What is Referral Marketing and how does it help increase your sales?

There are many different types of strategies that are associated with digital marketing, like content strategies, SEO strategies, social media strategies, and advertising strategies. 

With so many different areas that marketers can focus on, it can be hard to know exactly which approaches bring in the most benefits for your business. 

One type of strategy that marketers can use is called referral marketing. It can be directly attributed to an increase in sales and new business, making it an attractive option for digital marketers who want to grow their business and increase revenue.

In this blog, we’ll take a look at what exactly referral marketing is and how it increases sales in your organization. 

What is Referral Marketing?

Referral marketing uses the power of positive feedback and word-of-mouth to build goodwill towards your brand and direct new customers to your business. 

By taking advantage of customer referrals, otherwise known as recommendations or testimonials, you can use the positive momentum created by happy customers to increase new business. 

People, as a whole, are social animals that want to share experiences with others. 

When you have a good experience at a restaurant, for example, you want to share that with your friends and family and recommend that they also visit that restaurant to get the same experience. 

And we tend to trust the advice of people who have personally experienced something rather than a brand or corporation giving the same message. 

Referral marketing uses the networks and connections of previous and present customers to gain new business. 

When a customer tells their network that they enjoyed your business, the network is more inclined to give your brand a try and see what the buzz is about.

How Does Referral Marketing Help Increase Your Sales?

Referral marketing programs are often considered one of the best drivers of new sales. 

While other digital marketing strategies like content marketing might bring audiences into your marketing funnels, the right referral marketing strategy can skip many of the conversion steps that other organic audiences might go through. 

There are a few different reasons as to why a referral marketing program might be so successful, but it mainly comes down to the power of word-of-mouth and direct referrals. 

Positive Word-of-Mouth Principles

Word-of-mouth recommendations are trusted more than regular marketing tactics and are more powerful in their conversions. 

For example, a word-of-mouth recommendation drives five times more sales than paid advertising. 

They are also cost-effective because you don’t need to pay for an honest recommendation from a satisfied customer. 

There are six principles that are often used to explain the power of word-of-mouth recommendations and why they can spread so fast, which are: 

• Social Currency: You share what makes you look good in the eyes of others.
• Triggers: You share what is at the top of your mind.
• Emotion: You share things that you care about.
• Public: You imitate what others around you are doing.
• Practical Value: You share things that bring a practical value to others.
• Stories: You share stories not data.

These six principles are what guide a referral marketing strategy and can be some of the points used in your planning to help encourage referrals from your past and current customers.

Trusted Networks

If you were in the market for a new shampoo, would you trust the first paid advertisement that comes up when you Google search for “best shampoos” or the recommendation of a close friend who shows you the improved quality of their hair and the scalp benefits they received? 

The answer should be obvious. We trust those who are in our own personal and social networks. 

If you trust someone with information about you and your life, you’ll also trust them to give real recommendations that are genuinely going to benefit you and your situation. 

We don’t trust random recommendations on the internet as much as recommendations from those we know.

Avoid Negative Associations with “Brands”

As the digital marketing landscape becomes more complex and crowded, brands often get a bad reputation, especially if they invade a potential customer’s space. 

Some audiences, particularly younger audiences, are turned off to brands that advertise too heavily or come across as overly corporate and insincere. 

A referral from customers can help you avoid the negative associations of paid marketing and bring in more sales for your brand.

How to Build a Referral Marketing Strategy

While you now understand the benefits of referrals, you still might not be sure how to leverage them for your own marketing goals. 

A referral marketing strategy or program helps you encourage referrals from your customers and create a plan that generates new sales for your brand.

Let’s look at some of the steps in creating a referral marketing strategy.

1. Research Current Referrals

It’s good to start by seeing where your current referrals are coming from. 

That can help you understand the natural system your customers created to share the experience of buying from your brand. 

You might want to check sources like social media or Google reviews to see what is being said about your brand.

2. Make the Experience Shareable

You want the experience of shopping with your brand to be one that can be shared easily with others. 

For example, unboxing videos are a great way in which customers share their experiences with their social networks online. 

Making it easy to share can increase your recommendations.

3. Provide Great Customer Service

If a customer has a bad experience with your brand, they won’t recommend it to others. And, even worse, they might leave a negative review or tell their network to avoid your brand. 

To ensure that customers have something great to say about you, you’ll need to provide great customer service every step of the way.

4. Create an Incentive Strategy

While a natural review is great, you’ll probably want to encourage more people to recommend your brand to others with incentives. 

An incentive can be as simple as store credit or a gift card, but could also be perks and benefits, exclusive access to deals, or free items and gifts.

5. Promote Your Program

A referral program doesn’t do your brand much good if no one knows about it. 

You’ll want to promote your program and incentives to customers and let them know exactly what they can get when they refer your brand, products, or services to others. 

You can send out regular emails about the program or use your social networks to spread the word.

3 Examples of Referral Marketing

Let’s take a look at three brands that are doing a great job at creating referral marketing programs that work and regularly bring in new business.

#1. Dropbox

Dropbox is a file storage and transfer program that created an incentive-based referral program that gives free storage to users who recommend the platform to others. 

It provides a great example of how incentives don’t have to be a gift card or cash reward, but a benefit within the software itself, which can increase loyalty and lead to more referrals.

#2. Uber

Uber, the ride-share app, uses a dual-sided referral program to benefit both the person who gave a recommendation and the person who received it. 

When a new account is created using a referral code, both the new user and the person who recommended the app get a free ride.

#3. Evernote

Evernote, a note-taking software program, created a referral program that uses points to give users who refer access to premium features and upgrades. 

This has worked so well that 13% of their new users come from referrals. It’s a good example of a program that doesn’t stop after one recommendation.

Wrap Up

By creating a referral program that focuses on getting good reviews and testimonials from customers, you can build a strategy that generates new business without having to spend a lot of money. 

Referral marketing can work well in conjunction with an outreach marketing program that gets your brand in front of new audiences and organizations who could benefit from your products or services but might not have heard of you before. 

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