Referral marketing – Short Conceptual Explanation

Referral marketing, or word-of-mouth marketing, utilizes reviews and referrals from current and previous customers to advertise and drive sales. This kind of marketing can include direct referrals, tangible referrals, and more. Maintaining positive online reviews is also an important aspect of word-of-mouth marketing. It is an effective form of advertising because most consumers trust the opinions of real people over traditional advertising.

Referral marketing

Types of referral marketing

Any kind of marketing that involves customers recommending a product or service to other people is considered referral marketing. However, there are many different ways a business can use this kind of marketing to its advantage.

A few examples include:

  • Direct referrals involve asking existing clients and customers to recommend the business, and providing them with a tangible reward if those referrals translate to sales.
  • Tangible referrals include giving your existing clients and customers something tangible upfront, like a coupon, that they can share with someone they refer.
  • Community referrals are an effective way for businesses to partner with local organizations that need support, while finding new customers at the same time.

The easiest and simplest form of word-of-mouth marketing is online reviews. In order for them to be effective, a business must actively manage them. For example, someone should respond to a negative review on the website with a solution to the problem.

Influencers can also be a powerful form of referral marketing. People who follow others online trust them to represent brands that are worth their time and money.

Benefits of referral marketing

Referral marketing is an important advertising strategy because it can be very effective. People are four times more likely to buy something when a friend or someone they trust referred it. In addition, referred customers have a higher lifetime value because they are more likely to provide repeat business.
Referred customers and clients are considered warm leads. This means they are more likely to become customers, and they can also be a lot more pleasant for employees at a business to work with. It is a lot easier to speak with a warm lead on the phone that it is to make a cold call to a stranger.

Reasons why referral marketing can be so effective

People trust the referrals of people they actually know, but there are a lot more reasons why this kind of marketing is so effective.

  • It is an extremely targeted form of marketing. A friend will only refer another friend to a product or service they think they would like.
  • It’s a quick way to build trust with new customers and clients. They trust their friend, and their friend trusts a particular product or service, which means they are likely to trust that product or service too.
  • The reach of a single client is much larger today than it was just a decade or two ago. A single person may have a following of hundreds, thousands, or even hundreds of thousands of followers on social media that can be referred.

However, some referral marketing techniques can be more effective for some businesses than for others. It’s important to track a referral program closely to make sure it is successful.