Why referral marketing is so effective
Countless studies prove that referral marketing is one of the most powerful marketing strategies for generating sales — and the reason why is simple.
Humans are social creatures that instinctively trust the opinions of our “tribe” more than those we aren’t as familiar with. That’s why online shoppers are more likely to trust the opinions of friends and family, customer reviews, and the recommendations of people like bloggers and social media influencers.
So when these trusted parties say “this product is the best!”, we’re hard-wired to trust this assessment more than a business’ marketing department telling us the very same thing.
In fact, according to the New York Times, 65% of all new business comes from referrals. That means on average, two-thirds of consumers make purchases because someone they know recommended a particular product or service. A recent study from Nielsen also found that people are four times more likely to buy a product or service when referred by a friend.
When leveraged correctly, referral marketing can tap into the power of consumer recommendations and use it to fast-track the consideration phase of a sale. So where is a marketer to start?
Creating a successful referral marketing strategy
There are many tactics you can employ to implement a successful referral marketing strategy. Shopify highlighted these seven, and we think it’s a pretty good list:
- Provide exceptional customer service and buying experience
- Pay attention to your analytics
- Make your products and product experience sharable
- Make it easy for visitors and customers to refer your brand
- Capitalize on influencers
- Gather customer reviews and testimonials
- Implement a referral program
In our view, the implementation of a referral program is the best way to combine many of these tactics and efficiently leverage consumer recommendations — so we’re going to focus on implementing a successful referral program in this post.
Before we dive into how to implement it, let’s first define it.
So what is a referral program, anyway?
As ReferralCandy defines it: “A referral program is a deliberate, sustained system of soliciting and encouraging referrals. Such a system typically involves some sort of incentive structure.”
This includes customer referral programs, affiliate programs, and partner programs:
- Customer referral programs are designed to incentivize your existing customers, usually through some sort of rewards, to spread the word and bring you new customers.
- Affiliate programs reward third parties (influencers, consultants, etc.), usually monetarily, for signing up new customers.
- Partner programs reward certified third-party vendors, usually monetarily or free advertising, for bringing new customers. “Partner programs typically have a much more rigorous admission process than affiliate programs and come with some legal obligations.”
If you are building a sustainable brand, customer referral programs are a must. Since customer referrals are trusted and exclusive, no sales or marketing tactic can have as much impact as a solid referral from a trustworthy friend.
After all, a happy customer can be your #1 salesperson – and not just for bringing in new sales, but for bringing in loyal customers. According to Deloitte, “1 in 3 people come to a brand through a recommendation, and customers who were referred by loyal customers have a 37% higher retention rate.”
Plus, customer referral programs are easy to implement, have low-cost customer acquisition, and can be used with virtually any business model. So how can you go about implementing this type of program the right way?
Best practices for implementing a successful customer referral program
What do you hope to get out of the referral program and what does success look like? For example, what conversion rate do you expect to achieve?
Find your advocates.
Where do you find those happy customers that would be willing to spread the word about your product, and who might even already be doing it on their own?
- Review sites – anyone who’s willing to give you a good review, or has already left you a good review
- Social media channels – who’s posting about how much they love your product and who is heavily engaged with your company’s social channels.
- Your internal team – talk to your client success, support, product, and marketing teams – which customers are they having great, frequent conversations with, which customers are they often beta testing with, which customers have provided great testimonials?
Identify your rewards.
You can reward people with cash, store credit, discounts or free products – ReferralCandy’s research shows, “Generally about 10-20% of the value of your product should be good enough.”
- Know your customers – offer rewards they actually want (if possible, provide a special discount or exclusive item they can only get by referring a friend)
- Know your brand – do the rewards you’re offering make sense for who you are and what you stand for?
- Offer rewards – provide an incentive to both existing and new customers (if you only offer to existing customers, the other person will be less likely to take advantage).
- Offer experiences – think about providing experiential rewards that incentivize continuous engagement, rather than just giving more product (e.g. if you’re targeting a millennial audience, consider offering concert or festival tickets. Millennials love experiences)
Make it easy for existing customers to tell others about your brand.
- Set up your referral email – this is the email that your brand advocates will forward to their friends.
- Give personal referral links – every brand advocate gets their own unique, memorable referral link to share with their friends.
- Design a well branded and friendly referral landing page – this is the first time new customers will be introduced to your brand – you want to ensure you make a good first impression!
