Study after study has proven that referral marketing is one of the best forms of marketing when it comes to sales and conversion rates. Simply put, referral marketing, sometimes referred to as word-of-mouth marketing, is when people buy a product based on the opinions or influence of others.
It's a powerful marketing channel because people trust the opinions of other people in their lives and those they respect, whether it's family, friends, social media Influencers or celebrities.
What is referral marketing?
Referral marketing is a promotional strategy that encourages existing customers to refer new customers, often with incentives. While referrals can be done organically, businesses can also use a specialized referral program.
The overall effectiveness of a referral marketing program is justified by the fact that we usually get suggestions from our friends about what TV shows to watch, what movies to rent, and what restaurants to go to. And, we ourselves, as end consumers, will want to share our stories, the products we buy, and the brands we choose. This is amplified when the buying experience and the product are both great.
In this article, we'll show you the three basic reasons why referral marketing is so powerful, some examples of highly successful referral campaigns, and provide seven tactical steps to build a powerful referral marketing engine for your business.
Why is referral marketing so powerful?
We know that word-of-mouth and referral marketing is very powerful and consistently rated as one of the most powerful forms of marketing.
Have you ever tried using Google Adwords or Facebook ads and watched the money disappear before your eyes? Many times it's not the platform's fault, but your positioning. Good marketing campaigns have two key components, great messaging and laser targeting.
Referral and word-of-mouth marketing tend to be more targeted because people usually know their friends and social audiences very well. This allows your brand message to spread more effectively than most other marketing channels.
Trust is important when it comes to convincing someone to buy something. If we don't trust someone, we won't listen to them. Think about the last time you knew a salesperson was trying to sell you something for a commission. You likely doubted his authenticity because of a lack of trust. In referral marketing, though, the sales pitch usually comes from someone you either know very well, like friends and family, or from someone you trust, like a favorite blogger.
Time and time again, research shows that people almost always trust the opinions of these people over the generic ads and sales pitches that brands craft themselves.
Remember, referrals are not limited to friends and family. They can come from a variety of sources, provided that the recipient of the information trusts them. So what are the main types of referral channels?
Customer reviews and opinions posted online
Influencers' opinions (bloggers, social media Influencers)
Letters of recommendation
Reach and Acceleration
Not long ago, the average reach of the typical consumer was limited. To a large extent, it was limited to the people they saw or talked to on the phone every day. In today's age, however, the average consumer has a much broader reach, and for many with a steady social following, the impact can be enormous. Today, some consumers have the ability to make or break a business by what they say online.
With a simple Facebook post, Twitter tweet or Instagram selfie, the average consumer can now reach hundreds, if not thousands, of friends (people who trust their opinions again) in seconds. This social reach is a key reason why referral marketing has grown in strength over the past decade.
Offers a low user acquisition cost
According to Nielsen, 92% of consumers trust referrals from people they know. So the recipient of an invite is more likely to install your app in one go -- as compared to a new user who would need to be targeted with ads and retargeting campaigns. The only thing you do spend on or have to invest in, is offering a great in-app experience to your users and rewards to keep them motivated to invite more friends.
Reduces your app churn rate
No user would want to spam their friends and family. So you can be sure that most of your referral invites are going out to those who your users think will see as much value in your app. This addresses the most common challenge of user acquisition -- reaching the right audience. Referral marketing uses word-of-mouth promotion to get you noticed by those who are more likely to install and enjoy your app, reducing your churn rate.
Referred users are 18% more loyal than those acquired through other channels of marketing. In fact, the lifetime value of a referred user is 16% higher than your average smartphone user.
Improves your retention rate
When your churn rate reduces, you get time to understand how users want to interact with your app. You get to learn about their expectations and how an in-app experience influences their interactions and app sessions. Using this data, you can actually improve the app's experience for them, hooking them to what it offers.
Creates a viral loop of acquisition
When your churn rate reduces, your retention rate improves. When your retention rate improves, it is indicative of how the users are enjoying the in-app experience. And when users enjoy what the app offers, they become more likely to invite their friends and family to it. Simply put, you're building a viral user acquisition channel. But creating a high-converting referral program can be tricky.
Referral marketing plan
'Referral marketing' is not only for the sales and marketing department, especially for the software and Internet industry, it is more closely tied to the product itself. Designers should not only consider how to show and communicate marketing rules in the application, but also participate in user research and strategy customization in advance to develop the most suitable solution for the product characteristics.
When designing a 'referral marketing' program, how to customize the most suitable reward program for the product? How to explain the rules to users? How to incorporate the entire process into the application? These are all questions that need to be considered. The features related to referral marketing, like other features in the product, also require a good user experience to reduce the churn rate during the process.
Analyze product features and identify target customer groups
The first step in building a 'referral marketing' campaign is to analyze the features of the product and identify the target group of customers. Not all existing users have a strong incentive to share the product, but in most cases, more active users are more willing to share. They know the product better and the new customers they recommend, are more targeted. Even for the same user, if you can catch a very pleasant moment in the process of using the product and guide them to share it, the success rate will be higher.
The goal of marketing programs is basically user growth and transaction revenue growth, but for different products, the priority of the goal is different, and the customer's expectation of return is also different. Understanding their needs is the only way to create 'referral rewards' that are attractive enough.
Develop an reward mechanism
If the product is an e-commerce company with many categories, then attracting new users to sign up is the primary goal. The rules and rewards can be designed to reward the invited users as soon as they sign up, and lead them to try buying for the first time by offering a great deal on the first order. The reward given to the referrer can also be a discount on shopping to increase their repeat purchase rate.
Communicate referral marketing programs to users
No matter how 'perfect' your marketing program is, if it is not effectively communicated to users, it will not translate into actual users and revenue. In order to balance cost and effectiveness, sometimes we have to set the conditions to get the reward, such as the referred person must download the app and register, or complete an order, etc. These rules need to be fully communicated to the user, both the referrer and the referee. The rules themselves need to be simple and clear, with 'what the reward is' and 'how to get the reward' being the most important information to be communicated. Don't just focus on the encouraging copy and ignore them when describing the process.
Use data to track marketing results
After completing all the 'referral marketing' related features, remember to add data collection to confirm how much the existing campaigns are contributing to user and revenue growth. If it's not meeting expectations, are the rules not set up properly? Or the exposure of the sharing page is not enough? Marketing is a long-term process, even if there is no problem with the program, as the product develops, the goal and investment on this may change at any time, at this time, the preliminary data will become an important basis for decision-making.
Optimize all details in the sharing process with the idea of user experience
Sharing is not a simple operation, and it may jump to other social apps in the middle of the process. If you include the process of getting the 'reward' and using it, the whole process will be even longer. Therefore, it is important for designers to clearly map out this online and offline process to help optimize the details of the sharing process and reduce the churn rate.