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How Referral Programs Supercharge Customer Acquisition

Posted by Drew Melendy on Apr 3, 2020 10:44:54 AM
Drew Melendy

Even in today’s world of mass digital communication, word-of-mouth marketing is the first choice for most people when they’re looking for a brand to buy from. 

It makes sense. We trust the people we know more than billboards or online advertisements. The opinions of family, friends, or even social media influencers can effectively extend the chain of trust to those outside of your customer base.

Take a look at these stats-

  • 92% of consumers trust referrals from people they know.
  • Consumers referred by a friend are four times more likely to buy.
  • Referral leads have a 30% higher conversion rate than leads from any other channel.

Referral programs work, which is why they are a widely used and wildly successful marketing tactic. But before we dive into how it works, let’s discuss what it is.

Women on smart phone shows her friend her favorite online brand while she recommends them.

What Are Referral Programs?

Referral marketing is a promotional tactic that incentivizes existing customers to refer your business to their friends. Retailers that see the best results use customer referral programs to boost their performance significantly. These programs offer customers referral incentives, such as points or cash-back in account credits, when they share a referral code with people that have never shopped with you before.

Related Reading: Why Loyalty Programs Are Key to Building Brand Devotion

Women sitting side by side while scrolling through Facebook.

How Do Referral Programs Work?

Modern referral programs depend on software to track successful referrals and automate rewards. It will generate a unique code or link for each referrer that can be used for sharing. Once a new customer uses the code, the referrer will automatically earn a percentage of the sale as an account credit.

The Takeaway

With the rising cost of paid ads, acquiring new customers can get expensive quickly. Referral programs make for an inexpensive and efficient method of getting new customers on board.

Retailers that use referral programs see an increase in new business, sales, and subsequent referrals as more and more customers begin to share. While they are useful on their own, referral programs work best when paired with loyalty programs to maximize customer acquisition, raise average order value, and increase customer lifetime value.

Topics: Marketing, Sales, Gamification

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