Referral marketing: The best tips for success

 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

The existing customer base forms the basis of recommendation marketing. Only satisfied customers give a recommendation to potential buyers and buyers. Investments in strengthening customer loyalty and satisfaction are therefore of great importance. Professional advice, a wide range of assistance, and a smooth process during the purchase or service characterize the experience of your customers. Even after the service has been completed, companies can influence customer satisfaction, for example with greeting cards, promotional gifts, or discounts.

Pillar 2: The company's employees

Employees represent companies externally. In many cases, they are in direct contact with the customer, whether in person in the store, by phone, email, or via social media channels. As a result, employees shape the customer experience at a company very much. Competent, helpful, and friendly employees leave a positive impression and thus create an important basis for recommendations. Use the possibilities that modern digitalized customer relationship management offers to score points with individual customer service and to optimize the customer experience.

In addition, employees also have the opportunity to make recommendations: If employees convey a positive working atmosphere and stand behind the products and services offered, this is also to be seen as a success factor in recommendation marketing. It is therefore worth investing in your own employees and their satisfaction. Bonuses, company outings, events, a transparent corporate culture, open corporate communication, and respectful interaction are just some of the many ways to motivate employees.

Pillar 3: communication and network

Companies come into contact with customers in a number of ways - face-to-face, in writing, and orally. Positive and customer-oriented communication forms the third pillar of a successful recommendation marketing strategy. In most cases, employees take over the communication with customers. Investing in the communication skills of your employees therefore automatically improves communication with customers.

Another aspect of communication is the authenticity and honesty of the statements made by your company. Advertising messages with truthful content create long-term trust. When employees or customers convey these statements, the message is even more believable. Make use of your existing network and invest in relationships with business partners.

Advantages and disadvantages of referral marketing

Referral marketing is characterized by high efficiency and is usually extremely inexpensive. We will show you the other advantages at a glance:

• 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.

The disadvantages of referral marketing include:

• 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.

Referral Marketing: Examples from Practice

Many companies use recommendation marketing and contribute sometimes more, sometimes less intensively to the passing on of recommendations. The following examples show different approaches from different companies in practice.

ADAC: Members recruit members

The ADAC explicitly requests its members to recruit new members. The bonus model is particularly attractive for customers as a reward. In addition, the ADAC impresses with its simple implementation and clear communication of how the recommendation process works.

Lime: Coupons as a reward for referrals

The Lime e-scooter rental gives free travel credit to customers who share a personal referral code. If friends then also use the service, the customer receives free credit for free trips. However, this information is difficult to find on the website.

Dropbox: More storage space for both sides

Dropbox is one of the most famous examples of companies that have grown explicitly through referral marketing. If a new user registers after a successful recommendation, Dropbox rewards both sides with 500 megabytes of additional storage space each. This also increases the likelihood that the new customer will pass on a recommendation to potentially interested parties himself. In addition, the company designs the process individually and offers various options on the website to invite friends.

The best tips for successful referral marketing

You now know what referral marketing is. But how can success be achieved with it? We have summarized the best tips for a successful marketing strategy:

Tip 1: leave nothing to chance

Satisfied customers do not automatically pass on their experience to other interested parties. Referral marketing, therefore, requires a systematic approach. Actively encourage customers to rate your company on review platforms or to share their experiences with others in person or online.

Tip 2: Make recommendations simple

The simpler the evaluation process is designed for customers, the more often this function is used. A good example is social media buttons that customers can use to share reviews with friends and acquaintances with just one click.

Tip 3: reward recommendations

Don't just ask customers to recommend them, reward them as well. The awarding of bonuses, discounts, or promotional gifts is suitable for this, for example.

Tip 4: leave a positive impression

Satisfied customers have had a positive experience with your company. This was probably influenced not only by the product itself but also by the services. Good and easy accessibility, as well as easily understandable sales processes, are part of a positive customer experience. Respond quickly and be helpful to inquiries, criticism, or feedback from your customers. Active solution finding has a positive effect on the customer experience.

Tip 5: Make your own recommendations

Don't just let your customers speak, you can also pass on positive experiences. This conveys honesty and authenticity and can lead to new customers, especially in the B2B area.

Tip 6: Handling reviews transparently

Clearly communicate what happens to reviews. If these are presented publicly on the website, let the customers know.

Tip 7: incorporate influencer marketing

Getting started in referral marketing is particularly difficult for young companies with a small number of customers. Influencer marketing is an interface between traditional advertising and personal recommendation. This gives new companies the chance to quickly make their product known and to build up existing customers.