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Marketing Tools — 16 Aug 2022

Customer Referrals

Customer Referrals

One thing has remained constant in the ever-changing world of marketing: word-of-mouth recommendations. Even with the advent of new tools and technologies, personal recommendations and online reviews remain two of the strongest ways of acquiring new customers. 

Of course, just as technology evolved, so has how customers hear about brands. It’s not just their friends and family members they’re listening to – if you’re involved in performance based marketing, then you likely know how important influencers can be. 

So, how do you use customer referrals to your advantage? How can you encourage your customer base to leave online reviews, post-user-generated content that will appeal to potential customers, and invite people to join them? Let’s look at the best ways to use customer referrals to boost those all-important metrics.

Why are customer referrals so important?

importance of customer referral
Source (marketingcharts.com)

Word of mouth may be the oldest marketing tool in the book, but it’s changed dramatically with the advent of the digital marketing era. People’s opinions, ideally positive ones, can play a major role in spreading brand awareness and encouraging purchasing decisions through direct referrals. 

Imagine for a moment that you ran a home goods shop pre-internet. Bob came into your shop and bought a butterfly valve. Now Bob would likely not have told family or friends how great that valve was, though he may have mentioned the range of products and how good the service was. The number of people who may have been directly referred by Bob would have been small.

In the digital era, however, that number will likely increase, through a combination of Bob’s own posts, replies to posts by friends and families, and direct referrals. But the importance of customer referrals goes further: 

  • Increased and bigger sales: Customers want to establish trust with companies, and if they come via a referral, then there is an initial level of trust established. That can mean not only more sales but potentially bigger sales based on that confidence.
  • Chain reaction: When you build a strong enough relationship with a customer that they refer people, then hopefully you are starting a chain reaction. Customer A refers Customer B who in turn refers Customer C, and so on. You are increasing value for very little investment in the process.
  • Strengthens initial relationship: Every time a customer refers you onwards, it is serving as a reminder of why they do business with or buy from you. In turn, that makes them more likely to do business with you again and again.
  • Negligible costs: Word of mouth is not only effective, but it also costs virtually nothing. Referred customers have an almost negligible CAC (customer acquisition cost) meaning their CLV (customer lifetime value) is higher.
  • Encourages loyalty: When someone is rewarded for referring a new customer, it enhances their view of your business and increases how loyal they feel towards you.
  • Validation: If you have a high number of customers referring you to other people, then it validates almost everything about your company; from the products or services you offer to the customer support provided. Customers who refer are happy customers so you know you’re doing things right. 

What place do customer referrals have in your marketing strategy?

The first thing to note is that the use of customer referrals should go beyond the idea of online reviews. What you are aiming for is customers recommending you to their friends, family, and even colleagues.

marketing strategy
Source (joinhoney.com)

For example, Bob has just bought a SaaS product with teams telephony that makes it easy for him to hold a secure conference call. He is so impressed with the product that he actively tells friends in business how good it is. He may even connect them with the sales agent he connected with. 

Your ultimate goal when looking at customer referrals is to transform happy customers into  reviewers and brand ambassadors who do not only post about your business, they actively refer people to you. This can be like having an extra person marketing on your behalf, something that can be crucial if you operate on a limited budget as many small businesses and startups do. 

The benefits of customer referrals

You probably already like the idea of extra marketing staff that doesn’t receive salaries (though we will look at reward schemes later). Referrals can also make things easier for your sales team. Your business may already be partnering with other brands or agencies and, in many ways, this is a version of that relationship marketing. But, what are the actual (and tangible) benefits of utilizing customer referrals or word-of-mouth marketing?

1. Cost-effectiveness 

Using only traditional marketing methods, your CAC involves the money you spend on any sort of advertising and marketing. With customer referrals, you have substantially less outlay but you are acquiring customers who have a higher average lifetime value (LTV) than the usual customers you onboard. 

2. Better customers

Why would referred customers be better than traditionally acquired customers? You can think of referred customers as already having a relationship with your brand, albeit a proxy one through the person referring them. That relationship means that the customers that sign up with you via a referral represent an increased chance of conversion – they’re already invested.

Combined with higher LTV, this clearly shows that referred customers are of great value to your brand and should be a primary target when it comes to your strategy. 

3. Maximized sharing 

While the old concept of word of mouth marketing was good, the multiple platforms and marketing channels now available means that you need to go beyond that and have your loyal customers and brand advocates singing your praises from the rooftops (virtual rooftops of course). In order to get to that point, you need to find ways of standardizing and maximizing the sharing process. 

There is also the question of incentivizing the process to encourage as much sharing as possible. You may already have a loyalty scheme in place to reward your current customers so why not extend that and offer additional incentives for them to share their experiences in as many places as possible? 

Customer referral reward program

Of course, offering incentives is not the only way to encourage your customers to refer their friends. But how do you decide on what referral incentives to offer?

It’s worth considering a tiered structure to your referral campaign where your best customers and brand advocates receive higher levels of rewards for every successful referral. Some incentives to think about include: 

  • Discounts. People love saving money so offering discounts on any future purchases is not only a great incentive to refer, but it also means future sales for you.
  • Free products. Customers probably love free stuff even more than discounts. You could choose to give away branded items that promote your company, limited edition products, or simply stock that’s not selling as well that you want to clear.
  • Cash or cashback schemes. If using this option, then two-sided incentives (where both parties are rewarded) work best as they represent a win-win situation for all parties.
  • CSR (corporate social responsibility). CSR is not only good PR, it can have a positive impact on any charities you work with. By making a charity donation a reward, you pass on the feel-good factor to our loyal customers.
  • Free subscriptions. If you offer any sort of subscription, giving a certain period free can not only serve as an incentive but can also encourage the customer to sign up for a paid subscription later.
  • Gift cards. Offering these as incentives means the customer can either spend the amount on themselves or pass the gift coupon on to friends or family. As with discounts, it means future sales for you with the added advantage of expiry dates so you know, roughly, when the gift amount will be spent by. 

