
Companies use traditional advertising to present their product or service. For a fee, companies place advertisements on TV, the Internet, radio, or print media. This advertising is of course not kept neutral because companies only emphasize the advantages of their services in their own interest. The so-called Referral marketing, on the other hand, is based on authentic reviews from real customers. We explain to you what constitutes successful recommendation marketing and how you can use it for your own campaigns.
What is referral marketing?
By definition, satisfied existing customers with recommendations contribute to the acquisition of new customers in recommendation marketing. But what does that mean in concrete terms?
Specifically, this marketing principle is about the fact that customers become brand advocates if they are satisfied with the product or service. Such customers make recommendations for your company or for a special product via a wide variety of channels - for example in a personal conversation with friends or family, as an evaluation in your online shop, or on social media platforms. If you want to use recommendation marketing successfully, the most important task is to motivate customers to pass on recommendations over the long term. The following applies The larger your existing number of customers, the faster you will achieve an increase in sales with this method.
The primary goal of referral marketing is to generate conversions or leads and thus of course to increase sales. But with this marketing method, you also strengthen branding and trust in your brand. The recommendation by real customers convinces with credibility and authenticity. For this reason, recommendation marketing is in many cases more effective than classic advertising, although it causes comparatively low costs.
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Alternative names for referral marketing are referral marketing, multi-level marketing, or network marketing.
How does Referral marketing work?
In referral marketing, customers become advertising partners, so to speak. The basis for this is satisfied existing customers whose wishes and expectations have been met. In order to achieve this, regular analysis of your customer base as well as market research is of great importance. It is only through such analyzes that you get to know your customers and their needs better and have the opportunity to adapt your offer accordingly.
In the second step, customers are motivated to tell interested parties about their positive experiences. A good tool for achieving this is the reward: for example in the form of discounts or freebies. If a customer gives a recommendation, this, in turn, strengthens their own bond with the company.
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Personal recommendations to friends or acquaintances have the greatest influence on customer loyalty.
Customers make recommendations primarily in person or online to others. Via rating platforms or with a comment function in the online shop or social media presence, companies actively offer their customers the option of public ratings. As a positive side effect, this gives companies better control and an overview of customer feedback.
As with classic advertising measures, measuring the success of campaigns is an important tool in referral marketing. With online shops, for example, the following procedure enables success to be measured: First, ask all existing customers whether they would recommend your product or service to others. Ask new customers how they found out about the company. You use this data to calculate the recommendation rate as a business key figure.
What is the difference between referral marketing and word of mouth?
The terms “recommendation marketing” and “word of mouth” are often used synonymously. However, the exact definitions show that there are differences: In referral marketing, the focus is on passing on explicit recommendations and evaluations. Satisfied customers represent the added value of the product and report on their personal experience with it. Word of mouth, on the other hand, is by definition more general and refers to the pure dissemination of information. For example, if a consumer report about a newly opened shop in the shopping street, this should not be seen as a recommendation, but a typical case of word of mouth.
The three pillars of recommendation marketing
A clear corporate identity is one of the foundations of successful recommendation marketing. For the structure and the implementation, three factors are decisive, which are closely related and form the three-pillar model of recommendation marketing.
Pillar 1: Existing customers and their satisfaction
Pillar 2: The company's employees
Pillar 3: communication and network
Advantages and disadvantages of referral marketing
- Credibility: The experience of real, satisfied customers leaves a credible and authentic impression.
- Faster purchase decision: Through personal recommendations, potential customers are more quickly convinced of a product or service and tend to have fewer objections and ask less critical questions.
- Brand building and trust: The main purpose of referral marketing is a high conversion rate (e.g. completing a purchase, downloading, or signing up for the newsletter). With this form of marketing, companies also strengthen customer confidence in their own brand.
- Increasing sales of existing customers: If customers pass on a recommendation, their loyalty to the company increases. This also increases the number of existing customers and the associated regular sales.
- Existing customers as a prerequisite: The principle of recommendation marketing requires that existing customers share their experiences with others. This makes it difficult to get started with this form of marketing, especially for young companies with a small number of customers.
- Criticism and dissatisfaction as an obstacle: dissatisfied customers are difficult to avoid. If you ask every buyer to give a rating, critical voices may also be represented.
- Public ratings: Public platforms such as Google reviews or ratings at Trusted Shops also enable deliberate abuse -whether through competing companies or individual dissatisfied customers.
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