What is Referral Marketing? | Meaning, explanation & more

This article explains the referral marketing strategy in a practical way. After reading you will understand the basics of this powerful marketing tool.

What is Referral Marketing? The meaning

Referral marketing is one of the oldest strategies used in marketing. It is a way of promoting services or products to potential customers through word of mouth, also known as recommendations. These recommendations can happen spontaneously or be influenced by a company’s marketing department. Referral marketing can be applied in different ways. One method may be to reward and encourage customers and other contacts to recommend services and products to other consumers and/or businesses, both offline and online.

Offline Referral Marketing

Offline referral marketing is word of mouth in physical form. When people receive recommendations from people they trust, they are more likely to try the product or service in question. In addition, an influential person who wears a product or uses a service can get people who look up to him or her to use the product or service.

Online Referral Marketing

Online referral marketing takes place on the internet and focuses on online interactions between customers. It can increase brand awareness, a number of recommendations, and ultimately revenue. Opinions and experiences about favorite products are shared online, and especially via social media. That includes the website of companies and the social media accounts associated with these companies. Companies encourage this form of referral marketing by providing ambassadors of their products with unique recommendation codes and information about special offers. The ambassador shares these recommendation codes or special links to the company website with his/her friends, family, and social media followers. When family, friends, and followers of the ambassador make a purchase through the link,

Another method of referral marketing is to track the surfing behavior of customers. This is done with browser cookies and other similar technologies. Companies can research return on investment to deploy referral marketing through specialized platforms. Customer behavior tracking technologies are continuously being improved. They help companies integrate referral marketing into their marketing plan.

Referral Marketing Guide

Referral marketing helps you grow your business. By keeping your most valuable asset, namely your customers, interested in your product or service and letting them share your offer with friends and family, you can achieve great results for your company. If you decide to incorporate referral marketing into your strategy, you should consider a number of steps in the process.

Also Read: Social Media Marketing: The Complete Guide

How do you apply referral marketing?

The first step in the referral marketing strategy is to conduct market research that, among other things, finds out what the customer wants. You can conduct this research in several ways.

The first way is to research customers’ buying habits to find out what their favorite products or services are. Depending on the industry, a company may offer discounts, additional services, or free products. The second research method is to determine where the preferences of consumers lie. You do that with a customer survey. In the survey, you can ask consumers what it takes for them to participate as an ambassador in a referral program. Most companies offer their ambassadors a reward in the form of a product or service. Marketers can research reward options or ask consumers for alternatives.

The next step in the referral marketing strategy is for marketers to decide on the recommendation process. For example, about how many recommendations a customer has to make in order to receive a reward and about the way in which customers have to prove that they have actually made a recommendation. The recommendations can be followed through a unique signup link for each existing customer. In this way, a company can trace the recommendations back to the customer and the unique link that has been assigned to him.

After this step, the company must make the referral program known to the public. This is possible, for example, by displaying announcements close to the cash registers in physical stores. Companies can also create brochures about the referral program and distribute them to customers. In addition, promotion online is an excellent way to share information about the referral program. For example with advertising banners or marketing campaigns via email.

After the referral marketing program has started, a company must focus on ongoing marketing campaigns and activities to measure the success of the program. To determine if the program is successful, research which strategies lead to the most recommendations and which strategies are worth investing in. That’s why it’s important for a company to think about how success is measured. You can measure the number of recommendations shared and how many existing customers send recommendation codes to family and friends. How high should that percentage be for your company to call a referral program successful?

Referral marketing is effective for both small and large businesses in virtually every industry. Companies that offer products or services can include recommendation campaigns in their marketing strategy. Referral marketing is widely used in the retail, hospitality, and travel industries, and by sports and health professionals such as general practitioners or dentists. Referral marketing is also used by companies that offer their services online, often in combination with social media and backlinks on the website.

Another industry that uses referral marketing is the non-profit sector. These strategies are often used to increase awareness of the organization and persuade potential donors to support the organization’s work. A partnership between a nonprofit and a commercial company can be a great way for both parties to benefit from referral marketing. In that setting, the commercial company offers a portion of the proceeds for each recommendation that comes from the nonprofit.

Referral Marketing Strategy

There are several strategies for referral marketing. Which one you choose will depend on your industry and customers, but the most important thing is your marketing strategy. Below are some general strategies and steps that guarantee better results.

Company employees

The best ambassadors a company can have are its employees. When employees stand behind the company’s product or service, it shows that they have a good employer and that they believe in the product or service. If employees promote the products or services of the company where they work, it can lead to increased profits and may have a positive impact on the employee’s salary. This results in benefits for both the company and the employees. Companies with employees who promote their product or service also save on the costs of marketing campaigns because they do not have to hire extra staff.

The clientele of the company

A company’s customers are an important group for marketing. This strategy focuses on partnering with existing, satisfied customers who are rewarded for their recommendations. For example, a reward could be a discount or a free exclusive product or service for each time the company acquires a new customer acquired through recommendation from their customers.

Strategic collaboration

Companies that are entering a new market sometimes decide to use referral marketing by partnering with companies that already have a good reputation. The new product or service is launched on the market in collaboration with the partner company. That way, the new product or service will be more likely to be accepted by customers and the company can work with a good base of customer base. An example of referral marketing through partnerships is a life insurance company that markets its products through a well-known and trusted bank.

Good product, good service

In order for a referral marketing campaign to succeed, it is important to have your service in order, both for products and for customers. If you offer good quality, customers are more willing to recommend your product or service to others. A customer is less likely to recommend a product or service of inferior quality to friends and family.

Achievable goals and attractive rewards

A company that uses referral marketing is wise to set goals that are realistic. With a lower recommendation target and attractive rewards, customers are more likely to put in the extra effort. It is also important that you agree with your customer within which time frame the recommendations must be made and when a customer or employee will receive his or her reward.

Websites with backlinks

For a company, it makes sense to promote a referral campaign via the website and social media. These channels are great for sharing content and rewarding recommendations. A good idea is to insert a button on the website, such as ‘invite’ or ‘share’, that allows a customer to share the information with friends and family at the touch of a button. There are also special apps available that allow you to easily implement marketing on the website. Websites and social media are popular channels that allow you to quickly and easily run promotions and where you can post special offers. Companies also apply comprehensive data analytics to help them reach the right audience with the right offers.

Referral marketing for small businesses

Referral marketing can be effective for small businesses. If you have a small company or are you a startup, it is important to win new customers. Referral marketing helps small businesses grow and expand their customer base. When someone wants to try something new, friends and family are often the first to hear about it and to whom a product or service is recommended. Referral marketing can also help a small business gain a competitive edge. For these companies, social media is the main tool to share information about the referral program. Sharing via social media is lightning fast because it only requires one click with the mouse.

Now it’s your turn

What do you think? Do you agree with the explanation about referral marketing, or do you have new suggestions? Have you ever applied referral marketing in your business, or participated in a referral program? If not, would you use referral marketing as a strategy? Why would you do that, or why not?

Share your knowledge and experience in the comment box at the bottom of this article.

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