referral marketing

THE ULTIMATE GUIDE TO REFERRAL MARKETING

There is no better marketing strategy than referral marketing, when one of your existing customers raves about you in front of their friends.

It’s a win-win-win situation – you get free marketing for your store, your customer gets social validation for recommending something great, and his friend gets a recommendation from a trusted source.

However, this situation is ideal for a reason. It just doesn’t happen often enough.

In reality, most customers will forget to tell their friends about you, even if they had an incredible experience. That means you could be losing potential revenue.

But, all is not lost. Fortunately, there is an art and science behind the entire process of encouraging this behavior more often.

 

That process is called referral marketing.

What is referral marketing?

Referral marketing is when you get your customers to tell their friends about you.

Like any marketing, referral marketing (also known as word-of-mouth marketing) usually happens organically. It happens whether or not marketers get involved in the process.

 

However, as I previously mentioned, this doesn’t happen organically enough.

Why is referral marketing so powerful?

Humans are, by nature, social creatures. We naturally share our experiences with our friends.

referral marketing

If we had a good experience, we are wired intuitively to tell all our friends about it. Why wouldn’t we! We want our family and friends to enjoy the great things that we’ve experienced.

Similarly, if we had an awful experience, you’ll be damn sure we’re sharing it with them as well. After all, this is the best way to avoid pain and frustration. By learning from other people’s mistakes, we learn how to avoid those mistakes.

Nielsen says 92% of consumers trust recommendations from people they know.

And this is why referral marketing is so powerful. It’s in-built into us. It’s natural and biological. Like it or not, it happens. And since you can’t stop it from happening, it’s much preferable that you do something about it deliberately (and of course, ensure that they’re sharing positive things about you!)

Too fluffy for you data-oriented person? Don’t worry, this phenomenon has been backed up by statistics as well.

According to McKinsey, referrals influences up to 50% of ALL purchasing decisions. Not only that, referrals generates more than two times the sales of paid advertising.

Wow!

Plus, according to another study published in the AMA Journal of Marketing, referred customers are more loyal, and bring higher profit margins. How much? As high as 25%!

And here’s something else that might peak your interest.

Referral marketing is essentially free!

 

Think about it – referral marketing is essentially your customers spreading the word for you. It’s your customers evangelizing about your brand to their friends and family.

Sure, you might need to prepare some assets upfront to seed the initial referrals, but when it kicks off, it’ll be like a virus. Your customers will refer their friends, who will refer their friends, who will refer their friends…

 

It’ll be unstoppable.

Plenty of companies have reached millions of dollars in revenue on the back of their referral marketing strategy. Here are two well-known examples:

1. Dollar Shave Club

dollar shave clubDollar Shave Club, a subscription-based grooming company got its initial start as a company through a referral marketing campaign.

In 2012, Dollar Shave Club released a cheeky and humorous YouTube video titled “Our Blades Are F***ing Great”. It featured their CEO Michael Dubin delivering his monologue in a sarcastic manner.

 

our-blades-are-fucking-great

How did the video do?

25 million views!

Not only that, Entrepreneur reported that in the first two days of the video’s debut, over 12,000 people signed up for Dollar Shave Club’s razor delivery service. By the end of the week, they had 25,000 customers.

The initial customers loved the ad so much that they told all their friends about it, which spread and went viral.

5 years later, Dollar Shave Club sold to Unilever for $1 billion in cash.

2. Dropbox

dropbox

Dropbox, a file hosting cloud service was founded in 2007 by Drew Houston and Arash Ferdowsi.

Like many startups, Dropbox struggled to grow their user base. They had turned to search engine marketing as the answer to their growth bottleneck, but it was an epic failure.

It turned out that their cost per customer was $388. At that time, Dropbox was only a $99 product. It didn’t make sense.

They eventually decided to take a leaf out of PayPal’s book, and set up a referral program.

referral marketing dropbox

How successful was their referral program?

In only 15 months, they went from 100,000 users to 4,000,000 users! Dropbox eventually grew to a multi-billion dollar startup, and recently filed for IPO to be listed on the Nasdaq.

If referral marketing is so powerful, why are you getting less than half of the referrals you should be getting?

If referral marketing is ingrained into our psyche, why are you getting so little referrals? Why are you not getting more shares and more customers? Why are you not going viral?

According to an Advisor Impact study, 83% of your satisfied customers are willing to refer you to their friends.

