How Referral Marketing Works and Why It's Crucial for your Business
This is a guest post written by Arlen Robinson. Arlen is the co-founder and VP of Business Development at OSI Affiliate Software.He is also the host of The Ecommerce Marketing Podcast where he discusses marketing strategies with experts from all over the world.
Referral marketing - You may have heard it but you may have not tried it yet. If so, what’s stopping you? Does it sound too complicated to implement? Are you wondering how it works? In this article, you’ll learn how referral marketing can work for your business and how easy it is to start implementing it right away. You have reached this page because you definitely want to know more about this topic. Don’t worry. I got you covered. Let’s dive in.
What is Referral Marketing?
Referral marketing is a form of marketing where you ask your customers to promote your business to their family and friends. Often, it involves a fillable online form where your customers can key in the details of the people that they know (family and friends) and refer them to your business.
How Does Referral Marketing Work
Referral marketing is one of the fastest way you can drive leads and customers to your site even if your site is completely new. It works really well for ecommerce marketing sites and other online businesses.
One of the reasons why it works so well is because it leverages your existing customers. Instead of you having to promote your site yourself, you enlist your customer’s help to promote the site for you. With this, you get more chances to expose your brand to other people.
Another reason why referral marketing works is because it utilizes the power of trust. You see, referral marketing works with your customers promoting your business to the people that they already know. This can be family members or friends who are close to them. The result? Their promotions is more effective. This is because their family and friends are more open to hearing promotions from them because they are close to them.
With this, your business simply cannot afford not implementing a referral marketing program. The best part is that it is incredibly easy. Here are 4 simple steps.
STEP 1: Choose Who You’ll Reward
A referral marketing program begins with your target market. You need to know your customer before you implement this. Why? Well, you’ll want to give them a reward that they will want. If you just give them any reward, there is a greater chance that you’ll fail. But if you give them a reward that they already want in the first place, they’ll be more keen on joining the program and promoting your business.
To do this, you need to take a step back and look at your existing customers. If your business is new, look at the persona of the market that you are planning to target. What demographic characteristics do they have? What are their likes and dislikes? What places do they frequent? What are their hobbies? What problems do they have that only you can solve? By answering these, you’ll have a clear picture of who you are talking to and thus, you can proceed with the next step.
STEP 2: Choose How You’ll Reward Them
Next, you need to look for ways to reward your market. In this step, you need to decide on two things: your reward and who you’ll reward.
First, you need to choose your reward. This reward can be cash, a discount coupon, a free item or a chance to win an item. The type of reward that you should give away will depend on your analysis on the previous step. If you found out that your target market is likely to buy from you multiple times, then a discount code may be attractive. However, if your items are sold on elite prices, you may want to consider a small freebie or some cash for sign-ups. If you are providing services through software or an app, you might want to get as many people to sign up. For that, you can give away some cash or a chance to win a highly coveted item.
Once you have your reward sorted out, you need to decide on who to reward. You can approach a referral program in three ways. You can reward the referrer, the friend or both. Each has its pros on cons.
Rewarding the referrer will motivate your customers to promote your site. After all, the referrer is the initiator or the promoter. You should give them something for their actions. It is with this reason why this is the most common type of referral program out there.
Next is rewarding the friend. This happens for software as a service or other types of services. This is where you reward anyone who has signed up through a referral. Uber and AirBnb has done this. Uber rewards new drivers and passengers while AirBnb rewards new hosts and tenants.
The third option is to reward both. This is the most attractive option for your customer because not only will the referrer get something out of the deal, the recruited person can get something out of it as well. The only downside of this option is that it is quite expensive so you may need to just choose who to reward if your business is on a tight budget.
STEP 3: Set Up Your Referral Program
Now that you have your reward sorted out, you can now set up your referral program. This is the easiest part of the process because all you need to do in here is translate your referral program into a landing page and that’s it. Of course, you’ll need a referral capture page which you can easily generate if you have referral software. Then, you should also have some copywriting and minor coding skills to craft your landing page from scratch.
One of the ways I create my referral program is through Wordpress. Wordpress is a widely used website platform on the Internet. The reason for its popularity is its incredible ease of use. Then, I set up a landing page by just indicating the reward and the mechanics - what your customers need to do in order to access the reward. Then, I use a Wordpress-compatible referral software to generate the referral page and manage the back-end through the Wordpress dashboard.
