Why is Referral Marketing Important & How can you Drive it with Rewards?

What do you do when you want or need to buy something new? If you’re like most people, you probably do your research - maybe you nose around a little bit on Google or browse the websites of various vendors. But what seals the deal and makes the sale for most people is a recommendation from a trusted friend or family member.

Referrals are a huge driver of sales for most businesses. So how can you take advantage of the power of word of mouth and use it to your marketing advantage? We’ll cover everything you need to know about referral marketing and driving it with the right rewards strategy here.

What is Referral Marketing?

Referral marketing is a conscious and thoughtful plan to collect the power of those referrals from your happiest customers and turn them into a powerful marketing channel. Tapping into your network of happy and loyal customers who then become active advocates for your products and services is incredibly powerful.

Many word-of-mouth recommendations happen naturally, especially if you have a product or customer experience that your consumers just love. And that’s great - it’s an effortless and welcome way to gain new business. But when you want to really harness that power more effectively to drive even more new sales, you need to develop a referral marketing program.

A referral marketing program is a purposeful plan created to take those customer advocates and encourage them to recommend and refer your business to their network by rewarding them in some way. (We’ll talk much more about those rewards and the right way to do them below.)

Basically, you’re helping those customers to share their great experiences with your brand and thanking them for doing so with the right rewards.

Why Referrals are Important?

The power of word of mouth is why referrals are important. We live in a world oversaturated with different products and services - making purchasing decisions is harder than ever for busy consumers. And to make matters more confusing, we also live in a world full to the brim with advertisements. Consumers learn to tune these out and are highly skeptical of the ones they do pay attention to.

That doesn’t leave many options for businesses that need to grow. Winning over those consumers means driving recommendations from your already satisfied customers. But they’re busy as well, and while they might be happy to recommend your business when the topic comes up, they won’t do so as often as you want without encouragement.

That’s why referral marketing is so important. A well-designed referral marketing program will find those highly satisfied customers who will make good advocates and give them the right incentives to promote your business authentically and frequently.

This word-of-mouth advertising from trusted friends and family members has a huge return on investment. Referral programs overall aren’t typically too expensive to run, and they’re very effective at growing your business. Here are just a few statistics illustrating why:

• 83% of people rely on the opinions of family members and friends to make purchase decisions.
• Referred customers are 18% more loyal to your business than customers you gain through other methods.
• 90% of people believe brand recommendations they get from friends and family, while 75% don’t accept advertisements as the truth.

How to do Referral Marketing?

Now that you know the importance of referrals and what a powerful tool referral marketing programs are, how can you create a successful one yourself? Here’s the simple three-step process to create a rewards-driven referral program.

1. Identify your happy and satisfied customers.

This can be done in a number of ways, but the most effective method is by creating customer surveys. The Net Promoter Score survey is the best way to find the Promoters in your existing customers - people who are highly likely to recommend you to their friends and family. But you can also use other survey methodologies such as Customer Satisfaction Surveys to find your best advocates.

2. Cultivate and invest in your advocates.

Once you’ve selected those promoters and advocates from your existing customers, it’s time to put in the work to truly delight them. It’s about more than just ensuring you’re meeting their expectations - you need to exceed them at every step of the customer experience. Delight them whenever you can. And do all of this before you ask them for anything so they have a completely positive view - stepping straight into a give-to-get scenario will turn them off because it feels too immediately transactional.

3. Encourage them to recommend your business.

Now we get to the ask - it’s time to request that customers join your referral marketing program. You can make this request while offering a variety of rewards, either as a thank you for joining, a reward for a referral, or a combination. The rewards you offer when you ask customers to refer you can vary depending on the specifics of your program. But there are plenty of software options out there on the market that make this process simple and streamlined, like Xoxoday.

Referral Rewards Program Best Practices

There are a million different ways to set up your own referral rewards program. There’s no one best path forward - it really depends on your customer base, what your advocates and referrers respond most to, and what competitors in your industry are doing. That being said, here are some tips to stick to best practices so your referral program will succeed and your business will thrive.

1. Make Sharing Simple

Your referral program could have the most incredible awards ever available to your advocates and still fail for one simple reason - the way you ask customers to share their referrals is too complicated. Even your most dedicated advocates have lots of other things to do in their lives. They’re not going to spend an hour - or even 20 minutes - just figuring out how to send a referral to a friend. They’ll give up and move on to something else.

Airbnb’s referral rewards program is a great example of how to make sharing simple. They offer a referral code that a user can send with one click that gives both the sender and the recipient $25 in Airbnb credit for a future trip. It’s so easy it’s almost effortless while being very rewarding, and customers love it.

2. Add a Customer Loyalty Program

One great way to reward customers is to make them feel valued and appreciated for being loyal to your company. A customer loyalty program is the perfect way to do this. Customers who feel recognized and appreciated are more likely to recommend and refer friends and family to your business.

Sephora is a good example of a retailer that rewards their best customers well. With every purchase, their Beauty Insiders can earn points and redeem them for different levels of rewards, from small gifts to full-size beauty products to exceptional brand experiences. This program encourages shoppers to purchase from Sephora more often because they’ll get rewards faster, and loyal customers make referrals more as well.

3. Think Like a Customer

Referral marketing programs are so effective for growing businesses that it’s easy to just focus on how they will benefit from creating a referral system. But that’s the opposite of what referral incentives are really all about - you need to think first about what your loyal customers and advocates actually want and respond to. You shouldn’t guess or assume that you already know. Instead, try conducting customer surveys to see what they value most and testing your program options as you launch.

Thinking this way can also help you stand out from the competition. “Give $10 in credit to a friend and get $10” tactics are common in the beauty industry referral program world, but Thrive Causemetics took a different approach. As a company also focused on doing social good, they also donate a product to a woman in need when a customer makes a referral. This fits in with their ideal customer profile of socially conscious women, and makes a more compelling offer than their competitors.

Use Referral Rewards Software

Managing a referral rewards program through your own marketing team is very time-consuming. Finding the right partner or the perfect referral rewards software to help you deliver those referral rewards the right way is a good investment of your marketing dollars to make your program as effective as possible. You should look for one that integrates effortlessly with your existing referral tools to make your rewards system simple. And don’t forget to select a system that lets you reward brand advocates for more than simply purchases, but for referrals and shout-outs on social media channels as well.