11 Benefits of Referral Marketing to Inspire Your Strategy

Referral marketing allows your customers to become your company’s advocates by recommending your brand to their friends and family. While referral marketing requires promotional efforts and the incentive of rewards to get customers to cooperate, there are many benefits of referral software. Using this strategy can expand your consumer base.

What is referral marketing?

Referral marketing is a strategy businesses use to encourage their current customers to refer their services or products with their network by offering them incentives. Referral marketing is the least expensive marketing strategy that businesses use to grow their customer base.

How referral marketing works?

A company, for example, credited $100 in its customer’s wallet for referring a friend who signs up for their service, and also the referred customer received a $100 credit. You get free marketing for your business and your existing customer is rewarded for referring others – it’s a win-win for everyone. Studies show businesses get 65% of their new customers from referrals and these customers spend 13.2% more than customers acquired by other means.

Why choose referral marketing over other marketing strategies?

Despite the proliferation of new media, businesses struggle to reach their target audience in a cost-effect manner. Customers inundated with marketing messages find them irrelevant, so they tune them out. Although social media channels such as Facebook help companies connect with customers, it’s difficult to cut through the noise of competing brands.

Lack of trust in mainstream advertising by consumers is another big challenge for marketers. According to a report from Nielsen, trust in marketing has dipped over the last five years. An effective referral marketing plan can help marketers conquer these issues.

Referred customers are always valuable to your brand as they purchase more than customers you acquire via other channels. Also, the referred customers have a higher lifetime value.

Benefits of referral marketing

1. Customers trust referrals: 

Customers trust referrals: Perhaps the most compelling benefit of referral marketing is that customers trust referrals. Nielsen reports 84% of consumers either completely or somewhat trust recommendations from friends and family. Polls indicate that consumers trust recommendations and reviews more than conventional ads. People are four times more likely to buy when referred by a friend.

2. Improved customer retention rate:

Referred customers are much more likely to stay with your company—in fact, they have a 37% higher retention rate.

3. Increased marketing reach:

Referral marketing allows you to increase your outreach by using your customers as your company’s advocates. Think about it, there are virtually no limits to your customer telling a friend or coworker about a good product or company. Because many people have a diverse circle of friends, customer referrals will allow you to expand your client base.

4. Referred customers are more valuable:

Referring a friend or peer instills a positive opinion about the brand. These customers have a 16% higher lifetime value compared to non-referred customers.

5. Gain valuable data:

The modern consumer loves a personalized experience.  By tracking consumer referrals and engagement, as well as leveraging valuable zero- and first-party data from your loyalty program, you can add unique value your customers can’t find anywhere else.

6. Increased ROI:

Referral marketing is a cost-effective way to advertise when compared to other modes such as traditional online ads. You can save even more by using a robust loyalty platform that enables you to effectively manage points and other referral marketing rewards.

7. Save on gaining new loyal customers:

Customer acquisition costs have skyrocketed 60 to 70% in the past six years. Compared to other forms of marketing and loyalty retention, referral marketing is a cost-effective way to gain new, loyal customers. Because people are social creatures, individuals that are referred to your company are much more likely to remain loyal customers.

8. Increased engagement:

Increasing engagement is key for lasting customer relationships. You need to give customers reasons to engage with your brand beyond transactions, as well as reasons to continually visit your website. A customer who refers a friend is likely to visit your website more frequently, giving them more opportunities to see items they’re interested in and make a purchase.

9. Recognize and reward your most loyal customers: 

Customers love feeling appreciated. Did you know, 68% of customers tend to leave because they don’t think brands card about them? Referral marketing platforms allow you to recognize and reward your most valuable customers for actions other than just purchases.

10. Increase brand awareness and reputation: 

Referral marketing can help customers get to know your brand story and improve your overall reputation. Many modern consumers want to align themselves with brands that have a strong voice and a positive influence. 85% of consumers agree that they prefer a more authentic, honest brand. Allowing your own customers to tell your story makes that story through referrals resonate more strongly.

11. Social media boost:

Social media has become an incredibly important advertising tool in reaching the newest generations of consumers. Because most referral marketing platforms also allow customers to refer friends via their favorite social media site, your brand will get an additional boost on social media.

Improve referrals and CX to drive growth

Referral marketing should be an integral part of every loyalty program. Annex Cloud’s comprehensive, flexible and scalable loyalty platform includes powerful Refer-a-Friend capabilities and much more. Let’s connect to explore how you can recognize and reward your customers for referrals and plenty of other profitable behaviors.