Let’s play a game of “Who Do You Trust?” Those paid results at the top of the SERP, or your sister? That banner on YouTube, or your best friend from college?
Okay, this is an easy game. We all trust our family, friends, and even strangers more than we trust advertisements and brands. We’re influenced by recommendations, reviews, testimonials, social chatter, and, most importantly, referrals.
Using referral marketing will help you stand out from your industry competition—as long as you do it effectively. Here’s everything you need to know to get started, including referral marketing ideas from companies that have already used this tactic to improve their businesses.
What is referral marketing?
Referral marketing is a marketing tactic that makes use of recommendations and word of mouth to grow a business’s customer base through the networks of its existing customers. Referral marketing can take many forms, but at its heart, it’s a way to get your biggest fans to help spread the word about your brand. In other words, referral marketing turns your current customers into brand advocates.
Why does referral marketing work?
Before we get into how to create your referral marketing strategy, let’s talk about why you need to. How much of a difference do referrals make? Consider this:
- A word-of-mouth impression drives at least 5x more sales than a paid impression.
- Customers acquired through word-of-mouth spend 2x more and make 2x as many referrals themselves.
- Referred leads convert 30% better and have a 16% higher lifetime value than leads acquired via other channels.
- Half of Americans would pick word-of-mouth if they could only select one source for information on potential purchases.
Word-of-mouth and referral marketing are cost-effective, powerful, and trusted. When we have a good experience with a brand, product, or service, we’re happy to—and frequently do—share it with others.
In his bestseller Contagious, marketing professor and author Jonah Berger identified six principles of sharing and word-of-mouth:
- Social currency: We share what makes us look good.
- Triggers: We share what’s at the top of our minds.
- Emotion: We share what we care about.
- Public: We imitate what we see people around us are doing.
- Practical value: We share things that have value to others.
- Stories: We share stories, not information.
Hit as many of them as possible, and you’ve got an idea, product, or announcement that people will want to talk about and share with others—which will help you stand out from your competition.
Using referral marketing for competitive advantage
The numbers don’t lie: Recommendations and referrals are not only useful, but crucial if you want to stand out from the crowd. Consumers actively go looking for them, and they can be the key differentiator between two otherwise similar products or brands.
The digital revolution has made launching and running a business easier than ever before, but that comes with a price: increased and fierce competition.
Referrals turn your satisfied customers into very convincing cheerleaders. They’ve paid good money for your product, and if they’re happy with it and the return-on-investment they’re getting from it, that’s a powerful selling point to others.
Ask for and incentivize referrals with a convenient and largely automatic program, and you’ve got a self-perpetuating lead machine. It’s a spotlight on you and your brand in a sea of sameness.
Referral Marketing Strategy #1. Girlfriend Collective launches into a crowded market
Fashion is a crowded market. Women’s fashion is an especially crowded field. You need to stand out immediately if you want to make it.
Girlfriend Collective is an athleisure wear ecommerce company, and it needed to do something that would make them stand out from the crowd. The company needed to gain traction fast and compete with big names like Lululemon, Adidas, and Nike.
To do so, the company started by creating an awesome product: Their leggings and bodysuits are made entirely from recycled plastic drinking bottles under fair-trade.
Next, Girlfriend Collective needed to get its name out to as many people possible at minimal cost. The company didn’t want to spend money on traditional marketing as their competitors had done. So it decided to spend their marketing budget by giving away their $80-leggings for free.
As co-founder Elle Dinh put it:
“It’s kind of scary to purchase a $100 pair of leggings from a brand you’ve never heard of. We wanted people to trust us, and by giving people the product, we knew they would trust us—that’s how much we believed in what we’re doing.”
Both Ellie and her husband/co-founder Quang Dinh were confident that anyone who tried on their leggings would love them. And for a similar cost of acquiring a customer through traditional means, this strategy removed the barrier of paying for an unknown brand.
From their pre-launch website, customers were educated on Girlfriend’s use of plastic bottles in their leggings and their commitment to fair trade. This told customers that not only were they getting a free pair of leggings, but the leggings were also environmentally-friendly so they were supporting a good cause.
This appeals to Jonah Berger’s emotion principle that we want to share things we feel strongly towards. People who saw this would tell all their friends about the pair of leggings they could get for free that also supported environmental and social causes. This created a win-win situation that ultimately made this story extremely compelling to share.
This offer was only valid for a few months, which added an extra push for customers to get it and share with their friends as fast as possible. People often attach more value to things that are in short supply, which is why scarcity marketing tactics like this work.
