4 min read

The Powerful Value Of Referral Marketing In ECommerce

Referral Marketing

Let’s play an easy game. It’s called, “Who do you trust?” Do you trust your best friend or your paid ad results at the top of Google listings? How about banners on YouTube or your mom? As we said, an easy game. We all trust family, friends, and sometimes strangers more than ads and brands. We’re influenced by reviews, testimonials, social chatter, and, most importantly, referrals.

Don’t confuse referral marketing with word-of-mouth. Word-of-mouth means customers talk about your brand with friends and convince them to try it. Essentially, it’s free marketing. You aren’t spending money or time creating marketing materials, buying ads, or blasting on social media. Referral marketing is also known as refer-a-friend marketing. It works to harness customer advocacy and put tools in place to encourage, reward, and track customer referrals.

So, What Is Referral Marketing?

It’s simple. Referral marketing is rewarding customers for sharing your products or brand with friends, family, and colleagues. Whenever they refer someone, you give them an incentive as thanks for bringing in new business. Compared to other types of traditional marketing, you’re leveraging your company’s existing customers to generate potential new leads.

Why You Should Use Referral Marketing

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Referral marketing sparks word-of-mouth conversations about your products and brand. People share what they love, and that creates buzz about your brand. Offering good products, leveraging your well-designed website, and rewarding existing customers get people talking. When people are happy with your business, they’re more willing to share their positive experiences with people they know. An official referral marketing campaign keeps you at the top of your customers’ minds and builds long-term relationships with loyal customers. In turn, providing them an incentive to talk about you creates a base of new customers.

If you’re still skeptical, let’s look at some statistics about referral marketing:

82% of Americans say they seek advice from family and friends when purchasing. 

67% of Americans say they are more likely to purchase a product after someone they know shares it on social media. 

Dropbox also offered a referral program that led to a 60% increase in user signups, with over 2.8 million referrals in the first 18 months. Even today, 35% of all subscriptions come from their referral program. 

Now that we’ve covered the basics, let’s look at some referral marketing campaign ideas.

Take Advantage Of The Social Proof Concept

Social proof is a phenomenon where people copy the actions of others to mimic the behavior in certain situations. For example, if someone feels unsure of how to act in a social case, they take cues from the people around them. It’s natural for someone to observe their surroundings, ensure they fit in, and act like people expect them to. For example, someone who goes to an upscale restaurant and isn’t sure of proper table etiquette will wait and watch how people are using utensils, glasses, and napkins and mimic the same behavior.

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Offer Referral Incentives

Money talks, but you don’t have to give out cash. One of the best referral marketing strategies is to create an incentive program. Depending on your industry, things like discounts, punch cards, gift cards, free swag, etc., all help increase your brand identity and encourage customers to share how they feel about your company. For services, offer customers an early release of something they’ve already bought, exclusive webinars, or discounts for add-on services.

Blog - Golfers With Swag Bags

Contests And Giveaways

Another effective referral marketing strategy is creating a contest or a giveaway. Create a special contest to award the person who gets the most likes, shares, or some other measurable effort to help bring in new customers. Giveaways work the same way. Offer something of value for free for interacting with your brand in a way that shows customer appreciation and loyalty.

The key to a contest or giveaway is to reward more than just the first-place winner. Instead, reward the top three contributors with a scaled award. For example, if you’re offering a free item to the first-place winner, offer a coupon or discount to the second and third-place winners. Rewarding more than one person creates competition between the participants and a sense of urgency to aim for first place, and customers will share more frequently.

Blog - Enter to win

Referral Marketing Benefits

We’ve barely covered all the referral marketing strategies you can use, but you see how easy and effective it is when drawing in new customers. The benefits of referral marketing are endless and cost-effective to increase your brand recognition and generate more sales.

Benefit 1: Gain High-Value Customers

One of the biggest goals in marketing is building trust in your brand. Personal recommendations and testimonials build trust and are more reliable than paid advertising. In addition, customers referred by a close friend or family member tend to be more trusting and loyal, creating high-value customers who spread the word about your brand.

Benefit 2: Extend Market Reach

Referral marketing programs increase your reach in a short timeframe. With the right incentive, customers reach out to friends and family through social media or write a review on your website. These interactions increase your reach to new customers all over the globe.

Benefit 3: Identify Loyal Customers

You’re not just pumping up your brand. You’re engaging with loyal customers. Make them feel appreciated and give them a shout-out on social media for participating in whatever marketing strategy they participated in. For example, if a customer gets the highest number of likes on a post on social media, give a shout-out to them in a congratulations post.

Blog - Loyalty Program card with colorful background with defocused lights

Benefit 4: Improve Customer Retention

Referral marketing builds and nurtures long-term relationships with loyal customers. You not only get your brand out there, but you get insights into customer motivations and expectations. Customers actively participating in referral programs are more likely to stay with your company. Customer retention is one of the top benefits of referral marketing as it’s more cost-effective to keep a customer than look for new ones.

Benefit 5: Referral Marketing Is Cost-Effective

Referral marketing relies on customer word of mouth, providing free advertisement for your brand. In addition, offering giveaways, discounts, or other monetary benefits is cheaper than a full-blown paid ad campaign and often brings in more loyal customers. You can also retarget your ads to current customers and encourage additional purchases, add-on sales, and other rewards.

Ready To Get Started?

Referral marketing campaigns help put you in front of a large pool of people you wouldn’t reach with other marketing methods. It encourages new customers to trust your brand and provides opportunities to continue spreading the good word as they have a great experience with your brand. If you’re unsure how to get started, Kensium has marketing, experience design, and branding experts that can get your business from the ground floor to the big leagues. Contact us today and get advice and guidance on creating an effective referral marketing strategy.

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