How to Create a Successful Referral Marketing Campaign
What is referral marketing?
Referral marketing is a method which encourages existing customers to recommend your products or services to their friends using incentives. This is also known as ‘refer-a-friend’ schemes and is an excellent way to improve customer acquisition and retention. In fact, according to a study by MentionMe, businesses can expect to see a 10-25% increase in customer acquisition from referral marketing.
What’s the difference between referral marketing and word of mouth?
Word of mouth is extremely important for businesses, and it’s often the best form of promotion. Word of mouth means that people are hearing about your business from others, without you asking for the endorsement. It’s a great compliment and means that you’re doing something right if people are recommending your business because they want to, not because they’re getting something out of it. But we can’t control word of mouth, and therefore we can’t create it, calculate it, or rely on it. All you can do is offer an exceptional service or create an exceptional product, and hope that word of mouth recommendations come. Referral marketing on the other hand, is a way of asking people for recommendations, and boosting those word of mouth referrals. This usually involves an incentive of some kind to encourage customers to share your business.
The benefits of referral marketing
Whilst the benchmark of a 10-25% increase in customer acquisition is enough to represent the significant opportunity that referral marketing provides, there are plenty of businesses who have exceeded these results. Dropbox for example, generated an outstanding 60% of their new customers through referral marketing. Uber closely follows, generating 50% of their customers through referral marketing, and then giffgaff, generating 35%.
Clearly, the greatest benefit of referral marketing is the number of new customers that it can generate, but another often overlooked benefit, is the quality of those new customers. The key factor here, is that the new customers are the friends of your existing customers, which means they are likely to be a great match to your target demographic. They’re also more inclined to like your brand before even buying anything from you as they’ve already formed some sort of trust and connection with your brand through the advocacy of their friend. Research shows that when compared to new customers who come through other channels, new referred customers tend to spend 15-25% more, have a 200% higher lifetime value and are three times more likely to go on to refer you themselves.
How to create an effective refer-a-friend campaign
Step 1: Confirm whether referral marketing is right for you
- Is there enough margin in your product or service? Your offer needs to be compelling, but you need to consider your Cost Per Acquisition carefully first to see what you can afford, and whether that’s enough to work.
- How satisfied are your customers? Are they likely to want to tell their friends about your business?
- Is your target market suitable for referral marketing? Whilst any market can be suitable, some demographics are more active than others. For example, women share more than men, and people under 30 years old share more than people over 30, whilst the older demographic tend to convert better than the younger, despite less referrals.
- Are your current customers long term or new customers? First time buyers are less likely to refer a business.
- Is your business service or product likely to be talked about? For example, clothing, hobbies, holiday plans etc are areas that naturally come up in conversation, and are more likely to be discussed and recommended.
- Is your service or product an impulse buy or a larger purchase that takes consideration? If it’s the latter, it’s not necessarily a bad thing, your referral scheme may just take longer to get off the ground as referred customers may not be ready to buy straight away.
- Does your business offer regular discounts? If so, it might be harder to get your referral campaign to stand out, and if there are more appealing offers elsewhere, it may impact the effectiveness of your campaign.
Step 2: Understand the key drivers for success
When creating a referral marketing campaign, most will concentrate on the incentives and the ease of use as the key success drivers. Whilst these are very important, what is often overlooked is the relationship between the person referring your brand, and the person being referred. It is this relationship between friends that is by far the most important factor in your campaign.
If someone knows that their friend will love your business, or that your offer is an amazing find that’s too good to be true, referring you to their friend will make them look good and will benefit their friendship. If, however referring your brand will look like they’re only doing it for personal gain, then they’ll likely not risk sharing your business as it could have a negative impact on the ‘social capital’ they have with their friends.
With this in mind, you need to not only focus on the incentive and ease of use, but also how the offer is positioned and how it will look to the person being referred to. To increase the number of referrals, you must increase the incentive and the friendship benefit, or social capital, and decrease the effort and social risk.
Step 3: Find the right referral incentive
As mentioned above, whilst the incentive isn’t the sole driver for success, it’s still very important. To improve the success of your campaign, you must test different offers, but this isn’t as easy as it sounds. You can’t really switch out an offer mid-campaign. If a group of customers see one offer and then you decide to test something different and all of a sudden it changes, you’ll be providing a very poor user experience to both your current and new customers.
To overcome this, you need to be able to carry out AB testing, which will provide consistent results and consistent experiences. One group of your audience will see offer A, as will their friends, whilst another will see offer B. You need to be able to do this to truly unlock the potential of referral marketing for your business. If you’re not sure how, outsourcing to a digital marketing agency is the best option here. Here at Aspurian Digital, we have a team of marketing professionals who know the best ways to make your business stand out from the crowd.
Some incentive ideas for your campaign include:
- Money off/ discounts
- Gift cards
- Third party gift cards
- Free delivery
- Free product
- Charity donations
- Competition entry
- VIP access or experience
Step 4: Find the right place to promote your referral
Your referral programme should be easy to find and kept at the top of peoples’ minds. To achieve this, you should share your promotion on different areas of your website and in emails.
The best places are usually ‘areas of delight’ such as the order confirmation page post purchase, order confirmation email, and even on a card or flyer sent with the physical product when they receive it. To make it easy to find, you should also put the offer in their account area on your website and sent in general email newsletters to remind them. The homepage of your website can also be a great place to promote this too.
The next and final most important step is to ensure that your referral is easy to share! This includes face-to-face, unique URLs, email and social media share buttons.
Ready to start your campaign? Talk to us today.