Referral marketing is among the best strategies to use when you want to grow your business.
In short, it’s a method to tap into the goodwill of your existing customers and use it to create new leads and new opportunities – and convert them to new customers.
What Is a Referral Strategy?
A referral strategy is, to put it simply, the good old word-of-mouth marketing, but for the digital age.
Now, word of mouth might possibly be the oldest form of marketing and the goal for any business is for it to happen spontaneously: you want your product to be so good that happy customers are talking about it and recommending it left and right.
However, there’s a lot of noise in the digital world, and a lot of competition.
And until you reach that happy state where your customers will do all the work spontaneously, you need to bridge the gap between your products and the quality new leads you want to be accumulating. You can do it by giving your customers a little push in the right direction – by giving them an incentive to talk about your brand.
And that’s where referral programs come in.
Let’s Look at the Data
Research shows that businesses that have a referral strategy get 86% more growth in revenue as opposed to those who don’t (Shopify). It seems it’s ingrained in people to trust referrals, and according to a study conducted by Nilsen, 84% of customers found them helpful when they made a buying decision even back in 2013.
It’s hardly surprising, given that when we think about it, we too tend to trust people we know when they say that a product or a service is amazing, and we’re not alone – 92% of consumers are four times more likely to buy something when it’s been endorsed by a friend.
So far we’ve been talking about purchase likelihood, but there’s one more factor to consider before we can evaluate the effectiveness of a referral strategy – lifetime customer value.
It turns out that not only does the likelihood of people purchasing your products increase, statistics tell us that those people come back over and over again, and their lifetime value is 25% higher than non-referral customers.
To put it plain and simple: referrals do work.
So how do you actually use the power of referrals and let them do the heavy lifting in your marketing strategy?
By using incentives that their buyers actually care about.
It’s actually really simple – for example, by referring a product, customers give friends 30% off their first order, and they get $30 themselves the moment said friends make a purchase.
It’s a value proposition that makes everyone happy – both faithful return customers and eager first-timers – and numerous examples show that it’s a fail-proof strategy.
Further down, we’ll illustrate this with examples of social referral strategies that have been already tried and tested to great results, but let’s first look at the basics.
A Breakdown of Referral Programs Basics
Referral traffic is defined as the traffic that comes to your website when redirected from other websites. It’s often considered an alternative to SEO and blogging, which take longer to work, PPC, which will drain your wallet and social media – which can work to your advantage.
In a marketing sense, referral traffic can be considered traffic that will in some way benefit you financially. You get this type of traffic from your existing customers by offering certain benefits, but you can also introduce incentives to your strategy which will be used to bring new customers.
Social referral traffic is considered to be all the referral traffic coming from social media. Therefore, the process of bringing traffic from social media is a social referral.
Let’s see what other types of referrals are there, just so we can compare them to social. Word-of-mouth, online reviews and email referrals all work fine, but social referral brings in the highest profits for the lowest investments, more quickly than any of the others, because it can spread like wildfire. This speed is what makes social referrals so amazing.
When beginning to market a product, you surely promote it on social media because you need all those likes and comments and shares, right?
This is the same thing – you’re essentially using social media as a pool from which you draw people towards your business. Referral programs are both diverse and widespread, but a large majority of them depend on social media and this trend will continue in the following years.
When you want to attract customers, you have to offer them something to ‘sweeten the deal’. It costs you far less than you think it does because it reflects on the way you run your business and it has a positive ROI. Usually, incentives are industry-specific and vastly differ between businesses.
Some of the most popular incentives include:
- An upgrade of the customer’s status
- Credit to be used at your business
- Free or improved shipping
- A ‘thank you’ note
- Points to be used for a variety of incentives
- Cashback incentives
- Discounts on future purchases
All of these incentives are ways to give something back to the customer without spending too much money.
You need to analyze the place your business has in its respective industry as well as the market itself to come up with something that would work as a good incentive to bring in new customers and make your existing customers happier.
Remember, one bad experience takes fifteen good ones to wash out, statistically speaking.
Let’s look at the elements of incentives and how to get them all integrated perfectly into your idea.
First, before you consider the type of incentive you want to add to your business model, think about your business and its place in the market.
What does it fail to offer, that others are already using?
Is the product expensive and rare or everyday and cheap?
What is its unique value proposition?