In this case, it worked amazingly well. Girlfriend’s word-of-mouth marketing strategy resulted in 10,000 orders within the first day. The sheer traffic even crashed their website, and the sharing feature on Facebook! It also garnered a lot of online coverage from websites like Refinery29, Observer and InStyle.
Today, Girlfriend Collective has a substantial social media following of 187k from Instagram and 66k from Facebook. Thanks to their word-of-mouth referral strategy, the ecommerce company was able to gain a huge customer base and following within such a short period of time. And at an arguably lower price that it would have cost to use an advertising agency.
Referral Marketing Strategy #2. Critical Pass scales with referral program
The exam preparation industry is a big market. From physical aids like flashcards to online study tools from big names like Kaplan, students are spoilt for choice.
Critical Pass sells flashcards for law school and the multistate bar examination. It’s a battle-tested method to study and learn, a quality product, and provided at an affordable price.
The company needed a way to convince students that their solution was the best one for them. But it had a couple of issues to solve.
First, the product’s effectiveness would not result in any repeat sales. Secondly, due to individual variances in studying capacity, there was no tangible guarantee of how many marks students would obtain from using their study cards.
Initially, the company used a variety of marketing channels to various degrees of success. But eventually the team realized that the key to encouraging students to try their flashcards lay in their existing satisfied customers.
According to Nathan Kleiner, CEO at Critical Pass, “Our goal is to make sure we only have customers once. They use us. We help them pass. Then they never have to buy from us again. They’re so happy with us that they refer their friends.”
The bar examination is extremely difficult and law students tend to search social media, online forums, and community pages for tools that can help them pass. This creates an organic community based on the practical principle in Jonah Berger’s STEPPS where successful students would share the tools and tricks that had worked for them.
Critical Pass recognized since its happy customers were likely to tell their peers and juniors what tools worked for them, a referral program to reward those who shared could work. This program would incentivize—and, as a result, encourage—the sharing process.
Using a personalized link, customers receive $10 for every referral that ends up purchasing a flashcard set. New customers get a 10% discount. Due to the long preparation duration and stressful nature of the exam, many law students usually get by on a part-time job or student loans. These monetary incentives are helpful for them, so they worked.
The referral program was a huge hit, delivering a 24x return-on-investment, and accounts for over 10% of revenue and orders. Not bad for a system that essentially runs itself.
Referral Marketing Strategy #3. Hawkers recruits every customer as an influencer
The founders of Hawkers an ecommerce company selling sunglasses worldwide, started off as distributors of a popular sunglasses brand Knockaround in their home country, Spain.
The founders helped Knockaround achieve success by giving away sunglasses to friends on Facebook who had large amounts of friends on the social media platform in return for featuring the sunglasses in their posts.
But they didn’t feel satisfied being distributors and wanted a brand they could call their own. And so Hawkers Co. was born.
This company used the same micro-influencer social media marketing strategy that had worked so well for a similar product previously. The founders started off with Facebook Ads and micro-influencers, giving free sunglasses to those with a large social media following. They then extended it to Instagram, and it was so effective the social media platform actually featured them as a successful advertising case study.
Besides providing customers with free sunglasses alone, Hawkers eventually created a referral program that benefited the influencers, their followers, and of course, the company itself.
This gave customers another big reason to show off cool photos of themselves wearing Hawkers’ products. Now they could gain social currency as well as give their friends a good deal.
Sharing personalized promo codes, every customer was now an influencer, and could receive a commission for every sale, while referees received a discount for their purchase.
The referral program amplified the social sharing phenomenon their word-of-mouth strategy had created, allowing roughly 90% of revenue to come from social media. The company also currently exceeds $70 million USD in sales every year.
Thanks to brands like Hawkers Co., the eyewear industry that used to rely heavily on celebrity endorsements has now been revolutionized. Now anyone can become an influencer for their peers through social media and spread the word through referral marketing.
With the right tools and messaging, referral marketing can be an extremely powerful and cost-effective marketing tool for your business.
Here are some things to take note of before you can make it work:
- Make sure your brand message is easy to understand and repeat.
- Build a community around your brand. It’s more than a product and a logo. It’s what it stands for and represents. If your customers identify with those values, they will share your story with others, with or without an incentivized referral program.
- Your customers are your best salespeople. They can “sell” to their friends and family without sounding salesy. And their friends are more likely to go with a recommendation from a friend than some celebrity on a TV screen.
- Make referrals easy. It should be simple for your customer to share your brand with referral rewards that match their purchasing behavior—do that and you’ll have an army of loyal cheerleaders working on your behalf.
How are you leveraging referral marketing for your story and brand? Share an example by leaving a comment below!