Referral Marketing: Past, Present, and Future

Referral marketing aims to incentivize existing customers and brand advocates to tell others about a brand’s products or services. It has proven time and again to be an effective mechanism to acquire high-value clients at a low cost. If executed properly with the help of software from Talkable, referral marketing will deliver sustainable and scalable results that can help brands and businesses grow their revenue and customer base with consistency. Still, referral marketing is an evolving strategy that continues to change the way brands approach their marketing efforts. This article provides a look at the many methods and angles where referral marketing is utilized in a wide variety of scenarios.

Referral Marketing Programs

Referral marketing programs can be a significant driver for customer acquisition. For some US companies, 65% of sales happen through referral marketing. The premise behind a referral program is to empower existing customers to provide offers on behalf of a brand to their own network of friends, family, and acquaintances. While the terms of a referral program can be constructed in a variety of ways, the person receiving the offer typically receives a discount of some sort to incentivize a purchase and the referrer receives a reward (such as store credit) for each successful referral purchase. This is a win-win-win scenario for the brand, the referrer, and the new customer, and allows the brand to focus less on lead generation and more on building a better business and customer experience.

Referral programs offer several distinct benefits when it comes to generating revenue through both new and existing customers.

  1. Referred customers have a lower customer acquisition cost (CAC). Referral marketing costs are fixed from a software perspective, and additional costs are offset by new-customer purchases. Because of this, as your referral campaigns get refined over time, conversion rates should increase while the platform costs remain the same. As conversion rates and active referrers increase, the cost per customer is driven down further.
  2. Referred customers have a lower churn rate. When customers remain in a brand’s ecosystem as an active customer, revenue is naturally boosted. Referred customers often have a higher sense of loyalty stemming from that initial goodwill, and one study estimated that referred customers had an 82% probability of still being active customers 33 months after their first purchase.
  3. Referred customers have a higher customer lifetime value (CLV). Given that referred customers are remaining active consumers of a brand for longer, it is no surprise that referral consumers have a 16% higher lifetime value.

Referral Marketing: The Best Customer Acquisition Strategy

When it comes to customer acquisition strategies, it would be challenging to find a more cost-effective approach than a well-developed referral program. Not only are costs fixed (as mentioned above) but it empowers and inspires action from a brand’s loyal customers and brand ambassadors. A referral program also boosts a brands visibility on social media and within real social groups, generating further awareness and priming the filter for more revenue opportunities. Here are some additional reasons why a referral marketing program is the best bet for a thriving customer-acquisition strategy.

  • Referred customers have a higher ROI. With traditional marketing and advertising, the costs can fluctuate greatly without much assurance that the investment will pay off. Consider Facebook (which is already inundated with ads) where brands have to pay to ensure that their audience sees a message or to reach potential customers on the platform. Alternatively, a huge benefit to referral marketing is it attracts highly qualified customers who are more likely to make a purchase - and have an incentive to do so. Overall, ROI from a referral program can be as high as 10x for enterprise companies.

  • Referral marketing is a trusted channel. Consumers are barraged with advertisements and offers on a daily basis, making it difficult to cut through the noise. Since referral marketing allows consumers to make their first connection point to a brand by way of someone that they know personally, it is considered with higher regard and trust immediately. In fact, 90% of consumers say that they trust word-of-mouth recommendations from friends and family above all other forms of advertising. Referral marketing amplifies the effectiveness of word-of-mouth marketing by providing incentives and compelling offers for current and referred customers to participate in the program.

To read several more advantages to utilizing referral marketing as a customer acquisition strategy, click here.

Referral Marketing With E-commerce

Referral programs are versatile and applicable to a variety of different businesses, and they are uniquely suited to help eCommerce businesses increase leads and drive sales. With Talkable serving as the foundational platform, referral marketing can easily be integrated into a brand’s existing online presence.

