Gideon Lask at Buyapowa explains how referral marketing can help companies to scale up rapidly without spending excessively
Referral marketing is a strategy that seeks to encourage those customers who have had a good experience with your product or service to recommend it to friends, family and colleagues. In other words, it’s a collection of strategies and tactics that brands and retailers can use to leverage positive word of mouth in order to promote their offer and lead to positive outcomes, such as sales, visits, sign-ups, downloads and free trials.
Alongside customer reviews, user-generated content and generating and amplifying social mentions, referral marketing is an essential tool in a modern ‘organic discovery’ marketing strategy. Implementing effective referral marketing programmes is what allowed brands such as Uber, Dropbox, Airbnb and Tesla to scale rapidly without spending a fortune on marketing.
Factors to consider
Referral marketing works because people are more open to hearing from their friends and family than from companies, and they’re much more likely to trust those people too.
For a start, people tend to read emails, text and chat messages from people they know, and research shows 92% of people trust recommendations from friends and family above all other forms of advertising.
And while your customers will talk about you whether you want them to or not, a report from Yale University found that referral rewards play a key role in overcoming psychological barriers to referrals, so clever use of rewards and incentives can work in your favour.
In short, referral marketing offers the opportunity for the marketing nirvana of the right message to the right person at the right time and choosing the right referral marketing software can supercharge those referrals.
The pitfalls of traditional marketing
Simply put, modern marketing is getting harder and more expensive all the time, which means the tools a marketer used to rely on don’t work as well as they once did.
The reasons behind this include the ever-increasing costs of digital marketing; digital ads that might not even work; free sources of marketing have been turned off; it’s getting harder to reach your customers; your customers don’t trust ads or celebrity endorsements; and to cap it all, when you do get a customer, they’re less loyal.
The combined effect of all these factors means that the traditional digital marketing recipes used over the past couple of decades will no longer cut it and marketers need to look for new avenues, such as organic discovery.
Is it the right strategy for your business?
Before you rush headlong into referral marketing, you first need to stop and think if referral marketing is relevant for your business. Not all businesses are suitable for referral, and even if they are, you need to check that you’re ready first.
First ask this: does your business deliver a world-class and unique customer service that’s worth sharing? One that merits five-star reviews, provides great photo and video opportunities, and is one that your brand advocates will happily recommend and refer? Because if your product or service is poor, you’re more likely to drive one-star reviews and negative word of mouth.
If not, it’s a good idea to get direct feedback from your customers and improve your offering, before implementing a referral marketing strategy. Then think about whether your customers know others who could benefit from your offering; for example, if you offer payroll management services, how likely is it that your customers will know lots of other payroll managers?
Finally, ask if your business specialises in helping people with things they might prefer to keep to themselves, like treatment for chronic bad breath that might be embarrassing to share?
However, once you’ve checked your right for referral and you have a bank of satisfied customers that are ready to act as brand ambassadors, you can and should look to take advantage of that by setting up a referral program. And don’t forget: you can even drive new customer acquisition through other stakeholders such as employees, influencers, affiliates and partners, as well as customers.
How to find the right system
What you require from your referral marketing software will depend on who you are and what you’re looking to do. Factors to consider include:
- Size
- Industry
- Whether you are B2B or B2C
- Referral marketing goals
- Any regulations on your business
- The sensitivity of your data
- The value of your referrals
Back to basics
There are some basics that apply to every referral programme, whether you outsource or build in-house, or if you just need a simple programme or a more advanced one for an enterprise or regulated brand.
Your programme should be on-brand: asking your customer to refer your brand to their friends is a personal relationship and you shouldn’t let anything get in the way of that, least of all third-party supplier logos plastered over your referral journey.
Decide where your referral program should live: ideally, your referral programme should be on your website, in your app and in your customer support area, and not on a supplier’s site.
What are you going to ask people to do? You need to decide what action you want to drive from referrals and how you’re going to track it. For example, are you looking to drive sales, sign-ups, upgrades, membership of the loyalty scheme, app downloads, or demo requests? Obviously, you’ll need to have the referral programme designed for these actions.
Who can refer your business? A key question to ask is who should be able to refer new customers to your business. Will you only allow actual and current customers to refer your business? What about past customers? Will anyone be able to refer?
Decide what rewards you can and should give to referrers: the rewards and incentives you offer should be enticing and encourage referrals, and particularly repeat referrals. As a general principle, you should be as generous as you can afford to be, bearing in mind the value of the referred-in customer, what you’re paying in other channels and what your competitors are offering.
Your referral user journey should be seamless: make the action you ask of your stakeholders as easy and simple as possible – you shouldn’t ask your customers to jump through lots of hoops to refer a friend.
How will your referrers know what happened to the referrals they make? A key component of a referral programme is to manage customer expectations and let your referrers know what happened to the referrals they’ve made, when they’ll get a referral reward, and what reward that’ll be. This will require clear communication with referrers and ideally a referrals dashboard.
How are you going to market your referral programme? A common misconception is that referral marketing is marketing automation and once you’ve set up a programme, you don’t need to do anything else but watch the customers roll in. In fact, the main reason referral programmes fail is a lack of marketing to ensure that your customers know you have a referral programme, can find it easily, and that it surfaces naturally at moments when your customers are thinking positively about your brand.
Think about who’s going to run your referral programme: you’ll obviously need to have someone, or several people, involved in running and marketing your referral programme. Particularly if you’ve built an in-house referral programme, this can require lots of manual work from your team to record and reconcile referrals and pay-out rewards by email. You’ll need someone to source those rewards and ensure there are enough to pay out for successful referrals.
You must comply with all laws and regulations: this is so obvious that I almost feel embarrassed writing about it, however, we still see referral programmes that seem to contravene these regulations, for example by requiring a referrer to enter personal data about their friend for the brand to then contact that friend.
Gideon Lask is the Founder and CEO of Buyapowa. The company’s mission is to make acquiring new customers easy and to engage its most powerful advocates, incentivising them to get their friends and followers transacting
