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The Importance of Referrals and How to Get More

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The Importance of Referrals and How to Get More
Referrals, described by Forbes in 2019 as “the most valuable form of advertising” and as “the holy grail of advertising” by Mark Zuckerburg are an advertising mainstay for businesses. Almost every major brand has a strategy to increase sales made as a result of referrals.

So, what is the best way to secure them?

 

Referrals in business

Referrals, where a recommendation about a product or a service leads to new sales, can take a number of forms, but the main principle of the referral is where one party recommends a product or a service to another, who then makes a purchase based on the recommendation. This can happen where a new customer simply likes a product or service and makes a recommendation to their friends based on their experience. Nowadays though, brands actively encourage their customers to make referrals by offering incentives to make them, and or rewarding both referrer and referee when recommendations lead to sales.  

Research published in Forbes suggests that 78% of business to business marketers stated that referrals programs generated good or excellent leads, and 60% of marketers surveyed in the published research stated that referral programs generated a high volume of leads. In terms of cost considerations, 54% of those surveyed stated that referral programs had a lower cost-per-lead compared to every other possible advertising channel. Overall, marketers rated referrals as the second highest source of good quality leads. 

Every brand has the potential to generate referrals. Indeed, word of mouth recommendations have long been extremely advantageous to brands all over the world, in every culture and country. This type of referral requires no investment of resources of any kind on the part of the brand which benefits from the referral. This is the main reason why brands are trying so hard to encourage existing users to make personal referrals to their network or friends and family.

When a product or service user makes a referral or recommendation based on their personal experience of a product, brand or service, they are effectively taking on the role of selling that particular product, brand or service. Moreover, this recommendation has much more value because recommendations and referrals are so often made between people who know and trust each other. Selling to someone who trusts you is much, much easier than selling to a new customer who has no prior knowledge or experience of what is being sold. This is called a “warm lead” in business, as opposed to “cold” leads that are generated by more traditional means of advertising like adverts.

Every day businesses spend millions of pounds in targeting customers who are lightly to be receptive to sales messages. Data is purchased, collated or stored by a business in a way that facilitates effective communication with different cohorts of consumers, for example customers who have previously made high value purchases, customers who have previously made frequent purchases or customers who have made purchases in the last six months. Segmentation like this maximises the value of any advertising budget because advertisers can target specific groups of people. Referral programs are also considered excellent ways to target people who are likely to be interested in the brand or service. When making a personal recommendation to a friend or family member, the referrer implicitly knows what that person likes or dislikes and will intuitively know whether this is something that person may be interested in. This is information that no salesperson will ever know before they initiate a marketing or advertising campaign. As such, the referral-based advertising is a great way to  target advertising messages towards people who are likely to be receptive to them.

Referral strategies can be integrated within loyalty schemes. A loyalty scheme will reward a registered user when a new user makes a purchase based on the recommendation of a member of the scheme. Loyalty schemes will often reward both the new customer and the referring customer to create a “win-win” situation where both parties to the referral have an incentive to refer and be referred.  

 

How to get more referrals

 

“Referable” products

Some businesses get ahead of themselves by devising a referral program when they have overlooked the fact that there are fundamental problems with their products and/or services.

It goes without saying that businesses need to offer customers something they can make a genuine referral about. This means asking difficult questions about the product that is being offered, its quality, features and whether and how it can be improved. It also means listening to customers about their experience of the products and what they think might be improved.

It is helpful where a product or a service exceeds the expectations of the user. When a user’s expectations are exceeded, this makes them more likely to be willing to make a referral or a positive recommendation.

Businesses need to be nimble and be prepared to make changes to their products in order to ensure that users and customers have something substantive to actually make a referral about.

 

“Referable” processes including customer service

Again, if a business is offering something that isn’t referable, it does not matter how effective their referral program tactics or strategy is, since the only thing customers will see are basic problems with the business and or the products on offer.

Customer service is a key factor, and many customers will make referrals based on their experience of a business’ customer service alone.

The other factor to be aware of is that referral strategy can work in reverse – that is if there is a reason for not recommending a product or service, then news of this can spread like wildfire, particularly on social media. Marketing experts call this the “backlash” factor.

Backlashes can happen for a number of reasons, and poor customer service is one. Therefore, if a business does not have basic processes that impact a customer’s experience in a positive, reliable and consistent way, there is little point in investing in a referral program.

 

Immediacy: ask for the referral as soon as possible

Businesses are missing out on referrals because they are not asking their customers for referrals at the right time. Experts in devising referral programs emphasise that asking for referrals immediately after a sale is more effective than asking for a referral from a customer who has had a product for several months.

This makes sense because when a customer has just purchased a product, this is when they are most likely to be excited about it, use it frequently and make reference to it in everyday conversation with friends and family.

 

Offer discounts and create a referral program

A simple way to gain more referrals is to offer discounts and incentives to encourage people to act as referrers. Many brands offer a discount on purchases after a referee is registered as the result of a referral. A good referrals program will reward both the referring party and the new user who has registered after receiving a referral.

 

Follow up: ask for referrals more than once

We live in a society where many people are “time poor”. People will neglect to make a referral simply because they don’t have time, not necessarily because they haven’t liked the product or service. These people represent missed opportunities for businesses, because many will make a referral after receiving a reminder. As such, it is important to keep reminding customers of the benefits of making a referral.

