An additional overview of referral marketing also comes from Amity Kapadia:
Referral marketing is a strategy to encourage passionate customers and advocates to directly refer their network to your business.
Studies have continuously shown that customers not only seek referrals, they act on them. Referral marketing takes the inherent organic and altruistic nature of referrals and gives brands the tools to incentivize and manage them at scale.
You’ve probably seen, most likely even participated in, a referral program. And while most companies are anecdotally excited and realize that referrals are a significant driver of new customers and value, there is still some confusion on how to scale this strategy.
We’ve seen companies build a referral program in-house and others who try to manage it manually through email and other basic systems. But the most successful companies automate the process by using one platform to enroll, track, manage and reward their ambassadors.
The goal of referral marketing is simple: To harness the power of authentic word-of-mouth to drive a steady stream of high-quality referrals to your business (and grow revenue as a result).
The two big drivers for the growth referral marketing in recent years have been the rise of digital and social. Customers (and brands) have become digital. And as social media has risen, every customer now has the ability to amplify messages to a large number of people. What needed to be done through physical coupons earlier now can be done via links and referral codes.
It is no wonder then that referral marketing has become one of the most valuable forms of marketing, as explained by Steli Efti (in the B2B context):
Which marketing or sales tactic do you think has the highest ROI? Inbound marketing? Email campaigns? PPC ads?
The truth is this: there’s a standout winner that can’t be touched by any other method. That winner is referrals. Referral sales require almost no financial investment, but they bring in very valuable warm leads.
Why the love for referrals?
Because there are two types of referrals, and both of them have significant advantages.
First, you can get a referral from a customer to one of their contacts in the same field.
That means your new prospect is highly qualified. They’re in the same industry, they probably have the same problems, and there’s a good chance that your product or service will be a good fit for them.
Second, you can get a referral from a customer to one of their friends.
Even if they’re in a different industry or situation, that referral comes with a lot of trust. That trust means is invaluable.
Most marketers and salespeople know—at least implicitly—that referrals are highly effective. They may not know that referrals drive some of the highest conversion rates among all marketing channels, but they know that getting them is important.
Bottomline: referral marketing can be very effective. And yet, it is not used properly by most brands. This has puzzled me.
Tomorrow: Rethinking Referral Marketing (Part 6)