Customer Referral Strategy

The Case for a Customer Referral Strategy

Are you still not sure why you should bother with referral marketing? If so, here are some eye-opening facts that should convince you.

According to the New York Times, 65% of new business comes from referrals.

Wow, right? But what does that really mean? It means that all of your marketing efforts – radio, postcards, SEO, social media, emails, websites, ads, newspapers, and all your other campaigns COMBINED – are still not as powerful as a customer recommendation.

Your referring customers are your most effective sales force and walking advertisements. Yet, the majority of small businesses FAIL to put together a comprehensive marketing plan or utilize ANY type of system that is focused on optimizing and driving more referral business.

Referral Programs are proven to generate more new business with lower customer acquisition costs and higher closing rates than any other form of advertising. So, why are we so unwilling to budget for a referral program? The most common answer? Referrals will happen no matter what. “What do we need to pay for a program for, I get a few referrals each month with no cost to me!”

Word of Mouth Marketing

Everyone knows that word of mouth is powerful. The word of a trusted friend goes much farther than any advertisement or marketing message. But you may not realize just how powerful. Nielsen research shows that 92 percent of people trust their friends and family more than what they hear anywhere else. Some studies put this estimate higher.

Time for Something New

Have you been trying to get a leg up on your competition, your own custom referral program is the place to start… according to GIGAOM – majority of marketers are NOT utilizing referral marketing and a whopping 35% haven’t even bothered to try it.

People are reluctant to give a new product a try, but if that product is recommended by a trusted friend, they’re much more likely to do it. Nielsen research also says that consumers are 77% more likely to try a new product when they hear about it from others. They’re as much as 43% more likely to try something new when they hear about it on social media.

Social Media Referrals

Research by Market Force shows just how powerful word of mouth on social media can be. Not only does it report that 81% of U.S. online consumers’ purchases were influenced by friends’ social media posts, but also that as many as 78% were influenced by posts by the brands they follow.

For those already keen on referral marketing but not sure about offering an incentive, Market Force’s research also shows that 79% of U.S. consumers who “Liked” a brand on Facebook did so to receive an incentive.

Rewards for Referrals

Sometimes people question if incentivizing for referrals really works? The answer, yes, but of course you can’t expect incentivizing to work if you have a terrible product, poor customer service, etc. Quality products, quality employees, and quality customer care must come first, but once you have that, an incentive offer will work wonders. Just ask Dropbox, Airbnb, & PayPal.

Peter Thiel, co-founder of PayPal had this to say in his book, Zero to One: Notes on Startups, or How to Build the Future, “At PayPal, our initial user base was 24 people, all of whom worked at PayPal. Acquiring customers through banner advertising proved too expensive. However, by directly paying people to sign up and then paying them more to refer friends, we achieved extraordinary growth. This strategy cost us $20 per customer, but it also led to 7% daily growth, which meant that our user base nearly doubled every 10 days. After four or five months, we had hundreds of thousands of users and a viable opportunity to build a great company by servicing money transfers for small fees that ended up greatly exceeding our customer acquisition cost.”

The American Marketing Association found through its studies that rewards increase referral likelihood and that it doesn’t matter what size the reward. Apparently referring is easy to do. People just need a nudge, no matter how small.  

The Power of Following up for Referrals

Finally, here’s a statistic that shows the power of following up. Texas Tech found that 83% of consumers are willing to refer others after they’ve had a positive experience with a brand, but that only 29% of them actually do.

Referral marketing is powerful and it takes minimal investment from a business to do it. Compared to other forms of advertising and marketing, it’s a very cheap way to get the word out.

So what will your customer referral strategy look like?  Take time to mind map how and when you will ask for referrals.