Referral marketing takes place when a present customer suggests your business to a friend or family member, making it a highly economical marketing approach. Establishing a structured referral program enables you to consistently generate these verbal recommendations.
Referral programs offer rewards to customers who refer their peers to your business. If a customer makes a recommendation and the referred friend makes their initial purchase, the customer making the referral receives a reward. These programs serve as a strong marketing avenue by transforming existing customers into advocates and consistently attracting new customers.
What is a referral program?
A referral program is a marketing strategy based on word-of-mouth that encourages your current customers to recommend your brand, products, or services to their friends, family, and colleagues. In this program, the existing customer receives a reward every time someone they refer makes their initial purchase.
In order to motivate customers to refer their friends, a brand will highly publicize the referral rewards available. These rewards may consist of gift cards, discounts, store credits, free items, or promotional merchandise. Customers who participate in the referral program receive specific links to share with their contacts, allowing the company to conveniently monitor shared referrals.
How Does a Referral Marketing Program Work?
A referral program involves inviting satisfied customers to become brand advocates, where they participate in a referral campaign and receive a distinctive referral link or code to distribute among their connections.
Referral incentives are usually given to existing customers when their referred customers make a purchase using the provided link or code.
When a friend of a customer purchases a Casper mattress for the first time, they will receive a $10 Amazon gift card through Casper’s refer-a-friend program.
How to Create a Referral Program
After we have provided an explanation of the concept, benefits, and examples of referral marketing programs, proceed by following these step-by-step instructions to set up your own program.
1. Define Your Perfect Customer
A referral program is successful when a business receives referrals leading to product purchases. Nevertheless, existing customers may find it difficult to determine what qualifies as a valuable referral.
To ensure effective referrals, it is important to determine your target customer before seeking recommendations from your existing clientele. By informing them of your preferred buyer, they can provide referrals to individuals who are genuinely interested, rather than simply listing the names of friends in order to receive bonuses from the referral marketing program.
The perfect description of a referred customer does not need to be lengthy. For instance, a statement such as “If your friends are into running, they can get $30 off their initial purchase” is ideal for a company that sells running shoes as it implies that your focus is on catering to running enthusiasts.
2. Come Up With Valuable Rewards
Brands that provide incentives are valued by more than 70% of consumers. By offering bonuses, brands enhance the value and create a memorable experience for customers.
In order to create an ideal reward system, the first step is to determine who should receive the reward. There are three possible methods for doing this.
- One-sided incentives for existing customers. This option helps improve customer retention, but it may not encourage new customers to join. It’s best for companies selling affordable products as the referred friend may be still interested in buying them even without discounts.
- One-sided incentives for referred customers. It helps motivate new customers to purchase. However, the number of referrals may be lower since the referrers may not be interested in joining.
- Two-sided incentives. This strategy rewards current and new customers, motivating them to join the referral program. However, not all businesses can afford to provide incentives for both parties.
To maintain the budget intact, brands should carefully calculate referral benefits which can effectively attract leads. In order to achieve this, it is advisable for brands to establish certain requirements that customers must meet to earn the rewards.
3. Design Your Referral Program
In order to market your referral program, it is crucial to carefully plan and design it beforehand.
When designing a referral program, there are several elements that need to be taken into consideration.
- Rules and eligibility criteria. Make the requirements simple to attract customers to join the program.
- Workflow. Decide the sign-up methods, the use of a referral link or a code, and a referral payment.
- Referral messages. Keep the referral messaging clear by explaining the offer and providing a call to action (CTA) to share the code or link.
- Referral invitation. It refers to the message sent by your customers to their friends. In this invitation, make sure to introduce your brand and program as their friends may not know your business. You can use the referral program software templates or let customers create and edit their own.
4. Analyze and Perfect Your Referral Program
After promoting the referral program, it is necessary to analyze the performance of the campaign.
Campaign analysis enables you to comprehend the successful aspects and reveals customers’ response to your referral program.
Summary: How to start a referral program that works for you
Referrals can originate from various sources, including satisfied customers, acquaintances, or even endorsements from famous individuals. The crucial aspect lies in effectively utilizing these referrals through a thoughtfully crafted program that encourages verbal recommendations and cultivates customer allegiance.
In order to effectively commence a referral program, it is crucial to establish a connection with your customers and comprehend the most effective means of motivating them to share. Additionally, it is advisable to simplify the referral process by utilizing referral software to generate easily sharable referral codes and links.
By breaking it down into individual steps, you can automate all routine procedures, keep tabs on referral campaigns, and leverage analytics to develop the most effective referral program for your business.
