Social media has made many of us habitual referral sources just by sharing a recent buying experience. Most businesses however, prefer a more direct referral. So many companies develop a referral marketing strategy. An effective referral strategy can reduce overall customer acquisition costs, shorten the sales cycle and be an excellent lead generator for future programs.

By understanding your customer’s story, their social shares, reviews and referrals you can develop a relationship that is mutually-beneficial.

Referral Marketing Strategy Includes Word of Mouth

We’ve discussed “word of mouth” marketing here before and that is what much of our social media sharing is, a spontaneous endorsement (or not) of goods or services we’ve experienced.

Companies develop their referral marketing plans to specifically target the promotion of new products or services to new customers through

Referral programs rely on Word of Mouth marketing

Word of mouth is an important component of a referral program

direct referrals. They recognize that people are more likely to buy a product or service they’ve never tried if someone they know and trust tells them it’s a good idea.

One of the most common referral marketing strategies is to compensate loyal customers for their referrals. Compensation is defined in many ways including: monetary, reward points, free gift, gift cards, upgrade or a discount.

This reward for a referral is a way of getting customers more invested in your company and more engaged with your products or services. In the long-run this should strengthen their loyalty to your company and ultimately result in increased referrals.

I would be willing to say that everyone has given a referral at some point in time, either compensated or not. I happen to love my hair dresser (for ladies it’s a very personal experience) and I am constantly referring others to him. Why?  He does a great job and is reasonable and I want him to stay in business!

And that’s all well and good, but most companies don’t want to have the referral be left up to chance. They want to encourage you to tell people often about their products or services and will thank you with a gift. And it works.

Dual-Sided Reward Referral Program

How many people use Uber today? Often? Do you still find people that don’t? I do. I’ve introduced a number of people to Uber. And you know what? Each time a new customer signs up with my personalized referral code I get a free trip and so do they!

Dual Sided referral programs "gives" something to both sides

Everyone wins in a Dual-sided Referral programs

This dual-sided reward strategy (you get something and the person you referred gets something) enhances the experience for both. And an added bonus is you (the referrer) know that they are getting more than an annoying email or two.  It keeps me thinking about them and it encourages those that have just signed up to use the service risk free.  Everyone wins!

Refer a Friend!

Who hasn’t been asked that? Many companies have the sign up a friend program primarily because it works. It’s simple. Many companies provide an incentive for the referral in the form of a discount on the next purchase, ensuring continued customer interaction.

Donate to Charity for Every Referral (Social Giving)

Some companies are big advocates for specific charities. They consistently are giving back in their time, merchandise and monetarily. In those situations it does make sense to provide a donation to the charity for every referral given. However, this only works if you are actively involved and continue that involvement after the “referral campaign” ends. Otherwise it could back-fire as an insincere “stunt” at the cause’s expense.

This is also a great way to get your customers not only invested in your company but also the charity you are supporting.

Best Rewards are those that Money Can’t Buy

A shared experience can be a great way to build customer loyalty and referrals

An experiential reward for many referrals can build long-last loyalty

Who doesn’t like to be invited to a VIP party, reception or event? Inviting your top referral customers to a truly private event makes them feel valued and encourages them to refer again and again. Think about inviting them to a local sporting event with VIP treatment (limo ride to event/free parking and hospitality suite experience). For example, a major car manufacturer invited their top customers (referrers or not) to a weekend experience in the mountains, all expenses paid. As part of the experience they sponsored a road rally and all the participants got to try out the new luxury cars on a course through the countryside. What a great way to get your customers engaged and talking about your brand, long after the experience ended?

Referral Contest

If you have loyal customers that refer regularly and you really want to boost your database, a contest for volume of referrals can work. This tactic is best used in more online/retail environments where each can purchase without any additional qualifying by a sales staff. The concept is offering a “big” prize for whomever signs up the most – similar to sign up a friend. They can get a discount on their first order and you get a discount once they sign-up as well. There is a prize for 2nd and 3rd place or more if you want(many times to be used on future purchases). This can be especially effective if you are introducing a new product.

Special Event or Seasonal Campaigns

Tie your referral program to major events

Tying your referral “ask” to an event or holiday can bring more attention to your program

It’s Valentine’s Day so it’s time to share the love with a friend and invite them to try a new product and get a free gift, reward or discount. Or it could be an event. I am sure you’ve seen how many companies jump on the Super Bowl bandwagon. When you share our product with your friends during the Super Bowl you can give them $10 off their first month and you get a $15 account credit for yourself!

Those are just some of the ways you can increase your referrals and keep your customers engaged to increase your overall customer base.

Track Your Referrals

But, with all your hard work putting together a great referral program don’t forget about keeping track of it all as well. What incentives work best? Who are your top referrals (demographics)? How often do they refer? How are your following up? Determine all the data points you need for your program to be successful and then develop your data collection and tracking process.

Think of your referral program as being similar to your frequent buyers program – people love working their way up the “loyalty” ladder. That’s why you see so many programs geared to having you stay loyal to a particular brand – you get perks!

Your referral program will do the same things, keep your customers engaged and thanked for their referral loyalty.

Danette Gossett

Danette brings more than 30 years of experience developing advertising campaigns, direct marketing programs and sales promotions to her clients. Prior to starting her companies, she worked for New York advertising agencies including Saatchi & Saatchi & Lowe Marschalk.

Her corporate marketing experience included National Advertising Director for Avis Rent a Car Systems, Inc., and Director of Marketing Services for Royal Caribbean Cruise Line. Read More