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Let’s imagine for a second that you are on the hunt for a new pair of running shoes. You need something sturdy, long-lasting, and that gives you a little kick in your step. You share this with one of your peers, and they proceed to tell you that they just tried out a new pair from Brand X, and they absolutely love them.
How likely are you to say “Perfect! That’s exactly what I’m looking for. I’ll try them out.” Probably very likely.
That’s what referral marketing is — word of mouth.
Humans have been doing it since forever! A referral program comes with many benefits. It’s one of the best ways to generate sales for your e-commerce business due to its low costs and high quality leads.
In the words of tech titan Mark Zuckerberg “People influence people. Nothing influences people more than a recommendation from a trusted friend.”
In this article, we’re going to uncover the many benefits of referral programs for e-commerce business owners like you.
What is referral marketing?
Known as word-of-mouth or people marketing, referrals transform people’s trust into purchasing power.
When you read a positive review, or one of your friends and family raves about a brand, you are much more likely to try it.
The store you once used to walk by and not notice suddenly becomes worth exploring because your friend mentioned it to you once. How’s that for business through referrals!
In the world of e-commerce, referrals provide you with the opportunity to capitalize on this psychology with tech. It helps you engage and incentivize customers, grow your customer base, and create brand loyalty.
Word-of-mouth is no longer an intimate, one-on-one conversation. The digital revolution has expanded and sped its reach, making referral programs an opportunity where tech can help you bolster customer growth.
With referral marketing programs, you can effectively drive business by incentivizing your existing customer base to recommend your business to their friends and family.
Further reading: Referral Marketing vs Affiliate Marketing: Here’s What You Need to Know
Maybe that means setting up rewards like coupons and discounts when a referral is made, or creating promo codes that customers can share with their network.
Maybe it means creating discounts for first-time purchases, or handing out points that referred customers can use as discounts later.
You want the referred party to not only use your product or service instantly but also tell their network about you, so you can keep the referral cycle going.
For a referral marketing program to be successful, your customers must always be aware of their existence.
Read: Referral Marketing Best Practices: Everything You Need to Know
Set up push messages or send out emails to remind them. Or remind them by adding a note and link to your referrals page in the footer of your emails.
Benefits of referral programs: Statistics
According to a 2022 report from ThinkImpact, 83% of customers are open to referring a business after conducting a successful purchase. What’s more, 78% of referrals create viable customer leads for the business.
That’s part of why referral marketing is crucial, it has the potential to create higher quality leads.
Unfortunately, it’s also one of the least utilized tools. Just three in every 10 businesses have a formalized referral program.
This doesn’t only apply to customers sharing their experiences with their network. Nearly 80% of millennials do not purchase a product or service without reading the reviews about it. (ThinkImpact)
Another 28% of millennials say they won’t purchase a product or service if their peers do not give it their stamp of approval.
This all shows the impact of social proof and the benefits of referrals on your marketing and sales.
Technology influences the decision making of both customers and businesses alike.
Nearly 81% of purchasing decisions in the United States are influenced by the posts made by friends and family on social media. Moreover, 58% of customers don’t mind talking about their positive experiences with a brand on social media— that doesn’t even include leaving positive customer reviews. (ThinkImpact)
It's important to think of referral marketing as a strategy. It's not a one-and-done thing. To ensure your referral program is 'reaping its rewards,' you should be reviewing your referral marketing metrics and working on increasing your referral program conversion rate.
Benefits of referral programs
There are many benefits businesses can get from referral marketing programs that they can’t get elsewhere. It all comes down to the same pillar that makes referral programs so unique: the trust variable.
Offline word-of-mouth marketing drives at least five times more sales than paid advertising, reports the Word of Mouth Marketing Association (WOMMA).
1. Referred customers are more valuable
When a consumer trusts a brand, they become more loyal to it. Once that relationship is established, they are much more likely to share their experience with their network.
When customers feel that they have not been let down by a brand time and time again, and feel as though they are a part of your brand, it encourages an organic word of mouth referral.
When it comes to products, Gen Z statistics are clear: 82% of this generation trust their friends and family most when it comes to advice on products. (Pew Research Center)
Now imagine how powerful incentives, like discounts, can be used to encourage your customers to recommend your brand to others.
Furthermore, when compared to clients obtained through traditional marketing approaches, customers acquired by word-of-mouth have a two-fold higher lifetime value.
2. Referral programs are cost effective
Referral marketing programs require little investment and get great results, making them ideal for new and small businesses.
They’re a risk-free add-on for businesses with larger marketing budgets.
Sure, you can run Facebook ads and email campaigns, but they aren't always successful.
Running a referral program, on the other hand, is a low-cost brand-building and loyalty strategy that helps you attract more customers.
Referral leads have a 30% greater conversion rate and contribute 65% of new deals or sales, according to Review42.
Further reading: What Is the Referral Program Conversion Rate?
