Referral marketing is a method of generating business from new customers through referrals from established customers and other stakeholders. Whilst often a natural process, businesses can use strategies that encourage customers and contacts to refer a brand or product.
A study conducted by the Goethe University Frankfurt on the customer referral program of a German bank found that referred customers were both more profitable and loyal than regular customers. Referred customers had a higher contribution margin, a higher retention rate and were more valuable in both the short and long run.
Word-of-mouth referrals are the main generator of new business. The American Marketing Association’s 2009 study found that peer recommendations are two point five times more responsive than any other marketing channel.
- Ensure the business is referable, i.e. adds value and exceeds client expectations - This is critical.
- Define your ideal customer.
- Identify your best referrers - This could be existing clients, vendors, banks, friends, etc.
- Clarify your differentiation - Define what you do and provide that is different from your competitors.
- Educate your referrers, so they understand how you add value for clients.
- Make your products and product experience shareable.
- Ask for referrals from your clients.
- Reward the referral sources - This can be a phone call, email a ‘thank you’, a bottle of wine, gift voucher, discounts, free goods, lunch, etc.
- Track your referrals and analyse critical results.