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A Comprehensive Guide to Referral Systems

referral marketing

If you treat your old customers as gold and the new clients as diamonds, then you will have realized that it is the old that acts as a base for the new. Another implication is that it is the old which renders the new possible, and that the latter cannot exist without the former. This is what the referral system in digital marketing is all about โ€“ it entails treating the existing clients as the foundation that facilitates expansion of the customer base for the business to grow and prosper.

Every business needs new customers, not just in the beginning but throughout its lifecycle. And what could be a better source than your old clientele that have already used your products and have sufficient faith in you to come back time and again?

Why You Need a Referral System

With several proactive and aggressive tactics for attracting clients, it is but natural to wonder whether a relatively passive strategy like referral system would anyway have an impact.

referral system

A good way to start comprehending this system entails estimating the worth of every customer in terms of revenue. Initially it might be just a small amount, but as they transform into patrons, the volume of business increases not just due to self purchase, but also through recommendation.

Viability of the referral system is best proven through the following facts โ€“

  • Involving existing customers as referral channels can bring about a substantial increase in the ventureโ€™s bottom-line;
  • A large chunk of online shoppers rely on referrals for exploring and buying new products;
  • Ignoring this strategy could cause your venture to lose a lucrative opportunity in terms of boosted sales;
  • Putting in place an effective referral system requires a bit of comprehension and planning;
  • Contrary to the popular myth, a well-organized referral system need not be intrusive at all, rather it is a good effort at positive collaboration;

Something that you need to understand is that an effective referral system does not fall into place overnight. It requires plenty of thought in terms of organizing in order to deliver to its optimal potential.

Types of Referral Systems

True though it is that referrals are a form of word-of-mouth marketing, they can vary in terms of situation and source. Usually online ventures classify referrals on the basis of –

Experience โ€“ These referrals stem through customers who have directly interacted with the venture either once or several times, and are well aware of the nuances in terms of product quality, delivery schedule, payment options, and so on. Owing to having had a positive experience, these customers recommend the same to their family and friends, and their confidence translates into a lucrative business opportunity for you.

referral system

Reciprocation is an aspect that you need to work out in this form of referral, as your customers would appreciate the gratitude in lieu. As far as possible, compensate them well, and this in itself will ensure a steady trickle of business for you. For example, Amway relies on an experience based referral system wherein people use the products and then join the chain wherein they convince others to also use and are rewarded with value points.

Reputation โ€“ Well known brands that have been around for a sufficiently long time benefit the most from a reputation based referral system. The system is based on the premise that if a brand has proved to be reliable over a number of years and has lived up to its customerโ€™s expectations, then people feel that it deserves to be referred to within their known circles. Since this referral system does not offer any incentives to the participants, the onus is on the business to build its brand and remain uncompromised in its high standards.

Some examples that rely on this referral system include Apple computers, Nike footwear, Amazon for online shopping and HSBC for its banking services.

Specialization โ€“ Unlike the reputation based referral system, this system functions solely on the confidence that the product is exemplary and will sell even though it is not marketed and is hardly known. For the referral system to be successful, such a product needs to have a unique selling proposition, so that customers who arrive for the first time without any prior knowledge would also acknowledge its credibility.

Mostly it is the local brands that benefit from this referral system, wherein the product may be well known within the town/city, but not beyond a certain geographic radius.

How to Optimize Your Referral System

Implementing a referral system is definitely easier than rocket science, but not simple enough to evolve on its own. In fact, a commonly observed trend among ventures that use this tactic reveals that initially companies make an enthusiastic start and devote time, but as days become weeks and months, they lose interest, and the system falls into a slump.

referral system

Having decided to use a referral system of choice, the onus is on you to revisit the strategy time and again, and tweak it to be able to accrue maximum benefits. Discussed as follows are some ways by which you can optimize the referral system that you might be using โ€“

  • Offering attractive incentives, which appeal to customers and provide sufficient motivation to participate in the referral program;
  • Involving employees, by creating an advocate platform within the company wherein the employees can add to the content and lend their opinions;
  • Publicizing your referral programs by displaying links on websites, blogs and other online platforms, so that both customers and employees are well aware of what it entails;
  • Checking on your referral system time and again to ensure the links work, the CTA leads to the right page and the follow-up action happens as intended;
  • Building trust and brand image by avoiding misrepresentation and false promises and being as transparent as possible while disbursing incentives;
  • Rendering the system as simple as possible so that people who sign up do not get bogged down by endless procedures and feel entangled in formalities;

Final Thoughts

So, if you have been feeling shy or embarrassed in asking for referrals, then now is the time to overcome the hesitation and extend it as a request for help. Make it a point to sound sufficiently sincere and specific, particularly while introducing the system and everything it entails in terms of expectations and incentives. Ensure accountability for smooth long-term functioning of the system, and treat the entire program as an exclusive club.

Once the results are tangible enough to impact the bottom-line, you are bound to realize that this marketing strategy is not just the easiest and the most affordable marketing tactic, but also relatively hassle-free once it is set in motion.  

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