At Kinfolk, we regularly feature articles from people around the world whose perspectives we believe are important and valuable. Our aim is to help demystify the process of building enduring technology businesses for African founders and leaders.
In this article, Alexa Collins discusses the importance of creating a referral marketing strategy and the steps startups can take to create it.
People trust the opinions of other people and the recommendations of online influencers, which they respect way more than a paid ad that pops up while scrolling on the web. According to a report by Nielsen, “88% of global respondents trust recommendations from people they know more than any other channel.” As a result, referral marketing, also known as word-of-mouth marketing, is a powerful marketing channel—especially for growing eCommerce brands. It is a promotional strategy that encourages current customers to refer new customers, usually with an incentive.
Benefits of Referral Marketing
A referral marketing program raises brand awareness and can be a central pillar of your marketing efforts. Because it relies on word of mouth rather than paid tactics, it helps lower your acquisition costs, attract people with a high intent to purchase, and start your relationship with new customers at a higher level of trust.
Lower acquisition costs and raise lifetime value: Customer acquisition is attracting new customers to your business. Customer acquisition cost is how much you spend to bring those people on. In the past five years, the amount that companies have to pay to acquire customers has risen by about 60%.
Many businesses rely heavily on paid ads to bring in new interest, but this channel is quickly becoming less effective and too expensive because of privacy changes and declining returns on ad spending.
A successful referral program can help lower acquisition costs and increase the value someone brings during their lifetime as a customer. Fifty-four percent of B2B marketers noted that acquiring customers through a referral was more cost-effective than other channels. They’re also likely to have a 16% higher lifetime value.
Attract high-intent people: The referral process brings in potential customers with a high intent to purchase. According to research, these customers are four times more likely to convert.
Think about it this way: A person tries out a new brand they’re interested in. Maybe they’ve heard about it on social media, seen it in an email newsletter, or read it in a blog post. They decide to take a chance on it and make their first order. They become a happy customer and have a great experience.
They see that the business offers a refer-a-friend program, where they can earn rewards for every new customer they refer. They think about their friend, who has been looking for a product like this for a while, and send their referral link over. Their friend, who trusts them, makes a purchase.
This is a common trope for most referral marketing: the person who makes the first purchase likely has a friend who would enjoy or benefit from the same product. So instead of relying on a paid ad to do the work, the business can depend on its own customer base.
Build a higher level of trust between business and customer: When you serve someone a paid ad, write a blog post, or send a direct-mail campaign, your trust barometer with a potential customer is essentially at zero. But when you can reach your target audience through a person they trust, that trust trickles over to your business.
How To Create A Referral Marketing Strategy
Here’s how referral marketing works. Existing customers love your products and find a refer-a-friend program on your website or through your marketing. The referral system you use generates a unique referral link for them. They send that link to a friend who’d love your products. The friend makes a purchase, and you or both earn referral rewards. That can be anything, like a coupon for $10 off their next order, a free sample, or a cozy pair of branded socks.
Usually, that results in satisfied customers on both ends. These programs actually build customer loyalty for your existing customers because they give them an incentive to shout from the rooftops about your brand (even if they were already going to do it anyway). It can also lead to repeat purchases. Let’s unpack how to create a program that your customers and prospects will love.
Decide what referral incentives you’ll offer: Set a customer acquisition budget and construct your referral incentive accordingly. Then decide if you’ll reward the new and current customers for the referral. For example, the underwear business MeUndies offers a 20% off, get $20 incentive to people who refer a friend. The friend receives 20% off their first order, and the existing customer gets $20 once their friend makes a purchase.
Rather than a percentage discount, this could also be a free gift with purchase. Those on a tighter budget may offer the reward only to the person making the referral, which can help lower costs.
Choose your referral marketing software: To keep track of potential customers who come in as referrals (and to reward your loyal customers who refer them), you’ll need a tool to track referrals and issue rewards. If you run your business on Shopify, these referral marketing tools are all available within the Shopify app store
Referral Candy
Referral Candy tracks referrals and sends rewards to your customers, and it integrates with several marketing apps, like Klaviyo and Mailchimp. It’s got over 1,500 reviews and currently holds a five-star rating on Shopify’s app store.
Cost: There’s a 30-day free trial; it costs $49 per month afterwards.
ReferralYard
What sets ReferralYard apart is that it’s a completely customizable platform. Change the font to match your brand's font and add your brand's colours. It includes everything you need to run a successful referral program with a flat monthly rate that doesn’t charge based on the number of orders or customers.
Cost: There’s a 30-day free trial, and after that, its Growth Plan is $49 a month, which gets you a referral program for unlimited customers and orders, plus insights and reporting.
Provide a best-in-class product experience: Great branding, a fantastic unboxing experience, solid customer support, and of course, an excellent product are what come together to create a great customer experience. And that’s what’s going to leave a lasting effect and inspire people to rave about your business to their friends.
A solid, repeatable customer experience also drives retention. If people know they’ll have a good experience shopping with you, they’ll be more likely to do it again and again.
Fewer Finer, a shop that sells curated vintage and new fine jewellery, offers multiple touch points throughout every customer experience. From monitoring a text line for answering questions to providing customizations for any piece to the dark green boxes with handwritten notes that pieces arrive, the business takes care of people no matter where they are in the customer journey.
Communicate your values: Customer loyalty stems from feeling a connection with a business, whether that’s your mission or values, the quality of your product, the style of customer experience you provide, or all of the above. By communicating your brand values upfront and often, you can build a connection with the customers those values resonate with, building affinity and their likelihood of referring your business elsewhere. For example, the skincare brand Saie communicates its values and standards on its website. It lists its environment-friendly certifications, the incredible ingredients it includes in its products and why, and the elements it won’t ever use.
Advertise the program: Once you establish what you’d like your referral program to be, let your customers know about it. Share information through key marketing channels, like content marketing, email marketing, or social media. You’ll also want to communicate information about the program via an easily accessible landing page on your website. For example, customers can access Saie’s referral landing page in the footer of its website.
Referral marketing campaigns can also help you spread the word. Run a campaign on social media, or send a series of texts and emails letting customers know about the rewards they can earn. Implementing a referral marketing program can be a great way to encourage growth by rewarding your target audience for talking about you. It can be a crucial way to acquire customers for a lower cost and spread the word about your business organically.