I recently began a talk at The Festival of Marketing event in London, by asking the audience to indulge me in a few short questions.
First of all: can you raise your hand if you’ve ever used Uber? About 90 percent raised their hands. No surprises, there.
Next I requested for them to keep their hands raised if, before using Uber for the very first time, a friend or a colleague had told them something about them. Pretty much all hands remained in the air.
I then asked them to keep their hand raised, if they've used the Uber referral program. Around 50 per cent remained.
And finally, I asked: and how many of you in your brands and businesses today feel like you’re effectively using word of mouth or referral marketing? All but two or three hands remained.
It confirmed something we at Mention Me have noticed for a while: a big disconnect between acknowledgement of the value of referral marketing — and the number of businesses actually putting referral into practice, with success.
You can view the talk in full, below. Or read on for a summary of why we believe referral marketing is the most powerful form of marketing there is, today. And more than that, I’ve set forth some practical, straightforward steps for putting together a top-draw referral marketing campaign.
Why referral has grown in influence
The power of referral marketing is down to two precious (and in the digital age, increasingly difficult to acquire) assets: trust and relevance. Prospective customers only choose to buy from those they believe are trustworthy and with whom they identify as being relevant to their needs and behaviours.
Nielsen annually report on which marketing channels consumers view as most relevant and trustworthy. In recent years, the one marketing channel that stands head and shoulders above all others as the most trustworthy and relevant? Word of mouth referrals. It makes complete sense. If a friend, rather than a stranger, tells you about something, you immediately trust it. And their choice to tell you about it, instantly feels more relevant than other sources.
This is nothing new. It’s just that in today’s social media-driven age, the voice of the customer has become louder and more influential than ever. And that makes the role of referral marketing important.
Proof that referral is king
Through countless campaigns with clients, we’ve learnt that referral drives not only increased quantity of customers, but a better overall quality of customer. Clients typically experience between a 10 to 30% increase in customer acquisition. And these aren’t just any old new customers. They are the best friends of your best customers.
As a result, these new referred customers typically spend up to 25% more than the average on first orders. And that’s not all. More often than not, customers who were acquired through referral campaigns carry a significantly higher than average lifetime value to the business. as much as double the average customer lifetime value, is not uncommon.
But there’s more. Once these high-quality, high-value new customers have been through the referral program, they’re much more likely to refer their friends. Three times more likely, in our experience.
Referral marketing builds momentum over time, creating a virtuous chain-reaction of quality interactions between people who like, trust and listen to each other.
The potential of referral is huge for businesses of all stripes. But we also know from experience that achieving the above types of results is no walk in the park. Key to referral marketing success is building a solid referral funnel, and implementing certain key ingredients, which I’ll explain in summary.
Putting it all to work: the three P’s of referral marketing success
Just like any form of marketing, referral success depends on a simple and intuitive user experience that mirrors customers natural behaviours. Here’s a visualisation of the ideal referral marketing funnel… And when it comes to optimising that funnel, we often talk through the three P’s of referral success. They are:
Let’s take a closer look at each, in-brief.
This is about making sure all planned referral activity is grounded in and aligned with the fundamental elements, characteristics and values of the business. There are many things to consider...
For instance, a good level of customer satisfaction is an obvious but crucial starting point. Unhappy customers are unlikely to want to recommend you to others, after all.
And more widely, brands need to choose elements of a referral offer that genuinely align with business and customer needs. For instance, if a certain brand rarely offers discounts, using alternative referral incentives might be the way to go.
This is the most crucial influencer of referral marketing success. It all comes down to truly understanding what motivates customers to refer. At Mention Me, we often come back to the metaphor of balloons and weights:
In a nutshell, the absolute best referral offers put forth extremely compelling incentives, as well as instilling the potential referrer with a sense of impending ‘social capital’. In other words, confidence that they will look good and that the offer will be received well by friends.
Conversely, such offers are never weighed down by perceived high effort to gain the reward, nor ‘social risk’ — the anxiety over an offer being received negatively by friends.
Key to finding this ‘sweet spot’ is constant testing and optimisation to truly understand what works and what doesn’t for your customers.
As with any form of marketing, once you’ve understood and optimised the basic elements of your referral offer, success often hinges on where, when, and how you choose to promote.
In our view, it’s all about looking for ‘the greatest points of delight’ in your customer's routine interactions with your brand, and strategically including your referral offer within those. The below visualisation provides food for thought on some of the best touch points for strategically presenting referral offers.
Referral has rapidly established itself as the most influential form of marketing, today. But success doesn’t happen overnight. The brands who’ve got it spot on, are those that have invested the time to understand how referral fits into their business model and marketing mix — and most crucially, how it can align with the behaviours and psychology of their customers. Then it’s about knowing where, how and when to promote the referral offer for maximum impact.
Underpinning all of that is a willingness to constantly test, iterate and optimise until you happen upon the winning formula for you and your customers.
As far as we’re concerned, referral marketing is far from light work. But it’s worth every ounce of effort, for the rewards it can deliver in return.
You can download the full deck of slides from the Festival of Marketing here.