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10 tips for creating a successful referral marketing strategy

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An individual is four times more likely to buy a product when referred to by a friend. This piece of information should be enough to convince you to launch a referral marketing program. 

According to this article from the marketing journal Innovative Marketing, academic journals have been looking at the phenomenon of word of mouth marketing since the mid 20th century. The report states that by the mid-90s, some brands were making 60% of their sales from referral marketing. 

This article will explain what referral marketing is, its relevance in the current-day scenario, and the best ways to execute such programs.

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What is referral marketing?

Referral marketing is where a customer recommends a product or service to another person or group of people. The person typically likes the product or service, but companies will put in place strategies and programs to incentivize their customers. 

Referral marketing is a common strategy used by businesses. The idea is to turn your customers into brand advocates for your business. Many companies will use rewards such as cash vouchers, exclusive discounts, or free “swag.”

Let’s take the example of a sports nutrition company. They could use group fitness instructors and personal trainers to refer a protein shake to colleagues, clients, and friends. By using an incentive like a 15% commission for every successful referral, the person will recommend the product to others. 

Why do you need referral marketing?

Referrals play an essential role in growing a business. There is no denying the power of someone else’s approval of a product or service. Take a look at the findings of this 2016 Nielsen study, for example. At least 82% of American consumers consult someone close to them before making a purchase. But, of course, the person wants this recommendation – the study also found that 88% of all Americans would like incentivization for referring a product.

People are equally interested in knowing others’ preferences and sharing their own product choices. While sharing recommendations is an integral part of our culture, you could ingrain the concept of referrals in people by offering the right rewards. 

The best part about referral marketing is it doesn’t have any recurring costs. Once you launch a referral marketing campaign, the entire system starts getting more sales without many interventions from your marketing department.

10 tips for nailing your referral marketing program

A poorly designed referral marketing program could become a reputational and PR nightmare for your company. But, at the same time, if you press the right buttons, the referral scheme could become your golden-egg laying goose.

Here are 10 tips that will help you ace the referral marketing game

1. Time it properly

As Al Ries rightly said, ‘strategy and timing are the Himalayas of marketing.’ Even if you have an excellent marketing plan and the best brains working to execute it, things could still go south if your timing is terrible.

Find out the right moments in the user journey to pitch your referral marketing program. The industry is convinced that the best time to ask for referrals is when your customer purchases. Then, along with a thank you message, you can invite buyers to recommend or gift the product to a friend. 

Alternatively, you can pitch referrals to happy customers in other states. Instances when they:

  • Engage with your brand positively (sharing products on social media, subscribing to the newsletter, and the likes)
  • Give you an excellent net promoter score
  • Make enough purchases to be called a loyal customer

2. Offer the right incentives

While not everyone is lured by incentives, offering rewards is the best way to cover all your bases. Researchers at Yale have concluded that incentives can reduce reluctance among prospective referees. 

Tiered incentives or prizes tend to do better than a standard reward for referrals. You can start by offering simple swag, small cash prizes, and vouchers when a customer begins their referral marketing journey. Then, you can raise the stakes with time and provide bumper prizes for the top performers in the program.

Offering rewards based on demography or purchase history is another excellent way to attract customers. But, again, conduct a thorough study and find out the ideal incentive for your average shopper. Remember, as the size of the rewards bag increases, your chances of getting more referrals also go up.

Amidst this, keep track of your customer acquisition costs. If it’s more than your customer lifetime value, it means that you’re burning more cash than you’re expected income.

3. Make the process seamless

You wouldn’t want your customers to be stuck with manual and mundane processes to claim their referral rewards in this day and age. Similarly, your team will get vexed if they check and approve the prize winners one by one.

Keep the process intuitive and make everything visible. For example, if you’re using a ‘refer’ button, ensure that it’s prominently visible. 

Use automation in every step of the program. For example, create a dashboard wherein your customers can track their referrals, ask queries, and check their rewards.

