What Is Referral Marketing?

What is referral marketing? It’s one of the most outstanding and efficient business strategies available to organizations. Very few, if any, sources are more potent than delighted customers.

Although we are biased about the value of referral marketing, international experts agree. For instance, Nielsen found that more than three-quarters of people are more likely to make purchases when they hear about a company or product from their friends and family.

77% of consumers are more likely to buy a new product when learning about it from friends or family. (NIELSEN)

Other studies demonstrate that customers also consider referrals useful. Referrals are especially powerful when people have options and need help selecting a brand before making purchases. Again from Nielsen, people are also four times more likely to buy when referred by a friend.

Consumers are four times more likely to buy when referred by a friend. (NIELSEN)

Keep in mind that you need to know how to generate and ensure positive word of mouth from your loyal customers. Getting referrals from customers and even new prospects is more complex than most people think. However, it’s worth cultivating because referrals can be a golden goose for businesses.

Given the potential economic benefits from customer referrals and recommendations, brands must understand how to foster positive word of mouth from their existing customers.

Roster works with thousands of people who refer their friends, family, colleagues and followers to brands they love. This article will cover how to do referral marketing. Specifically, it will explore what referral marketing is and the types of referral marketing.

What is referral marketing?

The concept of incentivizing individuals to spread the word about brands and products to others they know is called referral marketing. The purpose of referrals in marketing is to inspire existing consumers to share their experiences with their network to turn them into new customers.

A referral marketing strategy differs from a pure word-of-mouth marketing strategy because it is organized and tracked. Brand marketers and managers usually have links and discount codes to follow referral sales.

Roster measures referral link clicks, captures the total number of referrals and the total referral value by ambassador.

Referral marketing has the potential to make a significant contribution to the development and expansion of client bases for businesses operating in a variety of sectors.

Previously, referral marketing relied on disseminating information to a small network of people through spoken communication. The internet and social media have made it much simpler to spread referrals to a much larger audience.

Types of referral marketing programs 

Referral programs come in a variety of shapes and sizes. However, avoid getting stuck thinking about standard approaches before outlining the main types of programs.  Referrals can come from many places, so you need to work to get referrals constantly and tailor your program to the business and customers.

Brands doing referral marketing benefit their customers in several ways. When people share a referral code or discount with their social circle, it builds their reputation and social currency.

Referrals also help others get a good deal on a product that someone they trust recommends. Brands can motivate people to send referrals with referral marketing programs that clearly connect activities and rewards. 

The best referrals come from authentic sources—namely, users of the product or current customers. Find a better marketing approach and turn customers into brand ambassadors for a loyal and engaged community.

The common thread is customers in each of the following four types of referral marketing program models. Think about it. The best referrals come from a person who is so delighted with their purchases and brand interaction that they sincerely want others to have the same experience.

Customer referrals

One of the most common types of referrals is from existing customers. When customers refer friends and family, it is known as a “direct referral.”

The most reliable way to generate referrals is to get consumers to think about who else may benefit from your products and services. Not only are customers a natural source for referrals, but they are also remarkably valuable.

If consumers are happy with your company, they are much more likely to share their experiences with their network—and the opinions and recommendations they share will be positive and build trust.

Many companies fold customer referral programs into their ambassador marketing. If you have a core of devoted customers, you can benefit from this position by using the brand ambassador program template to launch quickly.

Implied referrals

In an implied referral program, a company makes it clear that they are working for someone else without explicitly asking for a recommendation in the process. 

What is a good example of implied referral marketing? 

Think of the yard signs that landscaping companies, exterminators and contractors post after completing a project—this is referral marketing in action.

Organizations working with brand ambassadors may use an implied referral program. Every time their advocates use a product or wear merchandise, they promote the brand. An ambassador implies a recommendation without even talking to other people or actively promoting a brand.

People within their circle may see an item and actually ask where they got it. This is a truly organic referral.

Incentivized referrals

In this type of referral program, the distinguishing factor is a specific reward that links to the referral. You provide your customer with a physical item that has value. Then, they hand it out to the individuals they refer, as an incentive for becoming customers.

The most prevalent program arrangement is payment for referrals through monetary rewards, coupons and discounts. Other incentives may be cash, prizes, gift cards or store credit.

Brand ambassadors work well in the area of incentivized referrals. Brand ambassadors can contribute much to the prosperity of businesses. 

These brand champions lend trust by promoting your company and products to their friends and social following. Often, this leads to free advertising and growth in sales.

The results brand ambassadors create are hard to duplicate, so companies often reward and pay them. There are many different ways to give rewards.. Below is a graphic that highlights the primary forms of referral incentives.

Need some ideas for rewarding people for sending referrals? Make sure you read the perks of being a brand ambassador.  

Community referrals

There are a plethora of community groups that love and appreciate help from businesses. Consider partnering with a non-profit organization and supporting its causes and events. You can provide promotional or financial assistance. Non-profit groups are always looking for donations and items to use for fundraising.

Another strategy is to commit a portion of revenues to a community partner or charity. One such company is Cotopaxi. Its mission and purpose are to produce “Bold products. Big events. Better ways to help others. GEAR FOR GOOD.”

Cotopaxi contributes 1% of its revenue toward alleviating poverty and promoting community improvement. Their 42 grant programs in six countries support groups making significant contributions to improving the human condition.

Optimize your referral marketing strategy

Referral marketing works well and can greatly affect how much money a business makes. By including it in word-of-mouth marketing, it brings in good leads that brand supporters have already vetted.

Remember, you need to strive for excellence at every level of the company. To get customer referrals, focus on providing solutions to consumers and their problems. Also, you must make sure a large chunk of your customers are happy and satisfied. Now that you know what referral marketing is, you’re ready to get started!