You do not need to choose one type of incentive; you can offer different rewards as a tiered structure or even offer a choice of rewards equating to the same value. For example, let’s say you offer a $25 reward when a customer refers someone and they make a purchase. That $25 could be given as cash, as a gift card, as a free product, and so on. 

How to build a customer referral program

customer referral program
Source (tidio.com)

Before you start with the practicalities of creating a customer referral program, there are a number of preparatory steps you should consider. These can establish your readiness to move to a customer referral marketing strategy. 

  • Are your products of good quality and reasonable pricing? If you are not already garnering positive reviews (or are even attracting negative ones), then you are probably not ready to move forward. Look over existing reviews and see if both products and customer support are of a good enough standard.
  • Can you clearly define goals? The most obvious goals are increased sales and revenues or a better conversion rate. But what other goals can you define? These could include higher retention levels, increased referrals, customer acquisition, and seeing greater reach and brand awareness. Be clear about what you want to achieve.
  • Are you ready to prioritize customers? Any customer referral program has to have your customers at the very heart of it. This means that you have to ensure you can have conversations with those customers across multiple channels and that you are providing a positive customer experience across all touchpoints. 

Once you have self-audited your business and established your readiness and ability to build a successful customer referral program, then you can move forward to creating one that meets your needs and goals as well as the needs of your customers. A great product combined with great customer service that enhances customer satisfaction is the foundation of any referral program. 

1. Ensure your program design suits your goals and business model

It may sound strange prioritizing the design elements of your program but those elements can play a crucial part in how well it performs. Think about how much time and effort went into your website. You most likely went through A/B testing to establish what elements worked well together and resulted in the highest levels of engagement. 

Any referral program should follow some of the same rules and include some of the design elements that work well on your main site. Make sure any program is clearly branded and contains messaging that is clear and that is clearly associated with your overall brand messaging. 

2. Look at me!

referrals per generation
Source (financesonline.com)

If people don’t notice your referral program, then the results will be poor. To get those people to notice you and referring friends, you need to attract their attention with clear and catchy headlines that make them want to know more. Benefits should be immediately obvious when they look at any headline you use, so think carefully when writing them. You could use variations of the following:

  • Refer someone and receive a 15% discount on your next purchase. 
  • For every referral, receive a free gift of $50.
  • Get $30 cash when your referred friend makes a purchase. 
  • Refer two friends and we will make a $40 donation to Save the Racoons. 

3. Simple process 

The last thing you want is to create a program with an overly complex sign-up process. You want to make it as simple as possible for people both to join your program and to share all relevant content.

There are many customer referral software programs that can help with this stage. They can include a signup process as well as help to automate various functions that make it easier for people to share via social media platforms such as Facebook or LinkedIn or by email. It is also advisable to create a simple referral link that people can easily copy and paste as needed. 

4. Clarity in messaging 

Just as you do with other forms of marketing, you want to maintain clear and consistent messaging across your referral program. You can use a template to help achieve this. It’s important to ensure that when an existing customer refers your business to a potential customer, everyone fully understands what is being said to them. 

Even when you have established templates for referral messaging, it is worth making any message editable so that the referrer can edit or change the message to suit them and the person they are referring to. Make sure to:

  • Avoid jargon – keep messages easy to understand 
  • Wherever possible, use personalization to enhance your messages 
  • Make the benefits being offered as clear as you can 
  • Have clear CTAs or directions as to what the person needs to do next. 

5. Don’t forget analytics

It’s worth remembering that your referral program is just another form of marketing. That means that you may not get things exactly right the first time around. It also means that you should be using analytics to measure performance in line with the goals you have established. By ongoing and constant monitoring, you can see if there are any issues and adjust as necessary. 

This is another area where dedicated software like data ingestion tools or any other cloud storage can be of enormous help. Not only does such software offer advanced and customizable analytics, but it can also help you distribute referral links, track all referrals, carry out A/B testing, and help you optimize your campaign. Whatever form your marketing takes, choosing a package that offers good business intelligence options and integrations with other apps is a must. 

6. Technology 

As with other areas of your business, technology can play a major part in how well your referral program works. Look how easy it is to do international calling nowadays, especially since companies have their business voip systems in place, all thanks to improvements in technology. Similar improvements in technology exist across the board and can play a major role in how your business grows and expands. 

Technology offers a multitude of solutions, from automating tedious tasks such as email marketing to advanced data transfer for partner marketing. Recognizing how much technology can help you may be the first step in making progress with your referral program.  

The takeaway 

Customer loyalty is the basis of any good referral marketing program. You want those loyal customers to join your referral program and ideally graduate to being brand ambassadors and then referrers. It can really help to study some referral program examples, including current programs such as Uber.

inviting customers
Source (uber.com)

Referral marketing is something that can bring huge benefits to your organization. This is true whether you consider relationship marketing with other brands or a customer referral program. Both types can produce cost-effective results across the board, leading to greater brand awareness, increased revenue and sales, as well as lower customer acquisition costs.

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Richard Conn - Senior Director, Demand Generation, 8x8

Written by

Richard Conn is the Senior Director for Demand Generation at 8x8, a leading communication platform with integrated contact center, inbound call center services, video, and chat functionality. Richard is an analytical & results-driven digital marketing leader with a track record of achieving major ROI improvements in fast-paced, competitive B2B environments. Check out his LinkedIn.