Referral marketing is a method of promoting a business’ products or services to new customers through recommendations by what are usually but not always current customers. This form of marketing was born out of the realization that good old word of mouth happens to be one of the most potent means of getting new customers. Nowadays this “word of mouth” has become increasingly electronic and even more powerful as the average person can now reach far more people than ever before.
Word of mouth is usually spontaneous but businesses can influence it through the use of incentives. These incentives usually take either one of two forms. In the first, the company simply makes it as easy as possible to share information about its products e.g. the Whatsapp invite button which can send a prepared invitation via SMS to any of a user’s contacts who do not have the app. The second approach involves actively offering rewards to those who spread the word about your products e.g. Zimbocash giving away units of their cryptocurrency to those people who signed up others using their referral links. Both of my examples here are technology/online based but I assure you, you can run a referral marketing using just pen and paper if you have to.
Now let us see how you can run your referral marketing campaign to promote your products and services regardless of your line of business.
Pick a medium
Depending on the nature of your business and the campaign which you want to run together with your chosen reward scheme (if any), you may have specific channels through which you prefer word about your products/services to spread.
Not every business or product can be marketed online e.g. farming implements for communal farmers are better promoted in person rather than via social media. An advantage of in-person/offline referrals is that you can target demographics which are not highly active on the internet such as older people. Such referrals also have the advantage that they can be conducted much more naturally than their online counterparts e.g. while it would be relatively easy for people to share your physical flyers and catalogues with their colleagues; many would, however, be far more reluctant to badgering their peers with unsolicited promotional text messages.
If you prefer that referrals be in-person you may need to offer higher rewards because of the extra effort required. You will also need to produce printed promotional materials like catalogues and flyers which your customers can then share with their peers and colleagues. You must, however, note that such kinds of offline referrals tend to have only a limited reach because each potential referrer has a much smaller group of people to whom they can recommend your products or share your promotional material.
The biggest advantage of online referrals is that each one of your potential referrers has access to a far bigger pool of potential customers. Another one is that it is easier to use technology to manage these campaigns. As an example, you can set up a platform which automatically creates and keeps tracks of all referral links. Each referral link is usually unique to the person who is promoting you. This then makes it possible to keep track of exactly how many new customers they have brought on so that you can reward them as promised. You can either use any of the various online platforms which exist for this exact purpose or you can develop a custom system of your own.
Social media, messaging (e.g. Whatsapp) and email are the platforms most likely to be used in referral marketing. While the first two have the potential to reach more people, if your referrers are over-enthusiastic your promotional campaign can turn into a nuisance for the people on the receiving end. On social media, even a legitimate promotion can easily be mistaken for a scam if it is noisy enough. Emails are more likely to be used by those of your promoters who want to recommend you to their professional acquaintances and colleagues particularly if yours are B2B products or services.
Choose incentives and a reward scheme
As previously mentioned, the driving forces behind any referral marketing campaign are the incentives. These can include cash, discounts, shopping vouchers, prizes, redeemable points and the actual products or services sold by the business. For the campaign to have any chance of success the rewards you offer for recommending others must be enticing while also making business sense. The incentives you give away must normally not exceed your usual cost of customer acquisition i.e. the money you usually have to spend on such things as advertising to get customers. You can also choose between rewarding people just for referring others or starting only after the new customer has made a purchase.
How many parties do you reward?
Some campaigns reward both the referrer and the new customer while others just reward the referrer. Rewarding both parties has two advantages. The first of these is that the new customers are encouraged to disclose who referred them (this is usually the only way that they can claim their reward) so that the referrer can, in turn, be appropriately rewarded. The second advantage is that whenever anyone recommends the products as part of the campaign, they are not merely doing it for their reward but are also sharing something useful. Compare the following two statements:
“Visit www.somecarwebsite.co.zw to buy a car today. Please use referral code 1234”
“Visit www.somecarwebsite.co.zw to buy a car today. Use referral code 1234 to get a 10% discount on all vehicle purchases”.
The first of these is merely an advert while the second offers a clear benefit which many might find useful.
The nature, amount and significance of your incentives can make or break your campaign. To begin with, while incentives must be worth the referrers’ while, you must not offer ones that are so good that opportunists are tempted to abuse your campaign or become nuisances to their peers because of overzealousness in their promotional efforts. In choosing a reward, you must imagine the kinds of people who will be referring your products and services to others (usually your current customers)—what is their social standing, their incomes, ages etc.? Few adults will find the few dollars of airtime offered to recommend Econet’s YoMix app to be sufficient compensation for bothering anyone other than the most intimate of their contacts.
Referral marketing campaigns can also be a useful tool for measuring customer satisfaction. This is because, for many people, nothing but the promise of the most outlandish of rewards will convince them to recommend a service or product to their circle whose quality they find to be deplorable. Also, one study found out that referred customers tend to be more profitable and loyal than normal customers.