What does Referral mean in marketing terminology?


Referral marketing is a type of marketing which encourages customers to refer a business’s services or products to their friends and family. The customer would receive a reward if the referral is successful. As people usually trust personal recommendations from their peers more than other marketing messages, referral marketing is an effective way for businesses to gain more customers and increase sales.

Referral marketing isn’t new - in fact, it’s one of the oldest marketing strategies. It came about when word-of-mouth became possible via the internet.

When done properly, referral marketing can be extremely beneficial for any business. However, it is important to get it right - making sure that everyone involved is happy and benefitting.

How Does Referral Marketing Work?

Referral marketing encourages loyal customers to promote a business’s services or products to their peers.

When existing customers refer a friend or family member, they act as an ‘ambassador’ of the product. This is done either by referring friends and family directly or by using a referral link or code, which gives them exclusive rewards or discounts.

The person receiving the referral is also incentivised to sign up using the referral link or code, as they are offered exclusive discounts or deals.

It is a win-win situation, as both existing and new customers are given rewards and the businesses can see an increase in customers and sales.

What is the Point of Referral Marketing?

Referral marketing can have a powerful impact on a business’s growth, as it is extremely cost-effective and can reach out to a large customer base.

The focus of referral marketing is on customer loyalty and trust. When people receive a referral from a friend or family member, they believe it must be trustworthy. This builds customer loyalty and ensures that the business is seen in a positive light.

It can also be seen as a form of ‘social proof’, as this is a way of demonstrating that a product or service is valuable. Even if the referral is sponsored, it can still act as social proof and create a good impression.

Plus, it is much faster and cost-effective than traditional advertising, as the customer would usually pass along the message faster than the company could reach the same amount of people.

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When Should Referral Marketing be Used?

Referral marketing should be used at any stage of the customer journey, but most businesses use it to grow and retain their customer base.

It is most beneficial when used to increase customer loyalty, as it is a way of giving back to loyal customers who have made repeat purchases from the business by giving them exclusive rewards.

However, it can be used to acquire new customers too. Allowing customers to refer friends or family members gives them exclusive incentives, while also rewarding new customers who purchase the product.

Making sure that both the existing and new customer are rewarded is a great way to make sure the referral marketing program is successful - and incentivising referrals on social media can make this even more successful.

What Should be Taken into Consideration?

There are certain points to consider if you want your referral program to be a success:

• Set goals: Make sure you know what you want to achieve with each referral program - are you trying to increase customer loyalty, acquire new customers, or gain more sales? Set a goal for each program and measure the success against that.

• Keep track: Make sure you have systems in place to track referrals, whether it is manual or automated.

• Review and update: It is also important to review and update your referral program regularly, to make sure it is still effective.

• Offer compelling rewards: The rewards should be enticing for customers - it needs to be something they would be genuinely interested in. Make sure you keep the rewards interesting and relevant.

• Make sure it’s legal: Finally, make sure the referral program and rewards are compliant with local laws and regulations.

Referral marketing can be a powerful tool when done properly. It is effective in increasing customer loyalty and gaining more customers - and the rewards should be tailored to your audience to ensure the success of the program.