STEP 4: Promote Your Referral Program
Simply creating your program is not enough. It will not be useful unless you launch it. This is what promotion is for. You need to promote your program in order to get referrals.
For most ecommerce sites, promotion can be as simple as displaying their referral program in the front page of their sites. For others, it is about posting in their social accounts and launching some ads. You can even survey your customers to get their feedback and see who is most likely to refer others. Whatever process you choose, the key is to get the word out about your referral program. You can resort to paid advertising. This is because the more people you reach, the better your chances of getting all the benefits of referral marketing.
Why Do You Need Referral Marketing
Now that you know what referral is, you may want to know how it can help your business. Well, the benefits of referral marketing in your business will astound you. Here are some of the benefits of referral marketing.
It Drives More Traffic and Sales Than Other Forms of Marketing
Social media marketing, SEO, offline marketing - If you have tried all of these and found that you are spending too much without getting any sales in return, you’ll know how marketing can take some time. It is not something that you can easily see the benefits right from the onset. But referral marketing is quite different. If you have a solid market base, you can easily see the benefits of referral marketing right away.
As mentioned above, referral marketing works by leveraging the connections of your customers. What makes it more powerful is the compounding effect. So if you have 1,000 customers (which is quite small by the way) and each customer refers you to at least 3 people, that’s already 3,000 referrals for you. Think about what will happen if you have more customers. The compounding effect can easily multiply your traffic and sales in a matter of days.
It is Semi-Automatic
Marketing requires effort and time. Social media marketing means you need to create posts and schedule them. Blog marketing means that you write articles and post in other blogs. Influencer marketing requires you to approach influencers by emailing them and take your time to get to know them. As you can see, all of these take effort and time. But referral marketing is different. Once you set it up, it is already semi-automatic. If you have put it in key places in your website, all you need to do is focus more on driving customers to your site and your customers will do all the promotion for you.
This is what happened with Paypal back when they launched a referral marketing program in their humble beginnings. They gave away cash for every sign up. Since the offer is so enticing, they got tons of sign-ups and referrals but most of these came from their existing sign-ups. Did it work? Well, see it for yourself. Paypal is now considered as a top payment processor online with over a billion users.
It is Easy to Implement
Some people think that launching a referral program is hard. This is especially true for people who have not encountered the term before. They think that they need to know web development or coding in order to implement it. But with today’s softwares, it is now easy to launch your own referral program without any coding knowledge.
One of the most popular softwares in this field is OSI Affiliate. It is a referral and affiliate program in one. It allows you to set up and launch your own referral program in a matter of minutes. As long as you have already sorted out your referral incentive and the mechanics of your program, you can encode it in a software like this and launch it right away.
It is Also Budget Friendly
While some referral softwares will require a minimum monthly fee, that is nothing compared to the number of sales you can get from semi-automatic marketing. With a referral program, you get more brand exposure and more and more people will think of you once they want to buy something. The key to a successful online business is recall. Since your business is online, people can easily access your site. So if your business has good recall, you have a higher chance of closing that sale.
However, recall can only happen once a lead sees a brand at least 9 times. This is for advertisements. But there’s a faster way. A lead gets to remember a brand name more if it is referred by someone they know. This is the power that you’ll be harnessing once you have a referral program.
It is What Big Brands Are Using
I have already mentioned in this article how the fastest growing brands have used referral marketing in their business. This means that if you were to choose only one form of marketing, it should be referral marketing. Paypal, Uber and Airbnb have now grown so much that they are able to beat the biggest brands in their industries. And this is not only because they offered radical technologies or services. Any technology will be useless if there’s no marketing involved. Really, it is referral marketing that drove them to where they are now.
Because You Are Wasting Money By Not Having One
If you are still stuck on doing traditional marketing for you business, you may be spending tons of money on advertising fees with nothing to show for it. By not leveraging your customers, you are putting the burden of promotion entirely on your shoulders. This means that new leads and customers is entirely your responsibility and your business can’t grow without you.
Referral Marketing Works But Will You Use It?
Now that you know what it is and how it can benefit your business, will you use it? Why or why not? Tell me all about it below.