Referral marketing is a hyper-interactive marketing tool to get employees, clients, or partners to promote your business. Word of mouth is one of the most powerful marketing tools; Nielsen’s study found that 84% of people trust product and brand recommendations from people they know.
There are two types of referral marketing strategies, B2B Partnership and Client Incentive referral programs. B2B Partnership referral programs use advocates among current employees or business partners to spread the word about a particular product offer based on a long-term win-win agreement to increase client acquisition. They target high lifetime-value customers, and the incentive will often be commission based
Alternatively, a Client Incentive referral program relies on existing highly engaged and satisfied customers becoming high lifetime-value customers using a direct payment such as promotional code, coupon, or discount incentive. They depend on customer satisfaction and experience. These programs will often use online platforms to promote referral programs more subtly.
A Client Incentive program’s main advantage compared to the B2B Partnership Referral program is that it is more credible and relatable to potential customers. The referral comes from a trusted friend or family member who does not have any affiliation with the company or product. With new digital marketing platforms such as social media, smartphones, dynamic websites, and endless widgets available nowadays, it has never been easier to implement a business referral program online for your various product offers. Online referral program management makes it easier to develop, implement and track traditional partnership or incentive referral programs by using something as simple as a popup widget, or a more complex automated referral sales funnel with multiple levels of program rewards.
Whether you are thinking of a B2B Partnership program or a Client Incentive Referral program, there are five key steps you need to go through to create a powerful and effective referral program that will get people talking about your business more.
The 5 Steps to creating a powerful referral strategy:
Step one: Strategy
The first step is to understand if a referral marketing program is a cost-effective marketing strategy for your business model. Here are some basic questions you should ask yourself before starting:
- What are your key sales and marketing objectives for the financial year?
- What percentage of your marketing and sales budget can you allocate to this referral program?
- What are the key objectives of the program? For example, what does success mean for the program? Define the number of leads you want to generate and the number of new customer acquisitions you would like to get from such a program.
- If you were to invest the same budget in another marketing activity, could it generate the same amount of new customers faster?
- Is referral marketing going to increase existing customers’ life cycle value by bringing in more of their peers to your business? Will this pose any threat to your business long-term, i.e., if one person leaves, will this impact customers they influenced as well?
- Is your current customer base, B2B partners, or employees likely to be responsive to a referral program? At this point, you would choose between a B2B Partnership referral program or a Client Incentive referral program.
Step two: Plan
Now that you have decided to move forward with a referral program, it’s time to identify the audience most likely to respond to referral incentives. The only way to do this is by segmenting your target group into smaller sub-groups to determine which segment will generate more leads and conversions for the referral program. For example, if you are doing a Client Incentive program, you can divide your clients into sub-groups such as high-value customers, engaged customers, raving fans, or influencers.
Once you know your preferred group, pick the best time to propose the referral program to your audience. Placement of the referral offer is a critical factor in determining the campaign’s effectiveness. So, ask yourself where the best place would be to communicate the referral program or offer to your customer base. These could be:
- From the onset: Immediately a customer interacts with your website, a popup window appears asking the viewer to share the offer with a friend for a coupon.
- Following a compliment or post-purchase: You can send a survey or questionnaire to gather customer feedback. If the customer is satisfied, they can win a discount code towards their next purchase by referring a friend.
- At the checkout: When the client is about to purchase, they will be presented with an additional discount if they refer a friend. An instant reward for the referral makes this a very effective method.
- Upon referral: A great way to encourage further referrals is to acknowledge a successful recommendation by offering an additional reward or incentive to the customer.
Step three: Design
Design your ROI (Return on Investment) matrix to measure and understand the difference between a referral offer’s value and an average product value. Develop a business case to demonstrate the price you are willing to pay for a referral to understand your referral value.
A referral value is based on the estimated amount of referral or leads generated by the offer and the lifetime value of that new potential customer. The referral is a lead only, not a guaranteed customer. The more referrals you can get for an incentive, the more it will bring down the referral program’s cost and generate more chances of acquiring a high lifetime-value customer. The only way to determine your ROI Matrix is to do at least three different referral program scenarios and business cases to identify your business model’s most profitable program. You will also need a good understanding of your current lead acquisition cost and benchmark this against your referral program cost. Often, many companies realise while doing the business case that a referral program generates low-cost and high-quality leads compared to other marketing activities they are doing.
The above is an excellent example from Harvard Business Review that enables business owners to understand their Customer Lifetime Value (CLV) and put a number on Customer Referral Value (CRV). Deep diving into the CLV is a critical component of developing a successful and robust referral program. Find out more by reading the full article.
Step Four: Implementation
Now that you know who you are targeting and the campaign goals, you can develop the campaign’s message and referral process. The referral offer and the delivery of the message will impact the campaign’s success rate. You can choose a simple or complex referral process from a simple popup window to a completely automated referral sales funnel.
However, the process will ultimately need to be extremely user friendly to work. You could have a simple popup window on your website at checkout, where you give ‘10% OFF’ if the buyer refers a friend. You can also send an email after the purchase to check in with the buyer with a short survey. Depending on the score they give in the survey, you can then ask them to refer a friend in the form of a gift voucher. There are numerous widgets nowadays available on WordPress sites or any other platforms that will enable you to implement a simple referral program fast and effectively. Some companies take it a step further and have an embedded referral program in their apps to make it easier for users to refer friends and families anytime. See some examples below on how UBER and AMAZON PRIME embed their referral programs.
Amazon Prime Referral Funnel Example:
Uber Referral Funnel Example:
Step Five: Evaluation and Recalibration
The final step is to evaluate how successful your referral program was and adjust the campaign accordingly. Some generic evaluation timelines would be at three months, six months, and twelve months after the program’s launch. Having an online referral program makes it easier to track entry and exit points of the referral funnel and address the funnel’s weak links. For example, suppose you realise that the response rate to the incentive you offer is over 60% after a few months. In that case, this means that the referral offer is valuable to your existing customer base. However, if you realise that you are converting only 1% of these referrals, this probably means that there is not enough value perceived by the prospective customer to switch to your brand.
Analysing the data reveals how you can improve your referral program and strategy. It also gives you a lot of insight into what value customers place on your product. A successful referral program is a long-term campaign that will continually evolve because you can refine the referral funnel’s steps to help leads convert faster and easier by tweaking the incentive value, the acquisition process itself, and the referrer groups. A referral process done diligently is often proven to be a vital brand asset to a business and a valuable source of high lifetime-value customers for long-term sustainable growth.