All of these questions have to give you an answer to the main question – what will make my customers happy enough to spread the word about my business? This applies to both existing and new customers – essentially, you are tapping into their good will to promote your business or product.
Also, you get to choose the direction of your referral marketing. Do you want it to be peer-to-peer, business-to-customer, business-to-business or something else?
Do you want to market it on social media, and how?
How Do You Merge Social Media and Referral Marketing?
Since referral marketing is effectively incentivized word of mouth marketing, social media is the conduit that you can use to streamline your flow of customers.
The best type of referral is someone telling their friends about you in a positive and unique manner, and social media makes this incredibly easy. Everyone wants to brag about the latest events that happened in their lives, and if you do a good job they’ll not only brag about you online, they’ll sugar-coat the story and even hyperbolize how great your product really is.
The chances of success when a friend recommends a business, product or service to another friend are far higher than, well, basically anything else.
Also, the chances of that friend then looking your business up and becoming a customer are much higher if they were recommended by someone they trust.
Now, think about your social media as the place where all this can be aggregated and shared even further, because:
- It makes it easy to promote your program.
Your referral campaign can only benefit from the fact that it’s happening in front of an audience, as opposed to two people exchanging its value privately (through email or directly on your website)
- Social media allows you to control your audience.
If you try to spread your idea through profiles with a few hundred friends, the chance that everyone will catch on is slim. However, if you incentivize a powerful influencer on your social media platform of choice, they have access to thousands, if not millions of people that will gobble up just about anything that influencer shares.
- Social media buttons are the perfect persuasion method in modern marketing.
Most of our Facebook feed consists of shared content and in 2019 it’s very easy to get your material shared by random people and even easier by friends and customers. People like to like, comment and share. Facebook’s existence is proof enough of that.
- You’re getting free brand impressions.
When a customer shares your branded content or products on their profile, it’ll be seen by a large audience – it’s as simple as that, basically, free advertisement. Even if they don’t dig in immediately, it creates an impression and it leads to greater brand awareness.
Learn more about how to use social proof to boost your marketing.
- With every referral share, customers are getting social proof that your product is worth it.
Even with all that in mind, using social media is much more than letting people do their own thing. You can and should actively participate in the business by communicating with your customers and using whatever means you have to spread the word about the business and the referral program.
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Does Using Social Media in Your Referral Marketing Make Sense for Your Business?
There’s one important caveat to think about here.
Although social media is one of the easiest ways to market practically anything, it shouldn’t be the only channel you use, especially if your brand sells something most people want to keep a secret. Your potential referrers and customers might not their extended family of acquaintances to know they’ve had a certain procedure done for example – or bought a particular product – like a wig, a sex toy or any other type of product that is of a sensitive nature.
If the above mentioned rings any bells, you might find that your customers respond better to referring more privately – via email for example, as that’s something that allows them to be discrete and choose only the closest friends and family.
If, on the other hand, you have a surge of customers already talking about your brand on social media (which they almost always do if they like a product), that’s a pretty clear signal that incorporating social media into your referral program might be a success.
After all, your customers are advocating for your brand of their own volition – so why not reward them, or give them another reason to keep doing it?
How to Make Your Referral Program Social Media Friendly?
Make It Easy for Social Media Users to Share
We already established that referrals are basically a structured word-of-mouth tactic, and social media is where word-of-mouth happens. Well, if you want to have the two working to your benefit in tandem make it easy for your referees! Regardless of whether you’re hosting your referral program on your email, your website or the moon – include a share button!
Word Your Incentives Carefully
We know that everybody wants a good deal and it’s important that referrals understand your unique value proposition and your double-sided rewards. When they do, the referrer will seem less self-serving, which increases the chances of them sharing and the potential lead turning into a customer – at the same time!
Another thing to keep in mind is that social media users are incredibly mindful of the presence they want to project on their social media profiles – and they won’t share unless your program doesn’t go well with the image of themselves they’re trying to “sell”. In the case of Fashion Nova, those two are perfectly aligned – as customers and referees want to get a shout out from the brand or be seen wearing their apparel.
Make It Visual
Imagery is always important in SMM, and referrals are no different. If you do offer social media buttons (which you should), make sure you carefully think about the visuals and keep them consistent with your overall brand image. Images make people stop and look, and they can give them a better idea of what’s in store for them.
