Why Referral Marketing Beats Standard Sales Tactics

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While most brands focus on sales, there’s actually a secret marketing tool that’s often overlooked. Referral marketing is not only low-cost (or even free), but it also brings warmer leads. That’s right, that money you spend on advertising and marketing might be better off going towards your overall customer experience and securing referrals. 

It’s certain that referral marketing is a powerful tool, so why are many professionals and businesses going about it the wrong way? Not only do brands fail to ask for referrals, but they don’t create a referral-worthy experience. With the average US consumer mentioning different brand names 60+ times per week, it’s never been more important to stay top-of-mind.  

What makes referrals so effective? It’s simpler than you think: they’re based on trust. As humans, we thrive on emotional, genuine connections. When we refer a product, brand, or service to someone in our circle, this carries a lot of weight. Whether we’re sharing online, through a text message, or in-person, people trust other people.  

In this modern time, trust is the most important thing a brand can have. You can sing your own praise all day long, but your leads aren’t likely to pay that much mind. Referrals drive the highest conversion rates, and they’re an essential part of building superfans. In this guide, we’ll share why referral marketing beats standard sales tactics—as well as how to leverage referrals for your business.

What is referral marketing? 

To begin, what is referral marketing? This is a concept that you likely see a lot in practice, but how well do you understand the definition? In simple terms, referral marketing is a strategy where you encourage engaged, passionate customers to advocate for your brand. Better yet, you encourage them to share your business, product, or service with their own network. 

When it comes to deciding where to spend money, consumers trust other consumers. They read reviews, talk to friends, and do research. In fact, consumers nowadays are more informed than ever before. A reported 87% of shoppers begin product searches online before making a purchase. 

In the past, consumers might have purchased something in a store right away or after discovering it for the first time. Now, consumers want to do their own research and hear from others before parting with their money. In other words, they want to feel confident in their decision. 

What are different types of referral marketing?

As you’ll quickly learn, referral marketing isn’t one-size-fits-all. There are many different types you’ll encounter. Before we dive deeper, familiarize yourself with these different referral types:

  • Direct referrals: The most common type of referral is a direct referral, also known as word of mouth. This has been around since the earliest days of business, and it’s super powerful. When someone tells someone in their circle about your brand, this is a direct referral. (Hint: word of mouth happens both digitally and in-person!)
  • Email referrals: Many brands also utilize email referrals. This is when a brand encourages users to share the service (usually with an incentive in it for them) with their friends and family. The referral is shared via email, and it’s very common especially for ecommerce stores
  • Incentive: An incentive referral program is when a company offers a coupon, discount, or freebie in exchange for a referral. For example, a customer might share a service to get 10% off on their next booking. 
  • Reviews: When customers leave a review online for your business, this is also a type of referral in itself. Today, 93% of customers read online reviews before making a purchase. 

All of these work together to encourage users to advocate for your brand. If you’re delivering an outstanding experience, it speaks for itself. However, referral marketing is all about making it easy (and enticing) for users to refer others, as well as engaging them back into your content. 

How does referral marketing tie into your total marketing strategy?

Next, how does referral marketing fit into your overall marketing strategy? While you shouldn’t abandon other forms of marketing, referral marketing isn’t negotiable any more. With more consumers checking reviews and relying on word of mouth than ever before, you can’t overlook this strategy. 

Luckily, referral marketing is something you can build into existing systems. Having a program that encourages users to leave reviews, share feedback, and refer others is a great first step. Aside from this, focusing on the big picture customer experience always pays off in the form of natural referrals. 

You’ve likely experienced referral marketing in your own life. If you’re looking for a real estate agent, for example, you’re most likely going to go with one who was referred to you by someone you know. Because you trust the person who referred the agent, this trust is extended to the professional as well. You can leverage this concept for your business with referral marketing. 

How does referral marketing pay off?

With that in mind, how exactly does referral marketing pay off? As mentioned earlier, referral marketing is highly effective. From greater engagement to less churn, it’s no small accomplishment. Here’s how referral marketing pays off. 

Greater Customer Engagement

First, when you have a business that encourages referrals, you also encourage customer engagement. If you make it easy to refer customers, your existing customers will continue to return to your website to check in with offerings and rewards. 

In addition, when you focus on referrals, this drums up engagement online. From social media to word-of-mouth, you always want people engaging with your online and in-person presence. 

Greater Customer Retention

Next, keeping your existing customers coming back is so important. Too many businesses focus on earning new customers, but this isn’t always the best strategy. Your existing customers deserve just as much attention, especially considering that they are likely to spend more. In fact, increasing customer spending by just 5% can raise profits by 25% or more. 

Finding new customers is more expensive than retaining the ones you have. When your systems encourage customers to stay and refer others, you avoid unnecessary churn. 