  • Easy to get started: In fact, the technology based within Talkable’s marketing software can easily sync up with a brand’s existing online store. Even better, Talkable’s Customer Success team helps the eCommerce business owners implement a referral marketing strategy, derives insights from tests and data, and helps optimize the brand’s campaign to drive more traffic and sales for the business.
  • Boosts email-marketing ROI for businesses: Information about a brand’s referral program can be included within standard email marketing and newsletter communications, however referral marketing can be elevated through strategically timed emails. Brands should consider adding in a call-to-action to refer a friend in either the receipt or order-confirmation emails, capitalizing on the post-purchase excitement that many customers experience. 
  • Helps brands discover true influencers: While not all participants in a referral program will drive in dozens of sales through new customers, brands may find outliers that are finding lots of success in converting referrals. Brands can connect with these “super” brand advocates on an individual basis to send them a reward as a thank you and further establish a meaningful relationship. In many cases, these brand advocates will also have strong followings on social media and could be compelling candidates for influencer marketing programs down the road.

For more ways that referral marketing enhances customer acquisition for ECommerce businesses, click here.

Referral Marketing in Education

The use case of referral marketing programs goes well beyond B2C physical products. It is highly effective with service and information-based businesses as well, such as educational services. The online-learning market is growing rapidly, and it has been forecasted that revenues for e-learning will grow to $325 billion by 2025. This means that there is a lot of opportunity for financial success in educational courses, services, and programs - however a key hurdle is always marketing such businesses. Traditional approaches to customer acquisition in this industry often include content marketing (giving information away for free), email marketing, and traditional paid ads. While these can be executed at varying levels of success, we believe that referral marketing offers an opportunity to reach highly targeted prospects at a much more sustainable rate.

We believe that one of the best ways to market a service-based business (especially within education) is to leverage the influence of those customers who are highly satisfied with the service. Those who have taken part in an e-learning program that helped them achieve great results or a positive transformation will be eager to share how much they love the service and will not hesitate to refer others who they think could benefit as well. Referral marketing is conducted by existing customers amongst the personal relationships that they already have. This personal aspect is so important within all forms of referral marketing, as there is inherent trust between direct contacts and friends. This recommendation from a trusted source carries much more weight than brand-driven marketing and advertising.

Our statistics indicate that an education-based business can gain a 3-15% sales increase with the use of referrals. With this influx of revenue, it is a good idea to reward and incentivize the referrers as a “thank you” for their invaluable contribution to expanding the business. Rewards can include gifts and giveaways, points to redeem for future purchases, store credit, discounts, and more. These rewards can help encourage referrers to continue to share the offer with their network.

An e-learning business must have crystal clarity on who their audience is and what they want. This will directly inform the courses or services that will be created to add massive value to this audience. Once the product has been proven and has begun to deliver positive results and feedback, referral marketing can take the reins of continuing the momentum that has been established. 

Referral Marketing ROI by Industry

From Beauty & Cosmetics to Fashion and Furniture, Referral marketing is a proven strategy across a variety of industries:

Referral Marketing Program Ideas

We know that referral marketing programs can make a significant impact on a business’ customer-acquisition success, and to a certain extent a playbook of others’ successes in the space can be followed to accomplish similar results. However, referral and word-of-mouth marketing practices generally do not remain static and old approaches may accelerate, shift, or fade away over time. Similarly, customer behaviors and tendencies can change over time as well. This is why it is important to always be open to change and experimentation within a referral marketing program, as well as keeping a pulse on trends in the industry.

How can a brand use referral marketing programs to set themselves apart from the competition? Here are a few referral program ideas that will help give brands a boost to their customer acquisition efforts.

  • Sweepstakes: If brands are looking to infuse their referral program with added excitement and engagement, sweepstakes campaigns are a great resource. When a program adds on opportunities for limited time prizes and even a large grand prize in addition to the standard referral rewards they are accustomed to receiving, there will naturally be increased activity among the enrolled customers. Simply provide an entry into the sweepstakes for every new referral during the time period. These prizes should be tailored directly to the audience’s specific interests, and can be leveraged around high-energy moments such as Christmas or Black Friday for optimal results.

