Customer referrals are vital in the marketing world. According to Nielsen, potential customers trust recommendations made by friends and family 92 percent of the time. And yet with this strong statistic few companies are actively harnessing the power of the referral.
When online and offline marketing and advertising tactics are combined, these word-of-mouth referrals can have a significant impact on your sales. The first step, in achieving this, is getting your referral program off the ground, and here’s how to get started.
Referral Marketing 101: The Basics
A referral program incentivizes existing customers to attract new customers into the business. Offering an incentive is critical because only studies show 29 percent of customers who have a positive experience with a business end up recommending it to others.
The incentive doesn’t need to be monetary; in fact, the University of Chicago found that referral programs based on non-monetary incentives are found to be 24 percent more effective. For instance, your incentives can offer free merchandise, gifts, or free or discounted services.
The size of the reward is fairly inconsequential. The American Marketing Association reports that while rewards increase the likelihood of referrals, the size doesn’t actually matter. This would suggest that “firms need to choose the reward size carefully and compute the expected incremental sales revenue compared to the cost of alternative reward programs.”
How effective is a Referral Program?
Marketing by word of mouth works because existing customers have credibility and perceived objectivity that companies will never have. But how effective are referral programs as a means of referral marketing?
A 2011 academic study published in the Journal of Marketing shows that referral programs are incredibly lucrative. Philip Schmitt and two of his colleagues studied 10,000 accounts of a major German bank for three years. The results of the study confirmed the profitability of referral programs. Customers brought in through the referral program produced higher profit margins, showed more loyalty, versus those acquired through conventional channels.
Is a Referral Program Right for Your Business?
A referral program could work for you, no matter what your industry. Some detractors point to the risk that opportunistic customers will exploit referral programs, generating bogus leads solely for the program’s incentives. While this is certainly a risk, the Journal of Marketing study showed how a referral program’s benefits can outweigh its potential unfavorable effects.
Additionally, even a modest marketing budget can support a referral program. The attractiveness of referral marketing is that it requires very little effort and almost no cost. The rewards given to referring customers are a small compared to the returns on customers acquired without any marketing effort on your company’s part.
How to Find the Right Referral Marketing Software for Your Program
There are many different types of referral programs that can be implemented to help manage your referral program. The best online referral software solutions are easy to set up and loaded with features for managing the referral program and delivery of notifications, capturing referral lead data, and managing the rewards for a low monthly fee. Here are a few examples of referral marketing software solutions:
- ReferralCandy ($25/month): This app works by generating post-purchase coupon codes for your customers to share with their friends. When their friends purchase from you, the referring customer gets their reward. Reviewers cite the platform’s e-commerce readiness and social media integration features.
- Ambassador ($99/month): This referral software is characterized by its robust and highly customizable Referral Dashboard and Campaign Builder features. Advocates (known as “ambassadors”) are provided with unique sharing links, and reward notifications are managed via email triggers.
- Referral SaaSquatch ($99/month): This app has quick set-up options, double-sided incentives, a customizable referral widget, and a single sign-on interface. The referral management system is fully automated with reward options that can be customized.
Before deciding on the software, make sure to determine your specific needs and do your research. Finding the right software platform can make all the difference.
Converting Loyal Customers into Brand Advocates
A referral program takes the word-of-mouth endorsement one step further by giving customers an incentive to share their positive experiences. Not only do referral programs succeed in acquiring new customers, they also bring in customers who are more loyal and more profitable.
At Figment Design, we know how to get the most out of your local marketing efforts. Our holistic, turnkey marketing and advertising programs are designed to transform loyal customers into brand advocates, thereby helping to generate more of those oh-so-precious referrals. Let us help you take care of marketing your business so you can get back to running it.