Less Time & Resources Expended On Outbound Sales

Additionally, when you have your existing customers referring their own circles, this means you don’t have to spend as much on sales yourself. That’s right, you can increase your marketing outreach through your own advocates. 

You might not have access to huge platforms, but referral marketing knows no bounds. For example, one customer could share their love of a product to everyone in their circle, creating a ripple effect. All of this effort costs you nothing, saving your resources and time. 

Consistently Positive Brand Recognition

Finally, your prospects aren’t likely to buy from you the first time they hear your brand name. According to the marketing rule of 7, your brand needs to interact with a prospect 7 times before a purchase takes place. Through referral marketing, your potential customers get to know you in a new way. 

Through interactions online and in-person that come up naturally, your positive reputation spreads. When your customers tell their own story in their own words, it carries a lot of weight. Not only do these resonate strongly with future customers, but they add to your positive brand recognition. 

How do you build a referral marketing strategy? 

With all of that in mind, how do you build a referral marketing strategy that works for your brand? There’s no one-size-all solution, but there are a few things that are always important. These foundational elements are at the heart of every successful referral marketing strategy. 

Always Provide Exceptional Service

Firstly, always provide exceptional customer service. With 96% of customers saying service is the most important factor in their choice to stay loyal to a brand, you can’t ignore service. It’s not good enough to provide okay service. You need to shine in every interaction, reducing tension along the customer journey. 

One real-world brand that shines at customer service? Just look at the fast-food chain Chick-fil-a. Ranked as the top fast-food chain for service for years, Chick-fil-a is truly known as a service expert. 

How do they continue to stand out? Through little things like always saying ‘please,’ as well as hiring top candidates and investing in training, Chick-fil-a continues to dominate fast food. When you visit a Chick-fil-a, you feel appreciated and important. This dedication to service leads to endless referrals. 

Create Industry-Specific Content

Aside from outstanding service, create content that adds value to your industry. When you have high-value, meaningful content, it speaks for itself. Better yet, it’s naturally sharable, lending to greater buzz around your business. If your brand isn’t innovating, creating, or sharing, how do you expect to stand out?

The real truth is that referral marketing is earned. It’s achieved through viral content, industry research, and up-and-coming innovation. By creating industry-specific content that stands out, a buzz comes naturally. 

To see an example of a company that knows how to tap into viral content, look at the bidet retailer Tushy. Though you might think a toilet-related product isn’t easy to sell, Tushy proves that the opposite is true. Launched in 2015, Tushy taps into hilarious, eye-catching content on social media to get powerful reactions. With over 50k followers on Facebook alone, it’s clear to see that customers love their cheeky content. 

Collaborate With Industry Influencers & Experts

Additionally, you need to leverage the right tools to make sure your content is seen. If you post and ghost, you can’t expect your blog posts, social media posts, and updates to even be noticed. When possible, leverage influencers and experts in your industry. 

An influencer is someone in your niche who has an engaged audience. This doesn’t have to be a big-name celebrity. In fact, micro-influencers are often more trustworthy. Similarly, experts in your field build trust. When you collaborate with influencers and experts, you create social proof. 

The meal kit service HelloFresh knows the power of collaboration. They partner with cooking experts, chefs, and bloggers to spread awareness about their service. Considering that 8 out of 10 consumers purchased something after seeing an influencer recommend it, don’t underestimate the effectiveness of social proof. Not only does HelloFresh use influencers and experts to create buzz, but they also build trust. 

Offer Customers A Referral Program

Lastly, the best way to skyrocket your referrals is through a strategic referral program. A referral program is when you offer an incentive for current customers to refer you to someone else. This can be in the form of a discount code, free credit, or another special offer. 

For example, you might offer current customers 20% off if they refer someone they know. To entice the new customer to sign up, they might get 20% off as well. This is a common referral program example, and it really works. By promoting your referral program, you encourage current users to keep checking in with your brand, share, and engage long-term.

The up-and-coming fashion rental company Nuuly uses a referral program to compete with other big-name competitors. When current customers refer someone through their unique link or code, both the existing and new customers get $10 off their next order. By making it easy (and worthwhile) to recommend their service, they spread excitement. 

Unlock Your Referral Marketing Potential

In conclusion, work smarter not harder when it comes to getting more business. In a perfect world, all of your existing customers would refer new ones. While this is far-fetched, you can take action to encourage your customers to become brand evangelists. The better your customer experience, the more likely you’ll build real awareness and excitement around your brand. 

It’s all about turning passive users into superfans. The more engaged (and motivated) your users are, the easier it will be to attract new prospects. Instead of waiting for customers to come to you or investing in outbound sales, try the ideas above to create a winning referral marketing strategy.

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