  • Tiered Rewards: If not already implemented, tiered rewards should be considered for any referral program. By having different levels with increasingly enticing rewards, customers will maintain interest and motivation to continue climbing the ranks. Again, brands should make sure that these rewards align with the audience’s wants and needs as well as the unique benefits that only this brand can offer in such a way.
  • Product Sharing: It is one thing to equip referrers with a personalized link to share for a brand’s online store. It is a whole different ball game when brands are able to provide referrers with the flexibility to share specific products with members of their network that they know will be interested in. This level of customization deepens trust levels with added personalization. For instance, if it is known that a friend is preparing for a marathon, a referrer could provide them with a direct link to the best running shoes for the race and its specific conditions. That attention to detail is the difference between a potential customer feeling “sold to” and feeling acknowledged and assisted.

For more referral program ideas and best practices, click here.

Spark Engagement With Unique Approaches to Referral Marketing

When it comes to referral marketing, the possibilities for promoting and delivering value through the program are endless. As a form of word of mouth marketing, a brand should strive to develop a program that is worth talking about. This will make it easier for an audience to share information (and be excited to do so) and help the brand market the program.

By focusing messaging on the rewards and the value that customers will receive by participating in the program, a brand clearly shows the return on investment for the customer. There should be no confusion as to what the benefit is for both the referrer and the person receiving the referral. Fortunately, the incentives are customized by the brand and each campaign can be constructed creatively. This allows brands to always deliver rewards that are meaningful and desirable to their customers, further demonstrating the benefit of doing business with a given brand.

Referral marketing programs do not have to be static, either. In fact, it is encouraged to experiment with different modifications to campaigns to determine what methods perform the best with a given audience. Brands can also modify their rewards for limited-time offers to rally engagement around a cultural moment or event that has particular significance to a brand’s audience. Whenever a campaign concludes, brands should fully evaluate the results before embarking on a new campaign so that key learnings can be implemented. Fortunately, Talkable’s Customer Success team can offer ongoing support and provide recommendations to ensure that all campaigns are optimized and effective, regardless of shifts in approach.

Email Marketing for Referral Programs

When a friend sends through a referral marketing offer to a friend via email, there is a high likelihood that they will take action on it. This is, in part, due to the personal nature of email and the direct outreach which is much more effective than posting it broadly on social media (for instance). Impressively, Talkable’s email conversion-to-purchase rate sits at 94.4%! We recommend sending an email blast once a quarter dedicated to driving referrals and engagement from your existing customer base. Here are a few tips to get you started:

  • Leverage email list segmentation. By specifically targeting high-value customers who have verified purchases, a brand will have more success prompting referral activity. That is not to say that other segments cannot be emailed, however it is always smart to modify the messaging within the email to be relevant contextually to the specific audience that is receiving it.
  • Subject lines are very important. This is the first thing a customer will see upon opening their email inbox, and they will make a quick decision to either read the email, ignore it, or delete it sight-unseen. For this reason, you want your subject lines to be eye-catching and compelling. A/B testing can generate actionable insights that help inform what any given brand’s audience responds to best, but consider personalizing the subject line, keeping it under 25 characters (if possible), and creating a sense of urgency to prompt action.
  • Add call-to-action buttons and incentives. Understanding that an audience is likely inundated with emails to sift through, it is important for brands to be clear and concise with their messaging but also be very direct with what you would like them to do. Email communications promoting a referral program should leverage call-to-action buttons (such as ‘shop now’ or ‘invite my friend’) so it is clear where to go to take the requested action. Additionally, by clearly highlighting what the incentive is for taking action a brand will likely have higher engagement with the campaign.

Beyond the nuts and bolts of how one should properly construct an email, remember that it is also important to be personable and allow the brand’s personality to shine through. Every email communication is a building block for the brand and customer relationship, so brands should value and consider the consumer experience when crafting an email.

For more tips on using email to amplify referral program efforts, click here

Referral-Based Marketing Strategy

As brands realize the importance of deploying an effective referrals program, they should first determine that their product or service is of a high-enough quality to be honestly recommended by their existing customer base. Depending on the business, good customer or after-sale service should be in place as well. A referral marketing program alone cannot sustainably improve a business’ customer acquisition results if the product is not up to par. However, if a brand is proud of their product and their customers love it and naturally would recommend it to their friends, it is time to develop a defined referral marketing strategy to help guide their efforts.

