Referral marketing: when satisfied customers bring in more customers

In tra­di­tion­al ad­vert­ising, companies present their product or services to potential customers. They pay for ad­vert­ising space on TV, the internet, radio, or print media. This kind of ad­vert­ising is of course far from neutral, as companies only highlight the ad­vant­ages of their product. Referral marketing, on the other hand, is grown out of authentic reviews from real customers. Keep reading to find out what makes for a suc­cess­ful referral marketing strategy and how you can implement it in your campaign.

The simple defin­i­tion of referral marketing is the process in which satisfied existing customers win over new customers with their re­com­mend­a­tions. But what does this mean in practice?

In practice, this typically means that customers who were satisfied with their own ex­per­i­ence with a product or service become brand advocates. These customers make re­com­mend­a­tions via a variety of channels, including con­ver­sa­tions with friends and family, reviews in your online shop, and social media platforms. The most important aspect of a suc­cess­ful referral marketing strategy is mo­tiv­at­ing customers to continue making re­com­mend­a­tions in the long term. And the larger your customer base is, the faster you’ll see an increase in profits using this marketing method.

The primary goal of referral marketing is gen­er­at­ing con­ver­sions and leads, and ul­ti­mately in­creas­ing sales. As a bonus, this marketing strategy can also strengthen your brand identity and trust in your brand. Re­com­mend­a­tions from real customers promote cred­ib­il­ity and au­then­ti­city. That’s why referral marketing is often more effective than tra­di­tion­al marketing, even though it costs less.

In referral marketing, customers become ad­vert­ising partners. The basis for this marketing strategy are satisfied existing customers, whose ex­pect­a­tions and desires have been fulfilled by your product or service. In order to get to this point, it’s crucial to regularly analyse your customer base and perform market research. This kind of research allows you to get to know your customers and their needs and adapt your product ac­cord­ingly.

The second step is to motivate your customers to talk about their positive ex­per­i­ence with your product. One good method for this is providing in­cent­ives, for example, discounts or pro­mo­tion­al giveaways.

Customers mainly tell others about their favourite products in person or online. Companies can actively encourage their customers to leave reviews, for example, by using review sites, or in­teg­rat­ing a comment box in their online shop or on social media. As a positive side effect, companies have more control over customer feedback and can keep better tabs on it.

As is also the case for tra­di­tion­al ad­vert­ising methods, measuring the success of your campaign is an important in­stru­ment in referral marketing. If you have an online shop, you can do this as follows: Ask all your existing customers if they would recommend your product or service to a friend, and ask new customers how they found out about your company. You can then use these numbers to calculate the re­com­mend­a­tion rate as a financial ratio.

The terms “referral marketing” and “word-of-mouth marketing” are often used in­ter­change­ably. However, if we’re being precise, there are dif­fer­ences between the two marketing methods. In the case of referral marketing, the main goal is to encourage customers to give explicit re­com­mend­a­tions and reviews. Satisfied customers convey the value of the product and talk about their personal ex­per­i­ence with it. Word-of-mouth marketing, on the other hand, refers more generally to the pure trans­mis­sion of in­form­a­tion. For example, if someone tells their friend about a new store opening in town, it’s not ne­ces­sar­ily a re­com­mend­a­tion but does count as word-of-mouth marketing.

A pre­requis­ite for a suc­cess­ful referral marketing strategy is a clear corporate identity. Once that’s in place, you can con­cen­trate on the three pillars of referral marketing, which are closely connected to one another and crucial for a suc­cess­ful campaign.

Your existing customer base will form the found­a­tion of your referral marketing strategy. Only satisfied pur­chasers will give re­com­mend­a­tions to pro­spect­ive customers. That’s why investing in strength­en­ing the con­nec­tion with your customers and in­creas­ing customer sat­is­fac­tion are of crucial im­port­ance. Pro­fes­sion­al customer support and a smooth shopping ex­per­i­ence will leave a positive im­pres­sion on your customers. Even after a purchase has been completed, companies can influence customer sat­is­fac­tion with, for example, greeting cards, pro­mo­tion­al giveaways, and discounts.