Make It Clear
Assuage your customers’ shopping anxieties and fears by making sure your wording is clear. Every social media share option, every description, every message they send should make it clear what both the referrer and referee are getting out of the deal – and make sure you let your referrers be able to customize it!
Creating a Referral Strategy
Make sure you plan out the strategy before beginning to implement it. Here’s how to do that.
Set Your Goals
What do you gain to accomplish from implementing a referral system? Do you want to build trust with your customers or do you want to grow your business and profits?
Evaluate the Situation
Find out how referrals have been coming to your business until now, if at all.
Do some calculations as to the worth of your customers to you and find out how high would the conversion rate have to be in order for the referral system to be profitable instead of just a drain on your resources.
Decide on the Type of Referral Program You Want
You also have to think about the exclusivity.
Is your referral program open to anyone, or is it going to be by “invite only”?
Both will work, given that you’ve provided an adequate value proposition, but if you go for invite-only, you’ll also add a certain air of exclusivity.
If you market your referral campaign as a VIP club, you can build up excitement and curiosity. People want to feel “in”, and it can definitely amp up their interest.
An example of this would be marketing a referral campaign with a juicy proposition on social media, but without providing a link – just talking it up. As soon as someone expresses interest – a comment, for example, you can reach out to them with the link personally. And then, they’re in on the secret.
Make a List of All the Potential Sources for Referrals
These are the people you’re connected to, unclosed leads, existing customers, past customers that have had a good experience with your business, influencers and so on. If you want an exclusive referral campaign, you should start with them.
Narrow It Down
Narrow that list down to only a select group of people that already refer your business whenever they can because of positive experiences. Make sure to hand-pick the people think would be most suitable to promote your business.
If you sell cigars to a CEO once a week and they enjoy your services, after a while, it’s acceptable to offer them a way into your referral program – if they don’t ask about it before you do!
If you can, separate the people on the final list into various generalized categories so you can target them better later on. Focus on their personal lives, their income and their political views for best results. The latter was not really important until recently, but it grew into a strong potential motivator in the past few years.
Think About Your Timing
If you’re asking your targets to participate in your referral program too early or too late in your relationship, they may be thrown off and they may even consider that a bad experience with your business. If you’re looking for a general rule, remember that it may be best to wait until their ‘aha’ moment, the moment they realize that your product just helped them easily perform a task that would have demanded more time and resources with another product on the market. This works especially well if your customers have been trying other products that didn’t get the job done. Imagine how good they must feel when your product works after a series of failures!
Conceptualize Your Incentives
Give them life by integrating them into a plan of action. In this plan, you’ll need to map out the entire system of referrals, as well as how it works in the short and long term. You may be starting to see that creating a referral strategy can be a complicated thing. Remember, non-cash incentives are 24% more effective than cash incentives!
Make Sure That All Your Incentives Go Both Ways
This means that if the person being referred gets an incentive, so should the referrer. Otherwise, the chance of your customers acting as your marketing support is fairly slim. Remember – give something, get something back and if the customer doesn’t feel you’re giving them anything they will almost certainly never help you of their own volition.
This works the other way as well, but to a lesser degree, as new customers will still want to try out your product before expecting to be treated as old customers. Sweetening the pot for them as well will undoubtedly make them like you more and therefore, they will be open to spending more money/time on your website.
Create a System of Notification Resources
This is your usual newsletter, blog, product update, email etc. It’s just a way to present to your customers that you now have a referral program.
Figure Out a Way to Use Your System
Whether it’s just sending e-mails, posting new blog posts or something else, make sure that the information conduit between your business and your customers is operational.
Formulate a Message
What do you want to tell your customers?
Who are you sending this to?
Is it going to a specific group or every customer’s e-mail address?
Make sure to focus your marketing efforts. If you’re sending e-mails, it’s not so hard to program your e-mail sending software to include the person’s first name in the message, and if you can go further, feel free to! Let’s say you sell boots. You’d like to market them separately to construction workers, soldiers and hunters, right? Well, the same message doesn’t resonate with all of them, so if you can, break them up into subdivisions and refine your message for each group specifically. From here, you can give each group different things in your e-mails. You can send a landing page, a thank-you message, an informational article about your referral program or even a referral kit filled with things that your friends can use to invite other people.
If you want it to spread on social media, that last one is a must!
