Referral Marketing: Trusting People’s Word

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We have heard and witnessed many people suggesting that we use a products or services that they have been using or have earlier used. Who knew that sharing one’s experience or providing feedback on a product or service would be considered marketing? Yes, what you’ve just read is correct. ‘Referral Marketing’ refers to the sharing of product or service reviews, experiences, and recommendations.

What is Referral Marketing?

Referral marketing is a company-sponsored word-of-mouth campaign that encourages loyal clients to refer their friends and family to become new customers. This strategy allows you and your company to reach people that were earlier unreachable, monitor, influence, and measure the message content. Referral marketing is a technique used by a variety of organisations and corporations in a variety of industries to increase and expand their client bases. Referral marketing used to be solely focused on disseminating content through verbal engagement with a small group of people. Referral marketing in today’s world is primarily reliant on social media and the internet, which allows the scope of referrals to expand considerably by reaching a far larger audience.

Referral Marketing Programs / Affiliate Programs

Referral programmes have a number of advantages. Referral clients are typically better matched since the existing customer is familiar with both sides and can assess the benefits to the possible new customer; if the product or service is valuable to the referrer, the prospect is more likely to find it useful as well. This lowers the cost of attracting higher-value clients to the firm or authority. Given the larger emphasis placed on a personal recommendation rather than an advertisement, a referral from a close friend might have consequences for the referrer’s reputation if the product or service is not favourably received. As a result, it is in the referrer’s best interests to recommend a product or service that is both valuable to the potential prospect and something they have used themselves.

If the referrer gets rewarded based on the prospect joining the customer rather than just for the referral, the referrer may not be unbiased. Incentives can create an ulterior purpose on the part of the referrer, leading to a desire to ‘sell’ recommendations in order to get compensated. Regardless of the product or service supplied, this can cause doubt in the recommended consumer and diminish trust in both the existing client and the company. This does not occur with pure WOM because there are no incentives provided by the company to referrers. The vast majority of referral marketing systems will reimburse regardless of the new customer’s lifetime or quality; this creates a moral hazard in favour of opportunists and may jeopardise the validity of the referrals.

According to a referral marketing study, the above disadvantages compare favourably to the benefits of referral marketing. Spread the word and promote your business for almost no cost!