Referral marketing is the process of allowing your customers or followers to refer your website to other people. Through a referral program, they can input the email addresses or other contact information of their family members or friends and let these people know about the products or services that you provide. Because of this, referral marketing is also known as word-of-mouth marketing - It is because it is the act of sharing a business’s products or services to other people.
Referral marketing may seem simple but there is more to it than a simple concept. After all, you just can’t implement a referral program in your website just because you feel like it. There are other factors that you must consider for your referral program to succeed.
Today, I will be teaching you about referral marketing. First, I will show you its benefits and how it can help your business. Next, I will teach you the process of referral marketing by helping you create your own referral program. Third, I’ll introduce you to several referral marketing strategies that will increase the effectiveness of your program. Lastly, I will have a brief discussion of the different companies that have used referral marketing and succeeded.
What is Referral Marketing?
Referral marketing is a way of marketing your website by asking your customers to refer it to the people that they know. You can do this through a simple ‘refer-a-friend’ form or you can have a referral program complete with incentives (In this article, I will teach you how to create this type of referral program).
Aside from customers, you can also use referral marketing to recruit affiliates. Affiliates are people who are willing to sell your products and services to other people in exchange for a cut in your website’s profits.
Why Referral Marketing Works
Referral marketing is popular because it just works. Unlike other marketing methods that requires outreach and submissions, referral marketing is semi-automatic. You just plug in your program and promote it to your existing customers. From there, your customers will do all the hard work for you.
Aside from the fact that it’s hands-free. There are also other benefits that attract business owners to referral marketing. These are higher conversions, easy tracking and its potential to attract massive amounts of traffic.
Referral marketing works because it has one element that is not present in other forms of marketing. This is warmth. Warmth refers to how close a person is to the other person. If you hardly know each other, the relationship is said to be ‘Cold’. This is where the concept of ‘cold calling’ comes from. Referral marketing has the ability to attract warm prospects as these people usually have a close relationship with the referrer.
So what can warmth do for your business? It can increase your conversions.
Cold calling is hard because it requires calling someone that you hardly even know and promoting something to them.
But if you are promoting to someone that you are close to (a family member or a friend), your chance of getting a conversion is high.
This is the relationship that referral marketers use to increase traffic to their website.
Referrals are often inputted in an online form which is immediately reflected in an online database. With this, tracking is easier compared to getting your customer details offline. When someone refers a person to your website, his or her details will instantly be reflected in your database. From here, that person is just one message or call away for your business.
Aside from the high conversions, referral programs are just plain traffic magnets. Once a brand launches this type of program, news usually spread like wildfire. This is true especially if the incentive is something that is worth signing up for.
With this, you no longer need to host a contest or a giveaway just to get people into your website. Just launch a referral program and watch people flood your website.
How to Create a Referral Program
Now that you have learned the value of a referral program, it is time to create one. In this section, you’ll learn 4 steps on how to do that. I’ll be covering the basics and these are knowing your market, choosing an incentive, choosing who to reward and promoting your referral program.
STEP 1: Knowing your Market
You cannot create a referral program blindly. You need to be knowledgeable on what your market wants so that you can give them a relevant incentive. You can get incentive ideas from your market in two ways.
First is by looking through your bestsellers. This will allow you to see the items that your market likes. This means that these items would probably attract your target market to promote your referral program.
Another way is by looking at your Analytics. Analytics should give more than just the amount of traffic that your website is getting. It will also show you the pages that your visitors frequent. Now, you need to look through this data to see if some of them are product pages. This will then give you an idea on the type of incentive that they like.
STEP 2: Choosing an Incentive
Once you got to know your market, it is time to choose an incentive.
There are many types of incentives that you can use. Some of the most popular ones are cash, small freebies and discount codes.
Cash is popular because it is neutral. Plus, it encourages people to sign up to any type of product or service. With cash, product relevance becomes unnecessary. Instead, more people would like to sign up because of the cash involved.
Freebies, on the other hand, should be relevant to the market. This is where the first step in this process is crucial. You need to take a peek at your market’s purchasing behavior for you to determine the items that they are interested in. It doesn’t even need to be expensive. It just needs to be relevant.