But only 29% of them actually do.

Why the discrepancy? Why do such a large segment of your customers express interest in sharing… but only so few of them actually do?

To answer that question sufficiently, we need to take a step back. We need to begin from first principles.

For you to start getting word-of-mouth, you need to first have something for people to talk about, to remark about. Which means, in order to get people talking about you, you need a WOW product.

What is a WOW product? It’s not a clever acronym that stands for something. It literally means you need to have a product that makes your customers go “Wow! What a wonderful experience! I need to tell everyone!”

However, knowing what a WOW product is doesn’t mean anything. It’s easy to say you need something remarkable and leave it as that. The real question is – how do you achieve it?

You can achieve it through one of two things (or both):

1. Unexpected utility

A product with unexpected utility is a product that solves a specific problem better than anything else in the world.

This is typically led by innovation. It involves either creating something that has never-yet-existed or tackling a problem that has long been present but neglected.

Here are some examples:

Tesla Model S

The Tesla Model S was not the world’s first ever electric car. There were many attempts to make one, except that it was always unfashionable and ugly to drive.

The Tesla Model S was different. It was the first ever electric car in the world to become a status symbol, something that even James Bond might want to drive. It was sexy, reliable, safe and acknowledged by the different motoring authorities to be a superior vehicle.

iPhone

We all know this story.

Before the iPhone was introduced to the market, the mobile phone was a limited tool. You could text or call and that was all.

But Apple went back to the drawing board, and decided to design a phone from scratch. They wanted a phone to do more than it did. They wanted a phone to be as powerful as a computer.

When Steve Jobs introduced the iPhone, it immediately became newsworthy. It was an entire new class of product by itself; they had succeeded in making a mobile phone do  more than what it did before – taking photos, listening to music, having a touchscreen, etc.

2. Tell a meaningful story

What if you don’t have the budget or resources to innovate? What if you’re just a small business? Or what if you’re dropshipping?

Is creating a WOW product out of your reach?

Fortunately, it’s not. You can tell a meaningful story that your customers can get behind. A story about why you started your company. A story behind how your products were chosen and developed. A story about the tedious process you went through to get your products out to your customers.

Whatever it is, you can tell a wonderful story that your customers love.

How do you tell a story that will touch your customers and invite them to join you in your mission?

In a guest post on the famous venture capitalist Fred Wilson’s blog, FakeGrimlock suggests that you should create a “minimum viable personality”. To do that, you need to answer 3 questions:

  • How do you change your customer’s life?
  • What do you stand for?
  • What do you hate?

Once you have the answers to these questions, you can start implementing those answers into your brand and its marketing collaterals – your images, your logo, your website, etc.

Here are some examples of how some companies have created stories that have gotten their customers raving in support:

TOMS

toms

Toms is a shoe company with a special business model. For every pair of shoes you purchase, Toms donate a pair of shoes to someone who needs it.

The founder, Blake Mycoskie came up with the company and business model after a visit to Argentina, where he learnt about the daily struggles faced by people who were without shoes.

This means that, with every pair of shoes you purchase at TOMS, you aren’t merely buying a pair of shoes. You’re buying into Blake’s mission. You’re making the world a better place. You’re helping someone who is in need.

With the story powering the company, TOMS today is worth close to a billion dollars and have given away more than 45 million pairs of shoes.

GoldieBlox

goldieblox referral marketing

When Debbie Sterling was studying at Stanford, she noticed her engineering classes were predominantly male. To encourage girls to develop interest in engineering, she decided to launch GoldieBlox on Kickstarter, manufacturing interactive toys for girls.

Instead of marketing GoldieBlox as a “toy company for girls”, Debbie insisted that GoldieBlox was a movement, one that tried to improve the world by correcting the gender equality in engineering.

She eventually raised over $285,000.

It is important you pause here and look at your store objectively. Ask yourself: are your customers spreading the word for you? Are your products deserving of word-of-mouth?

If it isn’t, then it’s time to dive in deep and analyze what you need to improve. Start working on innovative products that can drive word-of-mouth, or craft a brand story that your customers can support.

If you are sure you already have a WOW product, then move on to the next section to find out how to supercharge referral marketing.

How do you implement referral marketing in your marketing strategy?

1. Make the product experience shareable

There are many ways in which you can design your customers’ experience to be shareable.

For example, you can design your packaging and unboxing experience for the social media sharing experience. Trunk Club excels at this.