3. Referral programs show customer recognition
Customers who like your products and services and take the time to recommend you to their friends and family should be rewarded. Rewarding customers means you recognize and appreciate them. It also strengthens their loyalty to your business.
Rewards not only strengthen your customers’ loyalty to your business, but also encourage them to spread the word about your services. When your customer feels seen and appreciated, they are all the more likely to continue purchasing from you.
Ideally, what you want to do is emphasize what your customers get in exchange for recommending your business and referring you. In other words, you want to make sure they feel adequately rewarded.
4. Referral programs can be a source of user-generated content
A referral program encourages fans to act as your brand ambassadors, telling others about your business.
These customers become more like influencers and may feel compelled to promote your brand on YouTube and Instagram to earn referral bonuses.
This means that your brand gets to enjoy the many benefits of user-generated content, all of which is free marketing for you.
Even better if these fans or influencers have a large following, you’ll be able to capitalize on this, which means more exposure and conversions for your business.
5. Benefits of referral programs: An opportunity during times of recession
The impacts of the pandemic aren’t far off. But many brands were able to mitigate crises and grow their customer bases using referral programs.
While marketing strategies needed overhauling, asking current customers to refer you doesn’t require much work on your part. Especially if you’re a small business.
Since many small businesses struggled when the pandemic hit in 2020, there were many national calls for customers to support local small businesses. Referrals were an opportunity and helped many small businesses acquire a new stream of customers and sales.
6. Referrals are a great source of high quality leads
One of the main benefits of referral programs is the quality of leads.
It’s one thing to get a hundred new customers who just sign up to your store but never return, but it’s an entirely different story if you get 20 or 30 high-quality leads who sign up and complete a purchase.
Referral programs help e-commerce businesses with just that: high quality leads. It’s because of their friends’ high praise of your business that these leads are here in the first place.
Frequently Asked Questions (FAQ) about Referral Programs
- What are referral programs and how do they work?
Answer: Referral programs harness people's trust to drive purchasing power. When customers refer a business to friends or family, it transforms trust into sales. Referral programs incentivize existing customers to recommend a business, fostering engagement, growing the customer base, and creating brand loyalty.
2. Why are referral programs beneficial for e-commerce businesses?
Answer: Referral programs are highly cost-effective and leverage the trust variable. Referred customers are more valuable, with higher loyalty and lifetime value. These programs require minimal investment, contribute to customer recognition, generate user-generated content, and serve as a source of high-quality leads.
3. How does technology impact the effectiveness of referral programs?
Answer: Technology amplifies the impact of referrals by expanding its reach. Social media plays a significant role, influencing 81% of purchasing decisions in the United States. Referral programs, when combined with technology, allow businesses to incentivize customers through rewards like coupons, discounts, promo codes, and points.
4. What are some key statistics related to the success of referral programs?
Answer: According to a 2022 report, 83% of customers are open to referring a business after a successful purchase, and 78% of referrals create viable customer leads. Despite these statistics, only three in ten businesses have a formalized referral program. Additionally, social proof significantly impacts purchasing decisions, with nearly 80% of millennials relying on reviews and peer approval.
5. How can businesses maximize the effectiveness of their referral programs?
Answer: To ensure the success of a referral program, businesses should continually remind customers of its existence through push messages, emails, or links in email footers. Monitoring referral program metrics and increasing the conversion rate is essential for sustained success.
6. How does referral marketing contribute to business growth during challenging times?
Answer: Referral programs offer an opportunity for growth during challenging times, such as economic downturns or crises like the pandemic. Small businesses in particular can benefit from referrals, as customers supporting local businesses can help acquire new customers and sales.
7. How can businesses create and manage a successful referral program?
Answer: Businesses can create and manage a successful referral program using tools like Gameball. Gameball allows customization of referral programs, addition of incentives, and tracking of referrals. The platform serves as a referral marketing automation tool, aiding in attracting and retaining customers.
8. What benefits do customers receive from participating in referral programs?
Answer: Customers who participate in referral programs often receive rewards such as discounts, coupons, or points. Recognizing and appreciating customers through rewards not only strengthens their loyalty to the business but also encourages them to share positive experiences with their network.
9. How do referral programs compare to other marketing strategies in terms of cost-effectiveness?
Answer: Referral programs are cost-effective and deliver great results, making them ideal for businesses with limited marketing budgets. Referral leads boast a 30% greater conversion rate and contribute to 65% of new deals or sales.
Create you referral marketing program with Gameball
Remember how we said that recommendations are fantastic for loyalty programs?
Gameball is a great way to do that. You can try it for free here.
With Gameball, you can easily customize your referral program, add incentives, and track referrals. You can customize specific discounts and incentives for loyal customers who have referred your business to people in their network.
Gameball acts as your referral marketing automation tool, helping you attract and retain customers faster.
If you’re on Shopify, you can install Gameball directly into your store. Or you can book a demo with the Gameball team for further assistance.
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