Then, there are discount codes. These are also neutral but they don’t have the same power as cash and freebies. Although it can be a good option if you are just looking for random referrals or sign-ups.
Once you have chosen a reward, it is time to proceed to the next step: choosing who to reward.
STEP 3: Choosing Who to Reward
A referral program is more complicated than what it seems. It requires more than an incentive, you also need to decide on who to reward.
You see, a referral program involves two parties: the referrer and the friend.
You have the option to reward one of them or both.
Now, every party has its pros and cons.
Rewarding the referrer will encourage him or her to refer the website to other people. But the friend will not be so willing to sign up.
Rewarding the friend will make it easy for the friend to sign up. But there will be no gain for the referrer.
Rewarding both is great because both will be motivated to do your desired action (promotion for referrers and sign ups for the friend). But this will be more costly for you.
As you can see, each has its pros and cons. I personally like to reward both for it decreases the friction. But it is not an option for a company that’s a bit short on money.
STEP 4: Promoting Your Referral Program
A referral program should not remain as an option in your website. You should go out of your way to promote it to other people.
This is the error of new ecommerce website owners. They launch a referral program because they know that it’ll help them. Yet, they don’t know how to promote it. So what they do is study the market, choose an incentive and who to reward, launch it and wait. From here, it is only a matter of time until they find that it is not working. But it is not that it is not working. The problem is in the lack of promotion.
Here’s a lesson on promotion. Anything you launch online requires it. Whether it is a website, video, contests or programs. You cannot just launch it and wait. You need to promote it.
There are different ways to promote your program. Here are some of the strategies that worked for me.
Make the Referral Program Prominent
No one is going to sign up to your program if it is buried within your website. Having a separate page and a navigation link is not enough. You need to let your visitors know that it exists by emailing them, having a pop-up or just plain out telling them that they can get a free item or cash right from the front page. Many Ecommerce sellers have a banner in the front page showcasing their referral program. Others have pop-ups. This instantly catches the attention of the customer as they surf the website.
Personalize Your Referrals
There is something about being addressed by name. Aside from the fact that people respond more, it also feels warm and personal. This is the reason why you should always address your referrals by name. If you can, mention who referred them to the website. This will make the referral process more authentic. Plus, it leverages the existing relationships of your customers with other people.
An enticing incentive is not enough for your program’s success. The sharing buttons should be prominent enough that your existing customers or visitors can easily share it. Remember, that a referral program thrives on the act of sharing. It is when a customer or visitor refers your website to other people that you get more traffic, sign-ups and sales. So be sure that your sharing buttons can be easily seen.
Aside from these, your program should have forms with easy-to-follow instructions. I hate it when a website owner assumes that the visitor is an expert at referral program. You cannot just give them a form asking for their friends’ names and contact information. You need to justify why you are doing this and what they will get in return. You should list all the benefits that the referrer and the friend will get just from the act of signing up.
Make Sure the Program is Active on Mobile
Almost 90% of Internet users are also accessing the Internet through their mobile phones. With this, responsiveness has been a demand for websites. Websites need to be able to move along with the mobile gadget’s screen size. Aside from these, forms should also be easily read on mobile. So be sure to test your referral page before promoting your program.
Treat Your Loyal Customers Like Royalty
What happens when customers are treated like royalty? They do more than come back. They refer as many people as they can to the website. How can you do this? It’s simple. Just apply the concept of ‘go another mile’.
So if your customers are expecting a product, you need to double the actual product from what they expect. With this, you’ll end up blowing them away.
The concept applies to services as well. People would often visit a store expecting a certain type of service. But if you give them more than what they need, you can drive them from happy to ecstatic.
Now if you use this concept along with your referral marketing program, you’ll be amazed. With a referral program, you already have a tool that your customer can use to tell more people about you. By blowing them away with your amazing products and services, they can now use this tool to drive more people to your website.
Focus on Sharing
Referral programs are often perceived as some sort of contest. Incentives act as prizes that are won simply because a particular action is done. However, it should not be that way. The focus should not be on the incentive but on the act of sharing a wonderful product or service.