- Give coupons – an alternative to referral links is a coupon that brand advocates can share. To make it easy for your customers, provide messages with pre-filled content and allow the message to be shared via all channels. Here’s a prime example from American Apparel:
Give back to your advocates.
- Don’t make them wait. Your advocates are “selling on your behalf.” Make them feel special when they refer a friend – don’t delay their rewards (especially with growing diminishing patience for rewards that take too much time to accumulate)!
- Don’t underestimate the power of a ‘thank you.’ This can go a long way – Consider messaging that thanks the referrer for the specific referral, and the referee for joining
Promote your referral program.
Digital marketing strategist Samuel Edwards says one of the top reasons referral programs fail is a lack of focus on the rollout. “The actual terms and conditions of the program are easy to develop, but the marketing of the program is where businesses come up short–and a weak rollout almost always leads to an underperforming program,” he says.
- Think about creating a dedicated landing page on your website where customers can find all the information they need about how to submit a referral (make sure to include the referral form on the landing page to make it even easier.).
- Utilize all your channels especially social and email. And remember to continue to promote the program if it is evergreen or set a deadline if it is unique. (perhaps launch a Refer-a-Friend campaign)
- Consider implementing a referral contest to create some friendly competition amongst current customers, with the person who sends in the most referrals getting an enticing incentive
Implement analytics and tracking.
If you don’t measure, you won’t know if your program is working or not, and whether you need to make any changes.
Four great referral marketing examples for inspiration
“Dropbox went from 100,000 users in 2008 to over 4,000,000 in just 15 months. That is a 3900% increase in users in less than a year and a half!” [Incredo.co]
“Their program permanently increased signups by a whopping 60 percent, with more than 2.8 million direct referral invites taking place in the first 18 months. In fact, 35 percent of all signups now come from the referral program.” [ReferralCandy]
And Dropbox did this without spending any money! They offered more cloud storage space in exchange for referring a friend.
Harry’s, a grooming product company providing men with shaving supplies, grew extremely quickly thanks to their referral program.
In fact, “they were able to acquire over 100,000 sign-ups in just 1 week, before ever even launching, by setting up a referral marketing campaign on their pre-launch landing page.” [4-Hour Work Week]
They rewarded people with free shaving products for sharing their referral link through email, Facebook, and Twitter. The more friends you referred, the bigger the prize. By utilizing the power of social media sharing, they were able to launch to a massive audience.
“Evernote’s program helped them gain their first million users in 446 days (approximately 14 months), and hit 11 million users two years later. To put that into perspective, Twitter took nearly 24 months, Tumblr got 1 million blogs in 27 months, and Facebook hit their first million in 10 months. Also, while all three examples mentioned were social platforms– designed for the purpose of helping people share information with one another– Evernote is primarily a personal note-taking app.” [ReferralCandy]
Evernote was extremely successful in driving continuous engagement in their program by creating a clear sense of progress through point accumulation. In exchange for referrals, they offered reward points that could be accrued and used to upgrade to Evernote Premium, the paid version of their app. Plus, they drove substantial revenue by offering the referee a free month of Evernote Premium – the genius being once they got a taste of the premium version, they’d be hooked.
Stitch Fix made it really easy for their members to spread the word about their positive experiences, and paired with a compelling incentive their referral program took off. And what’s more – their referral program became a key driver in building brand awareness!
Stitch Fix’s referral program capitalized on the strong desire of human beings to share their happiness and positive experiences on social media. Customers received rewards for sharing their personal referral links and experiences with their Facebook friends. Each customer got a unique referral link, and for each who signed up and placed an order, the customer got a $25 credit. And the more friends referred, the higher the credit value.
Customer Referral Program Software
Creating an efficient and effective referral program hinges on leveraging the right tools. There are a number of great options to help you quickly implement an awesome referral program:
- S Loyalty: Refer-a-Friend
One of the leading and most successful providers out there is ReferralCandy. With 10 years of experience, they’ve successfully run referral programs for 3,000+ online stores, including major brands like Uniqlo and Reebok.
Announcing the LimeLight ReferralCandy Integration
And we’re proud to announce that LimeLight now has a full integration with ReferralCandy! Check out how one of our clients, Videoblocks, has made over $100,000 (and counting) in referral sales through ReferralCandy! Check out the full case study here.
The Bottom Line
The evidence is clear – customer referral programs are a key driver of customer acquisition and retention. As long as they’re implemented and marketed thoughtfully, they can be a major source of new sales. What are you waiting for? Turn your existing customers into your most passionate brand advocates!