The goal of referral marketing is to generate new customers through the recommendations of existing customers. Referral marketing is like word of mouth advertising, except for one key detail: Word of mouth advertising is typically self-directed by the consumer, and referral marketing is initiated—and often incentivized—by the brand.
Referral marketing can be as simple as asking for referrals on websites and social media or as complex as ingraining the importance of referrals into the company culture, starting with the training of new employees. At its core, referral marketing is derived from relationships between brands and customers that support them. That same concept is applied to what’s known as joint venture referrals—when one company partners with another referral-seeking company for the purpose of cross-promotion.
Referral marketing works especially well with service-based industries, such as repair shops, travel agencies, and restaurants. It is also well suited for professional services like healthcare, banking, and law. In addition, referral marketing is often used by non-profit agencies that partner with other businesses to gain donations and spread their messaging.
Referral marketing is seeing significant growth in B2B marketing as well. Several referral management solution shave received substantial investments from venture capital firms due to the popularity of referral marketing at companies that sell considered purchases with extended sales cycles. IMA has a list of these solutions posted on our Martec Showcase
The success of referral marketing is no surprise when you look at the latest statistics:
- 65% of new business comes from referrals – New York Times
- 92% of respondents trusted referrals from people they knew – Nielsen
- People are 4 times more likely to buy when referred by a friend – Nielsen
- The Lifetime Value of a new referral customer is 16% higher – Wharton School of Business
Effective referral marketing starts with research into the typical customer’s buying habits and their expectations from a referral program. This research can be conducted via online surveys, social media, brief telephone interviews, and more. Once it’s completed, a business must aim to make those expectations materialize by producing a referral marketing initiative that is worthwhile to both the customer and brand. In addition, a successful referral marketing plan should be simple to access, have share-power, and be highly marketable.
IMA has a section on Martec Showcase featuring several technologies designed to help companies with their referral marketing initiatives.