Role of Referral Channel in Customer Acquisition
A Detailed Look at the Role of Referral Channel in Customer Acquisition
Everyone is talking about referrals today, and for good reason. Referrals make up one of the best ways to increase your business through better customer acquisition. But what is a referral? And what does referral marketing mean? Furthermore, how can you implement a relevant referral program for your business?
The crux of any successful business is its customers. That is why businesses place great importance on acquiring customers. Customer acquisition can be understood as the process of obtaining new customers, or turning existing prospects into customers.
Customer acquisition can become both, time and resource consuming. Hence, businesses are concerned about making the acquisition process less costly, less time consuming, easier, more effective, farther-reaching, and more focused. To acquire a customer, a business needs to ensure that existing customers have a positive experience, as do prospective customers.
Customers can be acquired through a host of ways such as print advertising, online advertising, television advertising, and so on. However, one of the most effective customer acquisition methods has been referrals. Research has shown that approximately 2.4 billion conversations take place daily in the United States on the topic of brands and the experiences customers have with them, along with recommendations. On an average, 66% of consumers purchase a particular product or service because of a positive recommendation given by someone they know.
Referral marketing is the strategy implemented by businesses that aims to increase these positive referrals and thereby, customer acquisition. Word of mouth has been a trusted method of customer acquisition for decades. Now, through digitization of marketing efforts, referrals are often made online. Hence, referral marketing has become digital to a great extent.
While referrals are often organic and evoked due to positive customer experiences, businesses can actively plan to make referrals easier, faster, and more in number. What they need is a referral program.
What is a Referral Program?
A referral program is a strategized plan that aims at increasing referrals by making them easier, more rewarding for the existing and new customer, and by making them simpler. This is a targeted plan that includes technological automation, social media channels, email, and other similar media. Simply put, a referral program is planned referral marketing in which customers are provided convenient means to share their experiences.
A referral program provides a high volume of leads with very little cost. It makes it easier and quicker for customers that have had a positive experience with your business to spread the word. It is guided word of mouth advertising that goes a long way in increasing customer acquisition. Majority of purchases are influenced by the experience of known acquaintances. By providing channels for people to tell their friends and acquaintances about their positive experience, a referral program helps spread brand awareness and turn prospects into customers.
Referrals in the Digital Age
Referrals were most commonly seen through word of mouth advertising. However, in today’s day and age, being memorable in a conversation alone may mean little chance of being mentioned. A very large part of the population spends a major chunk of its time on devices such as laptops, PCs, phones, and tablets. These devices have even replaced traditional conversation in many cases as people now converse through texts and messaging applications.
Their ease of use has made technological devices an integral part of every individual’s life. Phones and laptops often become the tool through which customers make purchases and interact with brands. Hence, it is only expected that referrals would be made through such media.
That is why today’s referral programs focus on social media sharing, email communication, and digital rewards as opposed to simple word of the mouth advertising. The experience that customers have with your brand is also optimized for digital devices. Furthermore, various methods are used to ensure that customers can share any and every aspect of their experience, thereby making referrals that are truly meaningful and effective.
Benefits of Referral Marketing
Referral marketing is considered one of the best and most effective methods of customer acquisition. To further understand why this is the case, let’s look at the three largest benefits of referral programs:
1. Targeted reach
Unlike Google Adwords and other similar tools, referrals are more targeted. The customer who is making the referral or sharing his experience will do so with a relevant group that is likely to associate with your brand, product, and service. The recipients, therefore, are closer to your target group than what can be found with paid advertising that reaches out to almost everyone, regardless of their preferences. As a result, the ratio of persons approached to converted leads is much greater in referral marketing.
2. More trust
People are more likely to buy a product or service when they trust the person whose opinion led them to that product or service. Referral marketing allows prospective customers to receive trusted opinions and recommendations. These are more likely to convert into sales than advertising methods that are highly impersonal.
3. Extended reach
When referral marketing used to be offline, people could only share their recommendations and thoughts with others that they met personally. This automatically brought down the number of persons to whom referrals could be made. Today, a single tweet or Facebook or Instagram post allows a person to reach hundreds and thousands of prospective customers. In fact, the higher the number of followers a person has, the further his reach. Furthermore, people follow others because they find common interests or respect their opinion. This makes each post or mention about a brand or product even more effective as the audience it reaches is more likely to be interested in the particular product or service. Hence, businesses obtain an extended reach to which their products are marketed.
By now, you have a clear understanding of what referral marketing is and how a referral program can help your business grow. But the success of a referral program isn’t pre-determined. What this means is that just because you make it easier, people do not necessary provide referrals.
The criteria that lead to a referral program bringing a large number of relevant leads are the satisfaction of the customer in relation to the product or service, as well as the relevance of the referral program itself.
Keeping this in mind, NextBee developed a methodology that aims to improve referral programs. The application of this methodology is to ensure that every participant is approached in a way that leads to increased conversion of referrals and leads. Known as the PACE methodology, it covers the following aspects:
1. Personal: Building personal relationships through active collaboration for increased positivity in responses.
2. Adaptive: Adaptive to the needs and expectations of individual customers and target groups.
3. Controlled: Strategy and design that incorporates analyzed data to promote effective response.
4. Exciting: Ensuring that the customers find your program interesting and exciting, so as to reduce monotony and improve response.
Now that you have a clear understanding about referral programs and how they can be instrumental in improving your business’ customer acquisition efforts in the current digital age, we will delve further into the PACE methodology. This will help you better understand the aspects of a good referral program, and how you can apply the same to bring about better customer acquisition.
Coming up next…
By now, you probably have a clear understanding about referral programs and how they can be instrumental in increased customer acquisition in the current digital age. In our next blog post, we will delve further into the PACE methodology and how to create a great referral program.