With very few exceptions, all of the over 33 million small businesses in the U.S. rely on marketing to move products and sell services. Yet most marketing discussions these days revolve around digital marketing tactics and strategies.
While it's difficult to overestimate
the value of digital marketing, it's not the only approach. For some kinds of
businesses, it's not even the best approach.
As a case in point, businesses that
specialize in high-ticket items or services typically don't need lots of leads.
They need a small number of very good leads. For businesses like this, referral
marketing is often a better solution. Plus, referral marketing can work for
nearly any kind of business.
If you're wondering how to get
started with referral marketing, keep reading.
What
Are Referrals?
Remember the last time you told
someone that they should try a restaurant or see a movie? That was, in essence,
a referral.
In marketing terms, it's when one
satisfied customer encourages someone -- typically someone they know personally
-- to use a product, service, or brand. Another term for this is word-of-mouth
marketing.
What
Is Referral Marketing?
Referral marketing operates as
word-of-mouth marketing but with a bit more shine and formality to the whole
thing. Rather than waiting and hoping that word-of-mouth will happen
organically, a business directly encourages its customers to refer people to
the business.
In most cases, the business offers
the person making the referral an incentive of some kind for their efforts.
This incentive typically prompts more participation since the people making referrals
get something out of the deal.
Benefits
of Referral Marketing
Referral marketing can offer a
business several important benefits. One of the biggest benefits is that it
cuts down on the acquisition costs of new customers. Given that acquisition costs
run high for most businesses, anything that gives you a break on those is a big
win.
Referrals enter the process as warm
leads. While the person may not know your business or brand at all, they do
know and trust the person who referred them. You become the recipient of a bit
of reflected trust.
Referrals are more likely to
actually make a purchase from your business. As a general rule, the person
making the referral will pick people they know are in the market for what you
sell.
The referral comes through the door
or onto your website at least partially in a buying frame of mind. At that
point, it's on you or your website to convince them that your product or
service can do what they need or want.
Creating
a Referral Program
When talking about referral marketing,
it's easy to fall into a trap of thinking they're all built the same way. Yet,
a referral marketing program can range from extremely simple to fairly
technical. Let's dig into some variations.
The
Basic Ask
The simplest version of a referral program
is simply asking happy customers to make referrals. You can do it in person or
even put something onto invoices, such as:
"We appreciate referrals."
This approach has the benefit of
simplicity, but it lacks an incentive. It depends entirely on the customer's
positive feelings toward you and your product or service. While it can work
sometimes, participation numbers are typically low.
Digital
Programs
Retailers and e-tailers often rely
on digital versions of their referral programs. Instead of asking for
referrals, the store will send out an email to everyone on their mailing list.
The email will include a code that the recipients can hand out to their
friends, family, and acquaintances.
The code will typically get the
friends and family members a good discount on a specific product or off their
next purchase. The incentive for the person handing out the code is typically a
discount or other prize if someone uses the code.
If you're curious, you can head over
here to see referral code examples.
Businesses often like these kinds of
programs because they're easy to track. They can tie the codes back to specific
referrers and automate the discounts.
Points
Accumulation
A different approach to referral
programs is a points accumulation system. With these programs, the person
making referrals gets points every time a referral makes a purchase. If they
accumulate enough points, they get a prize of some kind.
Depending on how the program is run,
the company may offer multiple prizes for different point levels. If you refer
10 people, you get a toaster. If you refer 30 people, you get a new set of pots
and pans.
These kinds of programs require more
administration and depend on customer reporting who made the referral.
Community
Referrals
With this approach, you typically
sponsor something, like a little league team. You get your name out there and,
with luck, people who attend the game or the event of the thing you sponsor will
show up and buy things from you.
Every business owner must sit down
and think through what option or options will provide the most value for them.
A business that sells primarily low-ticket items and has a big email list can
get a lot of mileage from a digital program. These businesses can also see good
results with a points-based system.
A business that has high-ticket
items or services may see the best results with a direct ask. There isn't much
you can offer people who buy high-ticket items. So, you rely on them being
happy with the service or product, as well as your customer service.
Referral
Marketing and You
Referral marketing can prove a
powerful tool in your marketing arsenal if you deploy it correctly. You should
gear your program toward the kinds of products and services you offer, as well
as the kinds of customers you normally serve.
If you're a retail business with
lower-ticket items, focus on digital programs that offer discounts. If you're
more mid-range, a points-based system with prizes may work best. For
high-ticket customers, a simple ask is usually the best you can do.
Looking for more marketing tips?
Head over to our business section for more posts.