Employees represent your company to the outside world. In many cases, they’re in direct contact with customers, for example in stores, on the phone, via email, or on social media. This means that your employees will have a sig­ni­fic­ant effect on customer ex­per­i­ences. Competent, helpful, and friendly employees leave a positive im­pres­sion and lay an important found­a­tion for re­com­mend­a­tions. Take advantage of the benefits of digital customer re­la­tion­ship man­age­ment to score points with in­di­vidu­al­ised customer service and to optimise the customer ex­per­i­ence.

In addition, employees can them­selves be sources of re­com­mend­a­tions. If employees convey a positive work en­vir­on­ment and stand behind your company’s products and services, this can also become a factor in the success of your referral marketing strategy. So it’s worth investing in your employees and their sat­is­fac­tion. Bonuses, company outings, events, a trans­par­ent company culture, open com­mu­nic­a­tion, and respect for your employees are just a few of the possible ways to motivate your team.

Different companies have different ways of coming into contact with customers – in person, in writing, or on the phone. Positive, customer-oriented com­mu­nic­a­tion forms the third pillar of a suc­cess­ful referral marketing strategy. Since your employees are usually the ones speaking with customers, it’s important to invest in their com­mu­nic­a­tion skills.

A further aspect of com­mu­nic­a­tion is au­then­ti­city and honesty in what your company says. Truthful marketing messages create long-term trust with customers. When employees or customers convey these messages, they become even more credible. You should also use your existing network and invest in re­la­tion­ships with business partners.

Referral marketing is highly efficient and generally very cost-effective. Other ad­vant­ages include:

• Cred­ib­il­ity: Hearing about the ex­per­i­ences of real, satisfied customers leaves a credible and authentic im­pres­sion.
• Faster pur­chas­ing decisions: Personal re­com­mend­a­tions convince customers more rapidly of the use­ful­ness of a product and leave fewer doubts or questions.
• Brand de­vel­op­ment and trust: Referral marketing strengthens customer trust in a brand.
• Increased sales from existing customers: Giving re­com­mend­a­tions increases customers’ loyalty to a company. This can increase your customer base and lead to more regular sales.

The dis­ad­vant­ages of referral marketing include:

• Existing customers are a pre­requis­ite: The idea of referral marketing requires that existing customers share their ex­per­i­ences with others. So for new companies with re­l­at­ively few customers, it may be harder to implement it right away.
• Un­sat­is­fied customers and bad reviews: Un­sat­is­fied customers are hard to avoid. If you encourage every customer to share their opinion, you might end up with un­flat­ter­ing reviews.
• Public reviews: Public platforms like Google Reviews or Trust­pi­lot come with the risk of misuse – whether by competing companies or dis­sat­is­fied customers.

Many companies use referral marketing with varying success. The following examples show different ap­proaches to the marketing method.

Now that you have a better idea of what referral marketing is, let’s take a look at how to suc­cess­fully implement it.

Satisfied customers won’t auto­mat­ic­ally share their ex­per­i­ences with others. In other words, referral marketing requires a sys­tem­at­ic approach. Actively encourage your customers to rate your company on review platforms or share their ex­per­i­ences either online or in person.

The easier you make it for customers to leave reviews or make referrals, the more fre­quently it will happen. A good example are social media buttons, which customers can use to com­mu­nic­ate with friends and followers in just one click.

Don’t just ask your customers to recommend your company to friends, but offer them a reward when they do. Bonuses, discounts, and giveaways can act as in­cent­ives.

Satisfied customers are those that have had a positive ex­per­i­ence with your company. This is not only in­flu­enced by your product or service itself but also by the ad­di­tion­al services you provide. Being easily reachable for questions and having a simple and smooth purchase process are part of a positive customer ex­per­i­ence. Respond quickly and helpfully to customers’ questions, comments, and criticism. Actively finding solutions has a positive influence on customer ex­per­i­ences.

Don’t leave all the talking up to your customers. You should also share your own positive ex­per­i­ences. This conveys honesty and au­then­ti­city and could lead to new B2B customers.

Clearly com­mu­nic­ate the review process. If reviews are publicly displayed on your website, make sure that customers know that in advance.

Breaking into referral marketing can be difficult for new companies with a re­l­at­ively small customer base. In­flu­en­cer marketing sits at the in­ter­sec­tion of tra­di­tion­al ad­vert­ising and personal re­com­mend­a­tions. It gives young companies the chance to quickly spread the word about their product and build a customer base.