Track your Referral Progress
You need to have stats – a lot of them! You need to know who was referred and who referred them at all times, as well as when they were referred, by date and by time of day. You need to know which leads converted and how you’re going to follow up with them and which leads didn’t convert and why.
There are a number of different measurements when it comes to referral traffic.
Google Analytics is the general one, but you can also analyze your social media profiles separately, as well as your websites.
Make your customers appreciate you even more!
Thank your referrer for inviting new people and thank your new customers for joining. You may even remind them of the incentives they can now enjoy.
While this is not the list of everything you can do, it’s a framework of the things you should do as basic components of the strategy devising process. Make sure to include everything else that you may view as beneficial to your strategy – short term as well as long term.
You also need a referral program because your satisfied customers aren’t being approached to give their opinion on your business and bring new customers. If you give them incentives, you should also integrate them into a referral program that streamlines the entire process, giving them a structure to hold on to, in order to learn about what they can get by referring people.
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How Do Brands Do It: Successful Referral Marketing Examples
Now that we have all the theory out of the way, it’s time to show how it works in practical terms. In this section, we’re going to go over the best referral marketing examples and frankly, epic feats in marketing that anyone with a background in the field would appreciate. Let’s start with the big ones.
Fashion Nova – A Social Media Referral Campaign Done Right
Fashion Nova is probably one of the fastest-growing women’s apparel companies, an inspiring success story in one of the toughest industries.
Learn how to manage influencers and micro-influencers by reading our guide.
They have over 10 million followers on Instagram nowadays, they’re one of the most googled fashion businesses, and on top of that, they have an army of thousands of influencers, micro-influencers, and brand ambassadors behind them – including the likes of Cardi B and Kylie Jenner.
But how did they do it?
We’ll tell you exactly how, as it’s one of the most well-rounded examples of a successful referral strategy.
Fashion Nova understood that social media should play a critical role in their marketing strategy so they doubled down on it and went for a combination of selling directly on Instagram as well as integrating a feed directly in their online shop.
But what’s maybe most important of all is Fashion Nova’s understanding of the power of word-of-mouth marketing. They have designed an incredibly effective referral program, paired with excellent micro-influencer marketing.
A Killer Referral Program
First of all, Fashion Nova gave their everyday, ordinary customers and their high-rolling influencers and celebrity endorsers equal footing.
If you scroll down their Instagram feed you’ll notice customers’ selfies sitting proudly right next to those of Cardi B and Kylie Jenner – customers who took pictures while wearing Fashion Nova apparel and tagged the company in their photo description.
Influencers who worked with them had the choice of 15 different pieces of apparel that they would advertise on their profiles and then post pictures rocking the Fashion Nova merchandise.
Both new and recurring customers get a monetary value out of referring a friend: $30 off – and the referees get the same off their first purchase!
If we take a moment to analyze what that means we’ll come to the conclusion that Fashion Nova nailed their incentive – probably the most important part of any social media strategy.
Not only there’s a monetary incentive to joining their referral program, but there’s also a social one – the products themselves are something their customers know their idols are wearing and that they could walk with the stars.
The story of Fashion Nova is proof enough that any regular business can do it through the power referral and social media marketing – as its a business of humble beginnings in an industry with tough competition.
Other Referral Program Examples
- Dropbox gives you free storage if you invite people.
- Some stores give you credit to be spent at their business. Some of them even double down: TaskRabbit, for example, gives both the referring customer and the referred customer $20 when a new referral is finalized.
- Stores such as Sellsy may send you physical products as incentives but sometimes you can earn free products too by referring people.
As you can see, the point is usually to give benefits to both the old and the new customer in order to provide an all-around aura of positive opinions about your business. When these opinions appear, all of the referring tools you’re using will begin working much more effectively. The type of incentive offered highly depends on your ability to sell it to your customers, but it’s very important to take their considerations into the matter as well. It’s all about balance!
- Tesla gives $1000 incentives to both the referrer and the new customer, all while having extremely powerful influencers promoting their products.
- Ecommerce sites tend to give their customers things like cash back, guarantees, flash discounts, physical products, subscription boxes, specialty items, free deliveries, amenities, and educational pamphlets and items.
- Fully digital companies that offer services as opposed to physical products tend to give their customers free consultations, access to marketplaces, stock photos and videos, free software, free resources or services etc.
