The Mechanics of a Referral Marketing System: How and Why it Works
Giving good customer service and providing all customers with a consistent and stellar experience is a sure fire way to get customers to recommend you to their friends. This is when referral marketing comes in hand. A referral marketing system allows you to have a structured flow for collecting and organizing referrals. With the correct timing and approach (and software), your business will be well primed for referral marketing to occur.
As it turns out, referrals are a great and inexpensive way to market your brand. Marketing can take a lot of time and it can quickly become expensive. Which is exactly what makes referral marketing great. Let’s go into why and how referral marketing works.
What is referral marketing:
Chances are you know exactly what referral marketing is. Since we’re discussing the mechanics of referral marketing, we should probably reiterate what the subject is. The basic concept is to encourage customers to share your business with their friends and family. It’s a way to grow a business by leveraging the business’s network of customers and partners.
Some people think of referral marketing as incentivized word of mouth marketing. Typically, there is an incentive involved, which helps encourage customers to share. It should be noted this is not always the case. You may see the term referral marketing used interchangeably with advocate marketing, brand ambassador, and influencer marketing, but those terms can also have a very different meaning. So when you are planning your referral program make sure you are clearly defining each term.
Referral marketing is like many other marketing channels, where it pays to pay attention to the user experience.
Why it works:
It’s a fact that word of mouth is influential. Referral marketing stems from word of mouth marketing which relates to social selling. Word of mouth is one of the big reasons for its success. Referral marketing works because people are more likely to be influenced by product recommendations from friends. This has been proven time and time again. A study by Nielsen found that people trust recommendations from friends and family over all other sources. That’s just one of the many studies that have proven why this type of marketing is effective.
Marketing can be difficult, time-consuming and not to mention expensive. As it turns out, referral marketing could be the solution to these marketing woes. Referral marketing takes your already established customers and uses them to market your business.
Aims Closely With Your Target Market
You see when an existing customer refers a friend they are likely to refer someone in your target market. A well-liked business can produce organic referrals on its own. As we mentioned word of mouth is very persuasive and it happens naturally in conversation. Therefore provoking an organic referral.
Typically, customers refer people who they believe will benefit from a particular service. People know what their friends like. Aside from mass sharing (aka posting their referral link on social media…which is another awesome benefit that we will get to), referral clients share with specific friends who are in need of your product or service. We all know how hard it can be to target a specific audience. So you can see the benefit of having customers do this work for you.
Another reason referral marketing is so effective is because of social media and mobile devices. Consumers are constantly on social media. So, if you’re using social media with referral marketing, it’s an easy way to get the word out in a non-invasive manner. This is where people are already hanging out, so a referral marketing system has a way to seamlessly fit into people’s everyday lives.
It’s also easy because it’s a one-click thing. This is a lot easier than the alternative of calling a friend or remembering to see if you can find the business card to share. Many referral marketing software options supply users with easy social sharing options. This increases shares because the user can share and be rewarded with literally the touch of a button.
Social media has made it a lot easier for people to endorse a brand. It allows brands to get in front of a ton of new people at any given time. So when referral marketing and social media come together, a few referral links have the potential to be seen by hundreds.
Email is also highly effective and many referral software options try to make it easy for a business by making referral email templates. There is always the impromptu word of mouth types of things. Like friends discussing where they got their haircut, but if you give people the opportunity to share in an easier way, they more than likely will. Email and social media messaging make sharing double sided rewards (both the client and friend earn something) a lot easier than it ever was before. Of course, mobile devices just make sharing that much easier. Everyone is “one-click” or “one-tap” away from sharing an offer or business.
Referral Marketing Leads to Better Customer
Both referring and referred clients tend to be better customers. It’s a fact that referred customers have a higher retention rate. According to a study done Christophe Van den Bulte, a professor at Wharton, referrals are higher quality customers. His findings were similar to many other studies done on referral marketing. It goes to say that referred customers have a higher customer lifetime value and typically produce higher margins than other customers.
How it works:
It works by the basics of word of mouth. The main idea is to provide a happy customer a simple way for them to share the business with their friends. The customer tells their friends about the business, and the business gains new customers. Referral software helps with automating many of these steps, like setting up default email messages with the business brand, one-click social media sharing and even reward fulfillment.
By nature, people want to help other people. Happy customers like to help businesses, just as good friends like to help each other. You see where we are going with this?
Many people who meet a small business (or any business for that matter) that they really like, want to help them succeed. Whether there is an incentive or not. When a business taps into this ‘help from customers’ many great things can happen. One of the easiest ways to get this into motion is to provide customers with a trusted way to track the referral experience. An easy and quick way to establish this trust is to have a proper program put in place.
This is where referral software comes in. Having a legitimate program makes the customer feel secure, as they are sharing some of their personal information and providing you with their friend’s information. You see why the whole “fill in your friend’s name” on a piece of paper can be a bit of a turn-off. There are multiple reasons why that doesn’t work. First, they aren’t actually sure what a business is going to do with their information or whether the information will be secure. They also don’t want to add their friend to a list that causes them to get called by multiple sales people. Established referral marketing software, is a much less invasive process. Plus, it helps the business keep track of the process while allowing the customer to see how they are actually helping the business.
Start using software. Not only does software allow you to have a reputable program, but automation makes life easier. Between automated reward payouts and easy social sharing, your referral marketing promotion is made easier.
Test the Waters
If you’re not sure about plunging right into a referral program, it’s okay. There are a few ways you can determine if you’re ready for a referral program. Trust us, if your business isn’t in the right position for a referral program – hold off until you’re ready. There is nothing more frustrating than putting effort towards something that just isn’t going to work.
A good way to see if you should use a referral marketing system is to calculate the desire to share. How can you do this? Utilizing a Net Promoter Score (NPS) can help you measure how willing your customers are to refer. If they proclaim they are willing… go for it. This can also help you create the initial invitation list. The ones who reply to your survey stating that they are highly likely to recommend, are the ones to invite first.
Whether you ask via email, in person or on the phone, calculating the likeliness will give the assurance that people want to be involved. You could also ask what factors would be the most motivating so that you can craft a referral program that makes your customers want to participate. Referral incentives are not necessary, but they can create a great engagement boost.