Why Having a Referral Program Is Good for Your Business
Marketing experts swear by the power of word-of-mouth promotion. No matter how hard they try to promote a small business through content marketing and all the right ads at the right time, they still recommend the business owners to spread the word. What they don’t usually tell you is that the word-of-mouth method is not always 100% natural.
Did you think it only involves telling someone about your company and expecting them to share the news? You were wrong.
Referral programs are a huge part of this method. Marianne Roberts, a marketing manager from Careers Booster, explains how it’s useful for your business: “With a referral program, you’ll be encouraging your customers to promote your product further. Needless to say, you first need happy customers if you want to rely on this method. More than 80% of customers are willing to refer after a positive experience. Once you start making the customers happy and you develop a solid referral program, you can start watching how the base of consumers is growing by the day.”
Why Your Business Needs a Referral Program
Before we go any further with the reasons why this kind of program would be beneficial for your business, let’s explain what it is. In this article, we won’t focus on the method of hiring people as part of the referral program and giving them a percentage of the sales.
We’re talking about customer referral programs, which are quite different. It’s about getting referrals from existing customers, who’ve been satisfied with your offer and are ready to recommend it further… in exchange for a certain benefit, such as a discount or bonus points they can use when buying your products and services. Let’s see how your brand will benefit from such a strategy.
1. Social Proof
Your existing customers know your business with all its advantages. They are aware of the features that make you better than the competition, so they will talk about them when recommending your brand. In other words, they are making an informational social influence and other people will follow their example.
2. Direct Targeting
You already know how important targeted content is for your promotional efforts. You’re trying to reach the right online audience, and that takes a lot of time, work, and persistence. With a referral program, you’ll directly target the right people without trying too much.
3. You’re Boosting the Base of Loyal Users
Harvard researchers studied the effects of a German bank’s referral program over a period of three years. They realized that the customers obtained through this program were more loyal than the ones who came through other channels. The referrals also generated more profits, so the bank earned a return of 60% on its referral reward of 25 Euros.
If a referral program is executed well, it won’t just bring you new customers; it will bring the good ones.
4. You’re Paying for Results
Your existing customers get the benefits you offer only when they bring you, new buyers. You’ll be paying for the marketing campaign only when you get more people spending money in your business. There’s absolutely nothing to lose with a customer referral program. You will specify the exact benefits people are going to get. You may give them a percentage of the full price, or points they can use for discounts at your stores. There are no surprises with a properly planned referral program.
5. People Trust the Messenger
Consumers around the globe trust marketing messages, whether they see or hear them on TV, radio, or the Internet. Word-of-mouth marketing, however, is the most influential type of advertising. When you get a recommendation from someone you trust, you trust the message. It makes sense.
6. You’re Engaging Your Current Customers
If you give a current customer certain benefits for spreading the message, they will remain right where you want them: in your business. The chances of losing them to the competition are lower when you engage them with a referral program.
Quick Tips: How to Start a Referral Program
Now that you’re aware of all advantages referral marketing can bring for your business, it’s time to think about implementing it. Keep in mind that, although it’s a simple strategy, it does require serious planning and considerations. Educate yourself before you take any step forward.
Here are few quick tips that will set you on the right track:
1. You Need an Exceptional Offer, First
With a referral program, you’re asking people to recommend you to their friends. If you fail to provide a nice service, they won’t do that. They won’t want to ruin their connections by tricking people to buy something they won’t like. Through this type of marketing, you’re rewarding honest recommendations. Keep that in mind and make sure to satisfy your customers if you want to turn them into collaborators.
2. Give Benefits to Both Parties
If you want to make it easy for your current customers to recommend your brand, you should give something in return not only to them but to the people they bring as well. Payoneer, an international payment platform, does that well: it gives you $25 for each referral, but the referral also gets the same reward.
Offering a reward increases referral likelihood, but the size of the reward does not matter – American Marketing Association
3. Make It Easy!
Payoneer’s referral program works not only because the offer is attractive, but also because it’s easy to refer a friend. You just share the referral link with a friend, and that’s it. If they subscribe to it, you both get the $25.
That’s what makes this approach different from plain word-of-mouth marketing. You need to know exactly where these people are coming from, so make the referring process really easy for both the customers and yourself.
4. Make an Offer
The main question is: can you afford a referral program? You’ll have to analyze the market to predict the response of your audience to this method. You need to make an offer that attracts them towards your business but still helps you earn money from it.
First things first: you need an offer that works for your brand. What kind of reward would your customers enjoy? What are you able to give? Make sure everything makes sense before you make real steps.
The most important thing is to keep tracking the results and making improvements. Referral programs are great for small businesses, but they have to be done right. Consider this method in the context of your brand and give it a chance!
If you liked this post, check out our Small Business Guide to Referrals.
About the Author
Eva Wislow is a career advisor blogger from Pittsburgh. She is keen on the latest digital marketing trends. She loves to help people challenge themselves and achieve their most ambitious career