Trunk Club goes the extra mile by making sure that the unboxing experience is share-worthy.

trunk club packaging

By making sure the unboxing experience is “wow-inducing”, Trunk Club subtly encourages their customers to post about it on Instagram or other social media outlets.

Trunk Club is so successful that customers even make YouTube videos of themselves unboxing a Trunk Club purchase, which further amplifies their word-of-mouth.

The unboxing experience is not the only place where you can encourage virality. Remember your “minimum viable personality”? It’s not a vanity, business school exercise where you feel proud of yourself for filling it up.

Your job is to find ways in which you can sprinkle that personality. You could add bits of that personality into your website design, your copy, your images, your product descriptions and so on.

Here’s how Man Crates does it. Man Crates is a company that sells crates packed with guys’ goodies. Their brand personality is one that doesn’t take itself too seriously.

They communicate this brand personality through instructions on how to open your crate like this:

man crates

They even offer a product where you can ship a crate wrapped in duct tape, a nod to their “macho” personality they created for their brand:

duct-tape

It doesn’t always have to be about your product.

2. Provide exceptional customer service

Happy customers share more. How do you get happy customers?

1-happy-customer-9-referrals

Through exceptional customer service.

Despite constant reminders on how customer support can drive business, truly great customer service is rare. Most companies provide the minimum expected.

But if you want your customers to share about you, then you have to give exceptional customer service.

Look at this story of how a FedEx employee went the extra mile to save the wedding of this unfortunate lady. She had ordered a wedding gown online, but it failed to deliver by the morning of her wedding day.

Bustillos came to the rescue. It took him an hour and a half, but eventually he found the wedding dress and sent it to her. She was so grateful.

Do you think the lady became a FedEx evangelist after that? You bet she did!

Examine your entire support experience. Is it up to par? Pretend that you’re a customer visiting your own store. Would you, as a customer, share about you with their friends if they went through your customer support?

It doesn’t have to be fancy either. Sometimes all you have to do is to provide after-purchase support. Look into using customer support software like Zendesk to help your customer support team manage the entire process smoothly.

Another element of customer support you can consider incorporating is live chat. Adding live chat into your store (before the checkout process) allows you to handle objections and answer questions before the cart is checked out.

Adding live chat can prevent cart abandonment problems too – customers will feel more secure in buying from you knowing that there is a live person on the other end willing to hear out their questions.

Find out which part of your customer support process you can optimize. Related to the above point: sometimes adding a little humor or personality into the process makes the entire journey fun and enthralling.

3. Create viral content

Word-of-mouth marketing is cool in theory.

But for many stores, it may not apply. Some stores have products that are so boring that nobody will ever talk about it, no matter how innovative it is. How many people are willing to talk about car parts? Or furniture? Or socks?

A great example of this is Blendtec. Blendtec sells blenders. Blenders are, in my opinion, one of the most boring things you can ever market. Yet, Blendtec managed to turn blenders into a viral phenomenon.

What is referral marketing?

Referral marketing is a marketing tactic that makes use of recommendations and word of mouth to grow a business’s customer base through the networks of its existing customers. Referral marketing can take many forms, but at its heart, it’s a way to get your biggest fans to help spread the word about your brand. In other words, referral marketing turns your current customers into brand advocates.

Why does referral marketing work?

Before we get into how to create your referral marketing strategy, let’s talk about why you need to. How much of a difference do referrals make? Consider this:

  • A word-of-mouth impression drives at least 5x more sales than a paid impression.
  • Customers acquired through word-of-mouth spend 2x more and make 2x as many referrals themselves.
  • Referred leads convert 30% better and have a 16% higher lifetime value than leads acquired via other channels.
  • Half of Americans would pick word-of-mouth if they could only select one source for information on potential purchases.

Word-of-mouth and referral marketing are cost-effective, powerful, and trusted. When we have a good experience with a brand, product, or service, we’re happy to—and frequently do—share it with others.

In his bestseller Contagious, marketing professor and author Jonah Berger identified six principles of sharing and word-of-mouth:

 

  1. Social currency: We share what makes us look good.
  2. Triggers: We share what’s at the top of our minds.
  3. Emotion: We share what we care about.
  4. Public: We imitate what we see people around us are doing.
  5. Practical value: We share things that have value to others.
  6. Stories: We share stories, not information.

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The world of beauty with Rayouna