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Referral marketing – what is it?

Referral marketing - what is it?

Do you often talk to your loved ones or friends about various products and services you use? How much do their opinions influence your choices? According to Nielsen research, as many as 92% of people trust such recommendations more than advertising messages. What about online reviews and recommendations? They are the basis of modern communication strategies. In the following article, you will learn what referral marketing is and how to use it.

What is the power of other people’s opinions?

First and foremost, it lies in the fact that a specific recommendation can be attributed to a “real” person, giving you greater assurance that the opinion they express is authentic. You can interact with a “real person.” Ask for details. Check why they think the way they do. Therefore, they are more credible than a message that comes directly from a company promoting a product or service to you.

Marketers have long understood the power of social proof and have skillfully utilized it in various forms of communication. However, in recent years, as internet marketing has become the foundation of customer contact and inbound strategies have become increasingly popular, it has been used much more frequently and intensively.

What is online referral marketing?

The simplest definition of referral marketing is that it refers to actions aimed at motivating customers to share positive opinions about a brand. The company creates a series of incentives to encourage consumers to discuss its products and generate positive “buzz” around the brand. Is it worth it? Absolutely. After all, as research shows, recommendations have a crucial impact on purchasing decisions for as many as 74% of consumers!

It is important to note that referral marketing is one element of word-of-mouth marketing, which until recently was associated with “whispering.” However, these terms are no longer interpreted unambiguously.

Referral marketing vs. word-of-mouth marketing – what’s the difference?

Both word-of-mouth marketing and referral marketing are based on brand opinions published online and strive to generate as many positive opinions as possible. The key is that in modern communication approaches, emphasis is placed on the message’s authenticity. And this is where the difference between “whispering” and referral marketing emerges.

In “whispering,” the authors of opinions expressed on forums or social media are often employees hired for this purpose, whose task is to publish promotional posts. On the other hand, referral marketing focuses on genuine recommendations. Not those written and published for compensation but those prepared by individuals who have actually interacted with the brand’s products and can speak positively about them.

This is why referral marketing delivers significantly better results and, above all, is entirely ethical, thus strengthening your company’s reputation.

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Analyzing Referral Analytics

The power of recommendations and their benefits has led more companies to value customer opinions, and referral analytics is no longer solely based on demographic data. Behavioral context is also essential.

By analyzing consumer behavior, we can suggest to customers which products may interest them. Do you recognize the distinctive messages on some websites after adding items to your cart?

“Customers who chose this product also bought…”

Based on analyzed internet users’ habits, a special algorithm provides additional product suggestions that tempt visitors to the e-commerce store. Zalando, among others, benefits from this facilitation of the purchasing journey through recommendations, customer loyalty, and increased sales.

The recommendation system utilizes machine learning and allows for the selection of specific products based on information such as:

  • The purchasing preferences of similar users.
  • Analysis of the customer’s current order.
  • The probability of purchasing additional products.

The recommendation system can be implemented easily by installing a ready-made plugin on the website and social media platforms. It allows for data collection using cookies. However, for this to be possible, the user must first consent.

Machine learning learns consumer habits with every click, enabling the creation of personalized offers. The consumer will be satisfied by presenting them with ready-made product packages they may be interested in, and you shorten the time needed to make a purchasing decision. For you, it’s an opportunity to increase the basket’s value. It’s a win-win situation for all parties involved!

Did you know…

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The recommendation system is not only about recommendations and personalized offers for specific target groups. Analyzing the collected data also allows for estimating the customer’s likelihood to churn and, as a result, intensifies customer retention efforts.

How to leverage referral marketing in a company’s strategy?

Referral marketing is a vast field, meaning almost any company can benefit from its tools. It works best in the communication strategy of companies operating in the B2C model, as this is where social proof mechanisms can be fully utilized.

But what can you do in practice to encourage customers to express their opinions about your brand? There are many things you can do.

Referrals regarding your company can be divided into two categories.

“Organic” opinions:

These are opinions that users publish entirely on their own, spontaneously, because they are satisfied with the products/services they received from you and want to share their experiences with others. These are the most valuable opinions of all. Still, they are also the most difficult to obtain, especially since there is a tendency in Poland to complain about what is terrible rather than praise what is good.

How to obtain them? By ensuring:

  • the best possible customer service,
  • excellent products,
  • timely or even ahead-of-schedule order fulfillment.

“Generated” opinions:

But don’t worry; we’re not talking about artificial opinions written on demand. The key is to create a system of incentives for customers to share their information.

How can you do that? Several elements can be handy. Take a look at which ones you can use in your business:

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  • Implement a purchase rating system in your e-commerce store:
    Allow customers to rate their satisfaction with the transaction – the quality and efficiency of service and the ordered products. You can use this form of communication on your website or by collaborating with others who focus on collecting reviews.
  • Encourage feedback in your emails:
    Once a customer has completed a transaction, thank them for their purchase and ask them to complete a short survey rating your collaboration. You can use additional incentives, such as offering a discount on their next purchase for those who leave a recommendation.
  • Engage your brand’s community on social media:
    You can do this on your Facebook fan page or by creating a themed group. You can initiate and moderate such discussions openly, through brand ambassadors, or personally. The key is sincerity.
  • Consider an affiliate program:
    Encourage customers to spread genuine, positive opinions about your brand online by assigning them referral links. You can reward them when their recommendation results in acquiring a new lead or transaction, for example.

It’s also worth considering initiatives encouraging users to create content related to your brand, such as contests on social media profiles. Another solution similar to referral marketing is collaborating with influencers.

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Author of the article

Dominika, currently Content Marketing Manager, joined Verseo immediately after getting a degree in project management and digital marketing. She is one of those lucky people who are passionate about what they do. Marketing and modern technologies are not only her job, but also her interests. Domi is one of those great people to meet, offering a wealth of imagination, painstaking diligence and spring openness. Extremely competent when it comes to LinkedIn, content building and lectures on healthy diet.