According to a Nielsen study , the majority of consumers (83%) trust recommendations from friends or family more than advertisements. The strong influence of recommendations from trusted sources is why more and more businesses are starting to leverage referral marketing.
This article covers the following points:
o What is referral marketing?
o What is a referral program?
o How a referral program works
o The interest of the recommendation program for retailers
o Referral Marketing Ideas and Strategies
o Tips for setting up an effective referral program
o How to create a referral program
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What is referral marketing?
Referral marketing is a word-of-mouth marketing strategy that builds a company's audience by tapping into its existing customer networks. It is a promotional strategy in which a company encourages its customers to recommend it to their friends, family, and others in their social circles.
While word-of-mouth occurs on its own (when someone simply speaks highly of a product, store, or brand they like and recommends it to others), referral marketing specifically refers to a marketing strategy whereby companies intentionally generate referrals.
What is a referral program?
A referral, sponsorship or brand ambassador program is a method of systematically encouraging consumers to recommend your business in exchange for certain incentives, such as financial rewards, discounts, free products, etc. The nature of the incentives depends on the type of business and the products or services it offers.
While there are some costs associated with launching a referral program, the net benefits the company will receive in exchange for these incentives will far outweigh the initial costs.
How a Referral Program Works
Modern referral programs rely on software applications and track each customer referral using a referral code, rewards program , or referral link. The incentives a brand offers in exchange for referrals vary depending on the type of business and the products or services offered.
The interest of the recommendation program for retailers
Referral marketing allows retailers to grow their audience, customer base, and profits relatively inexpensively. This type of marketing works so well because recommendations from friends or family are perceived as a highly trusted signal by the person receiving the referral, increasing the likelihood that they will make a purchase.
According to research from referral marketing platform Extole , customers who have received referrals are also more profitable than those who have not. Here are some key statistics from this research, about customers who have been referred to a brand or business:
o 25% more profitable than customers who did not receive referrals.
o 18% less likely to abandon the brand than customers who did not receive a recommendation.
o 4-5 times more likely to recommend your business to others.