There is much to consider when it comes to constructing a referral marketing strategy. Within a referral marketing strategy, brands should determine how the mechanisms of your referral program will work and what roles different stakeholders should play. Some examples of referral marketing strategy considerations include:

  • Choose a referral marketing platform: Every good referral program rests on the foundation of a solid referral marketing platform or software. Aside from having the functionality to manage referral activities efficiently, look at the suite of additional offerings as well. The best platforms should offer A/B testing for optimization, the ability to easily customize campaigns, audience segmentation, access to data and insights, a personalized referral experience and a full-service customer success team to ensure results exceed expectations. We may be biased, but Talkable should be at the top of any list of considerations.
  • Primary channel for referral marketing: Who will be the primary group(s) referring a brand’s product? Typically this will be loyal and happy customers who genuinely want to share the product with their network. Brands should determine if there are any requirements to gain access to the program, how referrers will get access to the program, and what touch points (if any) the brand will have with its referrers.
  • Develop a buyer persona: Along with identifying who will be referring a brand’s products, identifying a persona for the type of people who could benefit from a referral can be very beneficial. By having this persona in mind, it is easier to construct a compelling referral offer and it will help your referrers understand the type of people who may be ideal new customers instead of reaching out to everyone they know.
  • Incentives and referral targets: Decide what kind of rewards can be offered to both referrers and new customers for participating in the referral process. For tiered rewards, brands should make most referral targets attainable with incentives that are worth the effort. All rewards should be distributed in a timely manner to capitalize on the energy and excitement around the moment and to demonstrate the validity of the program.
  • Get the word out: Driving awareness for the referral program (beyond word of mouth) should be a key area of focus for any brand. It can be proudly touted on the company website, integrated in brand apps, represented in the social media content mix, included in email newsletters, and even showcased with in-store branding (if applicable), and more. While brands should not overwhelm their customers with referral program messaging, consistent communication regarding the program will help create broad awareness and engagement over time.

While these are just a few things to consider, a referral marketing strategy should be created to help brands have clarity in their approach for earning customer referrals. Operating without a strategy is akin to setting off for a journey without a map. Talkable is here to help if brands need additional assistance in determining best practices for successful referral programs.

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Referral and Loyalty Programs Work Well Together

Referral marketing does not always need to do all of the heavy lifting by itself. In fact, when it is used in tandem with an effective loyalty program the results can be even more substantial. It all comes down to brands having a clear relationship marketing strategy that deepens the connection with their customers and improves the likelihood of increased sales over time. Within this relationship marketing strategy is where referral and loyalty programs will reside.

Referral marketing will allow a brand’s most passionate customers to share relevant deals and offers with their existing network, while loyalty marketing helps reward customers (both old and new) for their continued patronage. Loyalty programs frequently allocate ‘points’ to customers depending on the amount spent on purchases. These points allow the customer to ascend the ranks of different perks and rewards, providing both status and tangible benefits for their loyalty. Loyalty marketing incentivizes repeat purchases with a brand, and serves as an added value proposition for their customers. So while referral marketing helps to expand the customer base, loyalty marketing helps retain customers and drive continued purchases. This makes the two programs somewhat of a power duo, as both programs add value to the customer in a mutually beneficial dynamic.

There are several easy and effective methods of using referral and loyalty programs together to tap into the benefits of each program. A brand could give members of its loyalty program the opportunity to unlock the ability to make referrals (and earn referral rewards) at a certain tier of the program. This both incentivizes involvement in the loyalty program while also ensuring that those entering the referral program are loyal customers who can speak authentically regarding a brand's products or services. Additionally, a brand could offer loyalty points for successful referrals, or create a referral activity leaderboard for their loyalty members. Running the two programs through one provider allows for consistency in offers, messaging, and total control over the number of offers on the site.

Conclusion

Whether you are new to this concept or a veteran of referral programs, hopefully this article has helped clarify the many facets of referral marketing. Well-executed referral programs can make a significant impact on customer acquisition and retention, and boost a company’s revenue in the process. Even better, referral programs can help deepen a brand's connection with their customers, and customers can receive regular rewards to incentivize ongoing referrals. Talkable makes it easy for your business to establish a referral program, and for your passionate customers to make referrals on your behalf. If you are ready to get started, book a demo with Talkable today.