4. Establish trust

“What if I recommend a product and it fails?” This is a question that many of your customers might be asking. Dr. Ivan Misner points out that there’s a reputational risk associated with referral marketing schemes. 

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Clear all the apprehensions in your customers’ minds by laying all the information bare. List out the customer referral program’s terms and conditions. Use a secured website as a landing page or home page to mention all the details. Avoid venturing into gray areas or following marketing practices that could be construed as unethical.

Such measures will instill confidence in your existing customers and convince new customers that it isn’t a scam. 

5. Let the chain grow

A Wharton School of Business paper suggests that customers who get invited via referrals are more loyal when compared to others.

Turn the referral customer base into referees. Since this set of customers know all about your referral program, trust won’t be an issue. They know all about the product, the process, and the perks. All you have to do is remind them how they landed here in the first place. 

By letting the chain grow, you can create a group of loyal brand ambassadors who give you better conversion rates.

6. Send timely reminders

Seasoned marketing professionals know the importance of retargeting. 

Place your prospective referees into different buckets – top performers, active, slightly active, inactive. Based on their activity, you can remind them about the benefits of being associated with the referral program. Moreover, reiterate the fact that more referrals will get them more rewards and 

Send a feedback form to those who have stopped referring. If there are particular concerns about the program, try to address them and bring about relevant changes. In addition, you can pique the interest of past referees by offering seasonal rewards, loyalty bonuses, and quirky goodies.

Keep in mind that spacing out your email and SMS reminders is essential. Else, you might end up in the spam boxes of your customers.

7. Leverage the power of social media

It’s time to up the ante on Instagram, Facebook, LinkedIn, and other social media platforms relevant to your business.

Studies have shown that social media can increase brand trust and loyalty. Post frequently, respond to comments and conduct engaging contests from time to time. Such measures will ensure that your referral program is a surefire success.

8. Tap the product reviews market

Many potential referees are already out there in the form of product reviewers and influencers in your niche. You need to convince them that your referral program is the real deal and allow them to publish their honest opinion on your products.

This subset of referral marketing is known as affiliate marketing.

Don’t stop with the positive reviews. You can even bring those with negative reviews onboard to bring parity to your affiliate marketing program and establish credibility.

9. Help them help you

Apart from deploying capital for your referral scheme, it would help if dedicated personnel knew all about the program.

Ideally, it would be best to have a support team that can answer all queries regarding the program. This helps in converting all customers who have mixed feelings about referring a product, reducing the time taken to complete a referral.

More importantly, it shows that you care about customers and are ready to travel the extra mile to help them.

10. Spruce up your tech 

Can you reduce the number of steps in the referral journey? Can you improve the UI to help non-savvy users? And can you get rid of repetitive actions? They’re all possible with some tech and design interventions. 

Referring should be an easy task. However, your referral program will not succeed if you need customers to handhold their friends and pitch the product. Use referral marketing software and other tools to make your customers’ lives easier at every stage.

In summary

You can build a world-class referral program by curating a strategy, making well-informed decisions, and keeping it simple. But, most important of all, keep the customers at the heart of everything you do. 

Here’s a quick round-up of everything we covered in this article.

  • Referrals have gone on to become one of the most critical marketing channels.
  • In referral marketing, customers are expected to promote the brand among friends and family in exchange for cash or rewards. 
  • The culture of consulting peer groups among Americans makes referrals an excellent marketing strategy.
  • Timing is vital for pitching referral schemes.
  • Keep the process simple and offer rewards that make it a win-win strategy for you and your customers.
  • Build trust with your customer base via channels like emails, text messages, and social media
  • A robust tech stack allied with a capable customer support team can improve your marketing performance significantly.

Are you looking for more marketing ideas? Here’s a 10-minute-read on the Glofox blog that talks about creative marketing ideas, why you need them, and how to execute them.

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