Past research has shown there are two types of referrals:
1. Experience-based referrals come from an individual who has worked with the service provider they are recommending.
2. Reputation-based referrals are driven by a firm’s visibility and standing in the marketplace
Referral programs have three distinctive characteristics.
*First, they are deliberately initiated, actively managed, and continuously controlled by the firm, which is impossible or very difficult with organic WOM activities such as spontaneous customer conversations and blogs.
*Second, the key idea is to use the social connections of existing customers with noncustomers to convert the latter.
*Third, to make this conversion happen, the firm offers the existing customer a reward for bringing in new customers.
Major advantages of referral marketing programs as compared with traditional marketing programs include greater credibility of friend/family member recommendations over paid advertisements, access to new customers that traditional marketing programs may not reach, and better matching of referred customers’ needs to a good or service.
Creating referral marketing programs enables companies to develop a database of brand ambassadors and understand their behaviors. This allows for the opportunity to remarket to them with special promotions/offers, reward them for their activity, or simply say thank you for their help.
A high-quality website is essential to the success of any referral strategy. This finding is consistent with previous research showing potential clients often rule out firms based on the quality of their website.
Whether the company is in the B2B industry, a B2C brand, or represents a variety of clients, the use of referral marketing programs can dramatically increase existing customer engagement and new customer acquisition while spreading brand awareness.
Referral marketing
