Let us next understand the types of referral marketing programs that exist. We will then discuss the problems – and possible solutions to make referral marketing more effective.
Here is an excerpt from 2015 research paper by Barry Berman entitled “Referral marketing: Harnessing the power of your customers”:
There are two types of referral programs: one in which existing customers are paid an incentive, and another in which current customers work without pay on presentations, case histories, and user forums. The second program benefits the referrer by increasing visibility, heightening his or her recognition as a specialist, and/or gaining special treatment from a supplier/vendor. Both program types share common characteristics. They are initiated, managed, and at least partially controlled by the marketer. They use the social connections of existing customers with their friends, family, and business associates. They focus a firm’s marketing efforts on existing customers as opposed to new customers. And, finally, the referring customer receives an incentive in each program type, either via direct or indirect payments. Direct payments can come in several forms, such as cash, points in a loyalty program, miles, free goods and services, or donations to a nonprofit organization in the name of the recommending party. In the indirect payment type, the referrer may receive recognition as an expert or may be given the opportunity to serve on a company advisory board.
The paper also covers the advantages and disadvantages of referral programmes:
There are many other articles on how to structure referral programs. Here are a few:
- The 5 Best Practices for a Successful Referral Program by Joseph Nies
- Do’s and Don’ts of Referral Marketing by Amity Kapadia
- 11 Ways To Build An Effective Referral Marketing System (Forbes)
- Top 10 Referral Marketing Insights by Kirsty Sharman
- Referral Marketing Software – Everything you want to know (Invite Referrals)
- The Do’s and Don’ts of an Effective Referral-Marketing Program by Jeffrey Epstein
- 17 Surprising Referral Marketing Statistics (CustomerThink)
- The 5 Factors That Make Customer-Referral Programs Fail by Sujan Patel
As I see it, there were three primary problems with the existing state-of-the-art in referral marketing:
- There is no focus on best customers; it is the same program for all
- The rewards do not factor in the referred customer’s lifetime value
- The programs do not create a multi-level referral network
The common thread is that the referral programs as they stand today are not exciting for the referrer. Let us consider each of these – and how they can be addressed. Taken together, the solutions can open up a new world of opportunities in the world of referral marketing.
Tomorrow: Rethinking Referral Marketing (Part 8)