With this in mind, the focus is shifted from the incentive to your actual product or service. Instead of thinking about the type of incentive that will get more people to sign up, you start thinking about the type of product or service that you should provide to get them to come back and refer you to other people. This small mental shift would often result to better products and services that inevitably leads to more traffic and sales.
The Secret is in Free Stuff
Yet, we cannot deny that people simply love freebies. This is the second type of incentive that I have mentioned awhile ago. It is the product incentive. Using the power of ‘freebies’, people are more attracted to do a particular action such as promote the website or sign up in exchange for freebies. Freebies are effective because they are relevant to the needs of your target market. However, market research is essential for this to be effective.
...But Make Them Earn It
Giving away free stuff doesn’t mean that you should just give stuff away without asking for anything in return. Instead, you should let your customers or visitors earn it.
Sure, you can give some freebies away if they refer your website to a friend or family member.
But they should also earn something better when they buy something from you.
Some online shops require a particular amount for the customer to ‘earn’ the freebie. This is okay since the amount that they are spending will be for other items and the freebie is just a bonus.
Don't Forget to Track Everything
Tracking is essential for any referral marketing program. It allows you to see how many people are referred to your website as well as how many you need to reward. You need to do this so that you can send your rewards accordingly.
Aside from this, you may also want to implement a points system in your website. This is where a user is qualified for a higher reward as he or she earns more points. Again, you’ll need to track everything for this to be effective.
Referral Program Case Studies
Can’t decide on your referral program? Don’t know what incentive you should give and who to give it to? These case studies will give you some inspiration on how to implement your referral program.
Case Study: PayPal
One referral program that took the Internet by storm is Paypal's "Invite a Friend and Earn $5" program. With each friend that joins PayPal, the referrer earns $5. But it doesn't stop there. The referrer can earn as much as $100 by referring more people to the website and the friend gets a $5 credit instantly in their account. How cool is that?
This referral program is attractive because of the amount that they are giving for each sign-up. They are giving $5 to the referrer and the friend. Other companies will often give a dollar or less for each sign-up. But PayPal is paying $5 to the two parties. This means that they are spending as much as $10 for each new sign-up.
Did they lose money? Paypal says that they did. But the loss was worth it. Now, they operate with one billion users and has become the main payment processor online.
Case Study: Uber
Uber has referral programs for two types of people: riders and drivers.
Riders get a free ride when they sign up. Last year, they even increased the number of rides to 4 free rides. This resulted to an instant increase in new users for their app.
What they did here is they rewarded the friend (or the person signing up). But this somehow diminishes the likelihood that an existing user will promote the app. It is just that in their case, it is not really needed. The app offers a unique service that is just worth sharing.
For drivers, they have a different referral program. This is where they give money for new driver sign-ups. In fact, they are willing to give as much as $2,500 to the referrer and up to $7,000 to the friend. Plus, they are giving away $1,000 on the first trip of the new driver. This then encourages more drivers to sign up.
The model of Uber's referral program is geared towards two types of markets. It seems that they have studied the market and provide greater rewards for referrals that are harder to acquire.
Case Study: AirBnb
AirBnb also has two types of customers: hosts and travelers.
For hosts, they give as much as $100 per referred host that has successfully hosted a trip. The referrer can refer as much as 25 hosts. This means that they can earn as much as $2,500.
For this referral program, the power of cash is used. It is similar to PayPal but it has a condition - The host should successfully complete a trip to be counted.
Travelers, on the other hand, gets an instant $20 in travel credit when they refer a friend. And when they proceed with the transaction, the referrer will then get $75 more in travel credits. However, there is a limit. The trip should be worth $75 or more to be counted.
This is a perfect example of letting customers 'earn' their rewards. The rewards are there but repeat behavior is encouraged. Through this model, AirBnb users are encouraged to travel often and book more.
These are just some examples of referral programs that you can follow. Still, market knowledge is essential if you want to create the perfect referral program for your website. You may need to do more than observe. You may need to ask them or experiment with different types of incentives.
I hope this guide has helped you in creating your own referral program. From the what to the how, I hope I have managed to cover everything. If you have questions, feel free to ask them below. After this article, if you plan to look into video marketing checkout our viqid review.