One of the methods that absolutely work is cutting back on your customer’s expenses when they use your site. Cashback is one of the ways to do this, but you can also implement the cut into their referral program – if they invite someone, you take a certain amount off their next purchase, and off the purchase of your new referee.
Aside from money, you can also integrate money-back-guarantees, various discounts and offers as well as certain prizes to create a good strategy to keep your business afloat. If Google and Amazon use these strategies, you should definitely give them a shot too!
Facebook Referral Program
I know you’re thinking Facebook doesn’t have a referral program but that’s where you’re wrong. The platform itself acts as its own referral program. The currency used in Facebook is a number of friends and when that number gets higher, you can communicate with more people. When a member of Facebook invites a friend that doesn’t use the platform, they connect with them because if the friend really isn’t on Facebook, they get an invite, and if they are – they get a friend request. Either way, the social capital of both the referrer and the invitee grow. This would only be possible with a global company like Facebook, one that is so useful to its customers that it doesn’t even need an active referral program. It’s an incentive by itself. Quite ingenious, isn’t it?
Instagram Referral Program
Instagram never bothered with active referral programs. Instead, they focused on giving a select group of customers what they want, making them feel elite and superior and then opening up the product to the entire world. By this point, the world would be practically begging to be included.
The first thing Instagram did is to fine-tune their product to the specifications users provided them. They dropped the geo-tagging features and focused on the photographs alongside their unique editing features and launched their app for iOS users. When the app launched for iPhone users, it was promoted by powerful influencers in the digital world and it instantly became a hit, but at that point, it still had the potential of fizzling out – until Instagram pulled its next moves!
This highlights the approach to referral marketing known as exclusivity and scarcity – you give them pre-orders, waiting lists, early or beta access and sit back. Your customers will be more than happy to talk about their special treatment, making other potential customers want your product too.
By the time Instagram was available for Android devices, there were 30 million iPhone users on the platform. When it was added to the Play store, a million people downloaded it on the first day and five million within 6 days.
Another important feature is the easy option for satisfied users to invite friends across a wide variety of social media. While Facebook and Twitter have photo-uploading options, they don’t have the editing features Instagram has, so users can share their Instagram photos with relative ease. This also helped greatly in using referrals to grow the company to unimaginable proportions in a very short time, as everyone suddenly wanted to be on Instagram to post nice pictures of themselves!
The point of these two unconventional examples is to illustrate that it’s not always about money and that you can always approach the market from a different angle. The end product of your strategy is just as important as the strategy itself, remember! Let’s look at some more conventional referral programs as well.
Referral Campaign Ideas & Tips
Your referral marketing strategy is going to need an idea behind it. What’s the reason you’re doing this? The answer to that question may dictate the type of referral campaign you can run.
We already talked about these at length.
Campaign For a Cause
If you don’t have money to give your customers, maybe offer to donate something to a charity in their name if they refer someone to your business.
Create a Hierarchy
Make your incentives have 20 levels with increasingly better benefits and have members jump a level every time they successfully refer someone to your business. Sure, they’ll get a bunch of stuff that will cost you, but you’re still in the green in the long run because you’ll get a ton of new customers! One thing to remember though – it might be a worthy idea to give rewards when the referee actually buys something as opposed to just giving it the moment they sign up.
So, wait it out until your new customers get a subscription or order a product for example and use that to calculate your ROI.
Offer the Referrer a Higher Incentive for Their First Referral
This way, they’re more likely to break the ice in referring people. It only takes one referral for them to consider referring people to a service as a valid and positive option.
Reward Your Best Referrers
If someone is putting in actual effort in referring your business, make sure you show some gratitude. That person is worth more to you than gold and they don’t even get paid! Try writing a thank-you note (pen to paper, not printed!) or maybe send a care package or a gift basket. The least you can do is give them some public recognition – like a shout out on social media, but really, anything you do to show your appreciation for people that will go out of their way to help should be welcome. This motivates even more people to do the same!
If you don’t have anything else to give to your loyal customers, send them a free batch of your finest company merchandise. If they’ve bought something from you before and enjoyed it, chances are that they’ll like it.
There is, of course, much more to be said about referral marketing campaigns – but a lot of it also has to be learned through experience!
But before you go on implementing your referral campaign, remember: if you want your referrals to work on social media, you have to have a solid social media foundation. A referral program will only work if customers believe in your brand, and like your product in the first place.