 

Give people a reason why you are asking for a referral

Research has shown that when people are asked to perform a task, they are more likely to perform the requested task, if they are given a reason why they are being asked. When people are provided with a reason why they are being asked to give a referral, an emotional connection or reaction may be elicited, and this can spur some people to act. The reason should be honest and simple, for example “we want other people to have the same great experience with our product that you have had”.

 

Create relationships

A great way to encourage referrals is to establish strategic relationships, preferably within the wider industry your business is operating in and ask your partners to make referrals on your behalf. An example is a makeup business making referrals for skincare products, or a beauty salon which makes referrals for skincare products. The referring business will not be losing any business of their own by making a referral and the people being referred are likely to be interested in spending money on related products. Many businesses will consolidate a referring relationship by offering a reward or a cash payment in exchange for every referral.

 

Create a referral template that referring customers can “cut and paste”

The society we live in is often highly pressured, so people won’t necessarily want to give up their time to make a referral of a product or service, however it helps if the party requesting a referral makes it easy for that referral to be made. Creating a referral template which can be copy pasted by the referring customer has been shown to increase the prospects of receiving that all-important referral.

Referral templates replicate what a referring customer might say to someone they are making a referral to, so they can be something along the following lines:

 

Hi there

 

I recently bought a [INSERT BRAND NAME OR PRODUCT] and I wanted to let you know that I’ve had a great experience. The company is offering a 15% discount for customers who purchase after receiving this email. Here is the discount code: [INSERT CODE].

 

Yours sincerely

Cynthia

 

Personalise all referral requests

If a business is asking one of its customers to perform a task like making a referral, it really helps to use a customer’s first name in all communications with them. Most E-commerce platforms like Shopify personalise mass emails as standard.

 

Social media

Social media is a great source of referrals. Businesses can run competitions aimed at gaining referrals, for example where people are rewarded if they share a post a certain number of times, or if they tag a certain number of people.

Trust, however, is a very important consideration when using social media. Research has shown that products advertised on social media are often regarded with high levels of suspicion by readers, so businesses need to focus on imbibing all adverts disseminated on social media with authenticity. A business, for example should be very careful if using influencers and actors who have never used a product before.   

 

Seek out multiple referrals

When a customer has made a referral in the past, it makes sense that that customer is more likely to make further referrals in the future. Businesses need to identify customers more likely to engage and give them special, targeted messages to remind them of the tasks being asked of them and encourage them to engage more.

 

Create multiple referral or recommendation channels

It makes sense that different customers want to or feel comfortable communicating in different ways. Whereas one customer will be happy to refer to their network of friends via social media, another might be more comfortable leaving a public review, or making a face-to-face recommendation.

A referral program should therefore recognise that, since people are different and they like to communicate in different ways, the referral program should reflect these different preferences by being flexible and offering a lot of different ways for referring customers to make a referral.

 

Set goals and targets

Marketing experts often warn that businesses should never rely on “accidental referrals”. Referrals should be planned and targeted. Businesses should define a target of how many referrals they want to receive within a set timeframe. If the target is not achieved, they need to ask why and what changes need to be made to create a more effective system of referrals.

 

Explain any incentive or referral program in simple terms

If a business has a referral program, it should be explained in simple, convenient terms on the website or through any associated advertising. A program that is too complicated is likely to repel rather than draw people in.

Using the referral program should also be simple and businesses should regularly test any websites receiving referrals for bugs or technical problems that will affect users.  

 

Evaluate any referral system

Any referral program that is in operation should be reviewed and evaluated regularly. Businesses should ask whether the system is appealing to users, whether it is easy to use and understand and whether it is attracting sufficient levels of interest and use.

Feedback gained as a result of asking these questions should be reviewed and the business should consider tweaking or redesigning the whole system to ensure that the referral program is as effective as possible on the basis of any relevant feedback.

Additionally, businesses should ask users what they want to see in the referral program and if there is currently anything in operation that they are not happy about. A business for example needs to ascertain what rewards are of interest to users, what levels of discount are high enough to encourage the kind of engagement that is desired and what features should be included in the referral system. Businesses that listen to feedback can continuously make their programs more interesting and appealing to their users thereby consistently building stronger and more resonant campaigns.

 

Make a referral program part of a wider community

People are naturally inclined to social interaction and being part of a group gives people reassurance and satisfaction. A referral program should take advantage of this and be designed to offer a feeling of group belonging and membership. This can be achieved in many ways including strong branding of the referral program and integration of the referral program with other brand-wide programs and initiatives, like a loyalty scheme for example. If, for example, a loyalty scheme offers a discount on entry to a gym or event, this creates a “buzz” that people will discuss and collaborate on, and this all enhances the appeal of a program.

 

Referrals – why are they important and how to get more

Referrals are one of the cornerstones of modern advertising because they have such a powerful reach coupled with a relatively low cost compared to other methods of advertising.

The process of encouraging referrals is however complex, and investment in referral programs can be wasted if products are services are not for example “referable”, or if there is a failure to properly evaluate how successful a referral program actually is.

Businesses need to understand what type of rewards their customers want to receive, and they should be mindful that it is possible to overspend on a referral program and create a situation where a seemingly successful referral program is actually costing more to run than it is making in terms of increased sales. As such, any referral program needs to be tightly controlled and regularly evaluated.

A business should be forthright in asking their customers for referrals, and they should make it easy for customers to engage with a referrals program, for example by providing templates for requested referrals and different channels and methods of endorsement.

 

 

 

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