Referral marketing is a way to attract new customers with the help of existing ones. The client recommends the store to his friends, and they make a purchase. This can happen naturally, but the goal of referral marketing is to stimulate this action.
The link between customer loyalty and product promotion is not really obvious, but it is supported by research from the consulting company, Convince & Convert. According to this research, 83% of Americans buy a product recommended by their relatives and friends.
How Does Referral Marketing Differ from Affiliate Marketing?
Referral marketing is sometimes confused with affiliate marketing. In many ways, they are similar, but differ in the method of incentivising customers. In referral marketing, value is something related to an online store – goods, discounts, quality of service, etc. Customer acquisition in affiliate marketing is built on spent money.
Why is Referral Marketing Effective?
- Trust factor. Customers always study other people’s reviews before buying. People trust testimonials more than ads. Ads can persuade or dissuade customers to make a purchase. Family members’ or friends’ recommendations are even more authoritative. According to Kantar statistics, 93% of shoppers consider friends and family to be the most trusted source.
- Point impact. Unlike other promotion methods, referral marketing has no problem with targeting, because it is done by the customers themselves. A person will not lure everyone they meet into an online store selling sporting goods – this would be strange. Most probably, they will refer the store to people who are doing sports or going to gym.
- High conversion. Referral marketing is one of the most popular ways to improve e-commerce conversion rate. The trust factor and targeted action, backed up by the reward for participating in the referral program, give the result. 14% of people who visit a store by recommendation end up making a purchase.
Referral Marketing Approaches
There are two approaches to running a referral campaign – one-way and two-way, mostly managed through a referral marketing software. With a one-sided approach, the reward for attracting a client is received by the one who brought a new client – the referrer. Let’s say your customer offered a friend to buy a product using a promotional code or link. For each purchase made using this code, this customer gets discounts for the next purchase. By launching a two-way campaign, the store gives a reward not only to the referrer, but also to the referral.
Both approaches work, but it is better to use a two-way campaign. With it, you can achieve greater customer loyalty and relieve the referrer from the feeling that it is only they who profit from promoting your products.
How to Start a Referral Campaign
Decide on the rewards
Material value is the cornerstone of your referral program. Offering small rewards means that customers have no incentive to take action. What the referral and referrer get is up to you, but there are several common types of rewards:
- Discount. The referrer gives a discount to a friend, and if they use it, the referrer also receives a discount.
- Accumulative discount. Referrals receive a discount on their first purchase, and referrers are given a permanent discount. Its size depends on the number of people invited.
- Present. Each participant in the referral program receives one more product as a gift to the purchased product.
- Bonuses. This means money that is credited to the bonus account. Customers can’t withdraw bonuses, but can use them to buy goods in the store.
- Percentage of the purchase price. The referrer receives a percentage of the referral’s purchases in the form of bonuses.
- Free shipping. Stores combine free shipping with other rewards as well as offer it separately.
The reward does not have to be the same for referrers and referrals. It can combine several types of incentives at once: discount + gift, bonus + free shipping, etc. The only requirement is that the reward must be related to the services and products offered in the store.
Choose a way of implementation
The referral campaign must be not just useful, but also easy to use. Don’t make it difficult for customers to reach the promised reward. Choose one of the understandable implementation methods, for example, a promo code.
You give promo codes to customers who share them with their friends. If the referral uses the code, they will receive a reward along with the referrer. In different CMSs the ability to specify a promotional code can be implemented either out of the box or with the help of third-party apps or extensions.
Inform your customers
Tell users about the launch of the referral program and remind them about it regularly. Some stores use pop-ups for this, but the best way is to inform customers through a newsletter. Add to the letter an “Invite a friend” button and mention a referrer’s reward.
Additionally, post this news on your site. Create a new page that will describe the benefits of the referral program and the mechanism for its implementation. You can publish information in the section with promotions or separately, for example, in the footer.
To Sum Up
- The task of referral marketing is to help attract new customers with the help of existing ones.
- Program participants are referrer and referral.
- Use a two-sided approach with both participants receiving an award.
- The reward must be valuable to customers.
- Run a referral campaign using promo codes.
- Inform clients about the program through a newsletter, pop ups and social networks.