, they receive a reward, usually distributed in the form of discounts, free subscription, gift cards, store credits etc.

Some referral marketing models, require only the referral to receive a reward. Other models reward both the referral and the referred. And other variations require that an incentive be given only after one successful recommendation, still other models require a referral to attract a certain number of customers, in order to get the reward.

Medium Of Sharing In Referral Marketing

As mentioned in previous paragraphs, the primary way of sharing in referral marketing is by way of word-of-mouth. It could be face to face or simply taking a phone and calling, to relate your experience and recommendation.

However, since the company provides a unique link for tracking purposes, it will also mean that, the existing customer or referral will share the unique link to friends, family members and others through direct channels, such as social media, emails, text messages etc.

Why Referral Marketing Program Is Important?

We mentioned that in referral marketing, the existing customer, targets friends, family members and colleagues, and the purpose for this is to introduce to them, the product or service of a company for a reward.

There are key three factors that make this method so powerful, effective and successful. What are these? These are the relationship factor, trust factor and loyalty factor.

The existing customer, knows very well those in his circle of contacts. They grew up together, and therefore, a strong family bond exist between them. Also, because of common interest and mutual respect, others were drawn to them as friends and colleagues.

In view of this, we can clearly see then why this strategy that is centered on the existing customer, can be a recipe for success. Why? Because it utilizes the three core building blocks: good relationship, trust and loyalty.

Good Relationship,Trust And Loyalty.

Hence, because strong existing relationship with the customer and referral is high, and since such established relationship can build trust, the referral marketing model then has the potential of generating higher quality leads and higher conversion rates.

Also, because a customer who is referred to a company by a friend or family member, tend to stay longer and be loyal to the company’s brand or product, this can give a company, an added advantage over the competition. What is it? You will have at your disposal a loyal customer base, from them you can expect repeat sales, without having to spend tens of thousands of dollars on advertisement.

What Is Referral Marketing Program

So as a business person or potential one, what practical lesson can you draw from all of this? By what you say and do, do your utmost to be an integrity keeper and be honest. Create a product, that demonstrates your integrity and honesty. Treat your customers with dignity, respect and with all fairness.

When you do so, your brand will have a loyal following, advocating your brand where ever they go.

Statistics.

We are going to back everything we have said so far about the importance of referral marketing with statistical facts:

  • Word of mouth affects the purchase decisions of 54% of consumers
  • Friends and family are the top sources of brand awareness for 49% of US shoppers
  • 92% of consumers trust referrals from people they know
  • Consumers referred by a friend are more likely to buy.

Now we are going to look at other areas, that also shows the importance of referral marketing.

Increased Reach

Some have suggested that, in the referral marketing model, there is a limit to the number of contact an individual can reach. On the surface, this might seem to be true. However, if one should dig a little deeper, the potential reach of the referral marketing is just staggering.

For a quick recap, it was stated that referral marketing can be effective, because it has as its’ foundation, three core elements: good relationship, trust and loyalty.

Let us focus on these core elements, with a simple illustration. Assume that the existing customer refers just one friend. So what happens next? Because of the core elements at work, we can also expect this friend, to do the same. Friend inviting friend, they also inviting their own friends, so forth and so on. And friend inviting friend, is just one example. If you include families and colleagues into the mix, the reach potential is just staggering.

What Is Referral Marketing Program

Clearly then, referral marketing provides an unlimited opportunity for brands or businesses to continuously attract more and more customers, by way of a network of contacts to expand their client base. And this in turn can translate into increase brand awareness, growth and high conversion rate. Because at its’ disposal is an army of loyal customers.

Low Marketing Cost

Huge amount of money is spent on advertisement. Think of television, print, billboard and some other digital marketing methods of advertising, can run into the tens of thousands of dollars, at times with nothing to show for money spent.

How is this different from referral marketing? Recall what was stated about the means of sharing? It was mentioned that, it was primarily by word-of-mouth, and that only after the required behavior is met, that is a referred person becomes a customer, only then will a referral receive a reward. Correct?

In view of this, we can see as compared to other forms of advertising, it is cost effective, because it reduces marketing cost.

Improved Customer Retention.

We can expect also a strong customer retention rate to be high with this model. Why is that so? Because a customer who is satisfied, tends to be loyal. Also since the referral is a friend, family member or a colleague, loyalty is strong, and therefore any chance of losing a customer is very slim, hence the rate of retention is said to be high.

We have clearly seen why referral marketing is so important. For this to work successfully, as discussed in previous paragraphs, you the owner or potential business owner, must make it a matter of must to treat your customers, with dignity, fairness and respect.

And here is a piece of advice for you dear reader. If you take good care of your customers, they will take good care of you, and they will forever become your army of loyal brand supporters.

Interestingly, some claim that referral marketing is the same as affiliate marketing. Are they the same? Realistically speaking, they are not the same. However, there are some similarities and vast differences. Which we are going to explore.

Similarities.

Here are some similarities:

  • Both utilize links to promote brands
  • The objective of both is to attract new customers and they use people to do so
  • Both are based on incentives.
  • Both have a low overhead cost, and both offer strong return on investment.

Differences.

Reward System

Referral Marketing:

  • Reward type vary, it could be discounts
  • Coupons
  • Store credits
  • Cash back
  • Subscriptions

Affiliate Marketing:

  • Commission paid could be flat fee
  • % of sale
  • Recurring
  • Affiliate gets free products on top of commission for performance

Links

Referral Marketing:

  • The existing customer sends a link to the potential customer

Affiliate Marketing:

  • The affiliate publishes link to the public

Key Focus

Referral Marketing:

  • Focus is on the existing customer. The existing customer is the key player

Affiliate Marketing:

Promotions

Referral Marketing:

  • The referral shares link with friends and colleagues by way of text message, post and email

Affiliate Marketing:

  • Link promoted on blog and website

Relationship

Referral Marketing:

  • There is a strong relationship with referral and customer.

Affiliate Marketing:

  • There is no direct relationship with the affiliate and the customer.

Conclusion.

In this blog,”What is Referral Marketing Program?” We have not only explained what referral marketing is, but how it works, why it is important and we discussed the similarities and differences with affiliate marketing.

We learned that referral marketing is a word of mouth initiative, where in friends, family members and colleagues are recommended to a business by an existing customer and rewarded for successfully doing so.

We further mentioned that direct channels are used by the existing customer, to share the the unique link assigned to him.

And we also stated that, one reason why referral marketing is important, is that it utilizes three core building blocks: Good relationship, trust and loyalty.

Finally, we discussed some of the similarities and differences between referral marketing and affiliate marketing.

Similarities

  • Both use links to promote
  • Both are based on incentives

Differences

  • With referral marketing, there is a direct relationship between the referral and the referred
  • With affiliate marketing, there is no direct relationship between the affiliate and the customer.

With all that we have discussed, my hope is that you will incorporate the referral marketing model into your existing business strategy. By so doing, not only will you be able to increase your brand awareness, generate quality leads, but also higher conversion rate.

Should you find this article to be helpful and beneficial, please I will highly appreciate it, if you share it with friends, family members and colleagues.

Further, if you feel that I need to make improvements in some areas, please leave me a comment or two.

Sincerely,

Sten.

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