Learn about referral marketing and other word-of-mouth promotion techniques.
Referral marketing is a word-of-mouth marketing strategy where existing customers are deliberately encouraged by a brand to reference their products or services to friends, colleagues, or family members. Importantly, referrers, who become part of a referral program, get rewarded for spreading the word, by being offered, for example, a discount coupon or a voucher for future purchases. The referees are also frequently rewarded for signing up according to their friend’s recommendation (dependable on the type of the program). As a result, the company acquires new customers and their sales increase. All parties involved benefit!
Unlike a traditional word-of-mouth strategy which happens organically – referral marketing is initiated and managed by marketers in order to grow a business’ customer base.
Turns out that nothing influences people in a way that a recommendation from a friend does. According to Finances Online, 92% of consumers actually trust the referral or recommendations that they receive from people that they know personally. Accordingly, referral marketing is a beneficial method of promoting your business and gaining new, valuable customers.
Among others, the benefits of referral marketing include:
Discover how to build a referral strategy, choose program goals, and quickly increase participation rates.
You may also wonder how to identify those customers who will be willing to advocate for your brand as targeting them with your referral marketing ads will prove especially effective. Here are a few features that may help you recognize them:
Referral marketing campaigns come in different shapes and sizes. Should you reward only a referent or a referee as well? What types of rewards should you offer? What counts as a successful referral? When a friend of your advocate places an order? How much money should they spend at least? The answers to all of those questions depend on the needs of your business and the goals that you want to meet by means of referral marketing.
Here are the most popular types of referral marketing programs:
A double-sided referral program can be aimed at influencers as both those advertising and those influenced will be rewarded. Learn more about influencers referrals here.
Here are other popular forms of referral marketing campaigns:
Dropbox is a file hosting service where users can store and share data but also collaborate with others. Through introducing a referral program, the company increased their signups rate by 60% by simply adding a referral program to their onboarding tour. Consequently, Dropbox increased its conversion rates by 3900% in only 15 months!
A successful referral for a customer with a Dropbox basic account assumes 500 MB of additional storage space for each referred friend (up to 16 extra GB through referrals). Dropbox Plus, Family or Professional accounts allow for earning 1GB for each successful referral (up to 32 extra GB through referrals).
In order to carry on a successful referral, Dropbox customers need to invite their friends from the company’s referrals page. Both the referrer and the referee will be rewarded if the friend accepts the invitation sent via the referral page, installs Dropbox desktop up, signs up there and confirms their email address. The instructions are clear and simple; therefore customers are encouraged to participate.
Similarly to Dropbox, Airbnb achieved tremendous growth with their referral marketing efforts. Airbnb is a company operating an online marketplace for short-term homestays. Although their referral program got discontinued in 2021, the story of their success is worth sharing – Airbnb has been able to attract 1 million new customers in 190 countries due to referral marketing efforts.
The Airbnb approach was straightforward. Existing participants were sent email invitations encouraging to participate in a referral program. The offer assumed referrers receiving a $25 travel credit when their friends – new customers – booked their accommodation via Airbnb for the first time (maximum $5,000 of travel credit in Qualifying Home Reservations). A $75 travel credit was granted to referrers when referees would host a guest for the first time (maximum $2,000 in Qualifying Experience Reservations). Learn more about the Airbnb referral program.
PayPal is an online payment system that makes all paying online as well as money transfers safe and secure. The company’s original referral program was so successful that it helped PayPal grow from 1 million to over 100 million users in just 5 years!
Currently, in order to carry out a successful referral, according to PayPal, 4 steps need to be taken: a referent receives a unique referral link, then this link needs to be shared with a potential referee. The referee must then sign up to PayPal via the link and receive international payments of at least $100 within 45 days of creating an account. If those conditions are met, both the advocate and the friend receive a PayPal voucher for $10. For each referred friend, a PayPal’s customer can receive up to $100 annually.
Another story of a successful referral marketing campaign comes from Tesla – a multinational automotive, artificial intelligence, and clean energy company. Their referral program allowed for 40x ROI growth while their advertising budget amounted to $0. How did they do it? Well, Tesla took advantage of the fact that Tesla car owners were already recommending the environmentally-friendly cars to their friends and colleagues.
Accordingly, their referral marketing program assumed $1,000 credit being granted to their already existing customer who referred a new buyer. This was a double-sided deal as the referee would also get $1,000 off the price of a brand new luxurious car (first purchase).
Later on a new rule was introduced: in each region – USA, Europe, and Asia – the referrer with the most amount of referrals made received an extremely high-end price: a new Tesla P90 model S, a home car charger, and an exclusive invitation to the grand opening of Tesla’s Gigafactory in Nevada.
Uber is a company providing mobility – car rides – as services. Even though their referral marketing program got discontinued in 2020 due to financial difficulties associated with covid, it is already back again and in full mode in 2023 – see how to create an Uber referral program in 2023.
The basic model of referrals made within the Uber app is as follows:
Explore examples of highly-converting referral program from leading brands in the B2C space
When you have a relatively small customer base, it is probably possible to manage your referral program manually by using a spreadsheet. However, when your customer base grows to, let’s say, 10,000 clients, it might be difficult to manage so many referrers along with referees at the same time. The solution to this problem using the right referral software.
Referral marketing software will help you manage your referral program by automating the rewards send-out, tracking down your most active referrers, and providing you with critical insights into your referral program performance – how many customers participate, how many referrals were actually successful, and how much the referred customer ordered from you. Additionally, a referral marketing software allows you to customize your referral programs and protect the entire campaign from fraud.
Some of the things you need to consider while choosing a referral software for your business are, for instance, integration ability, deployment options, and audit logs. Attention-worthy may also be product assortment of the referral software so you are able to choose the option or plan that is most suitable for you and your business’ needs, as well as team management – various options will allow a particular number of members of your marketing team to collaboratively take care and manage your referral program.
With plenty of referral software tools on the market you can find yourself stuck in the mire of RFPs and vendor comparisons. To make matters easier, we have prepared a comprehensive comparison guide with the most popular referral vendors in 2023 – check the guide here.
Voucherify is an API-first headless promotion engine allowing for creating and managing referral marketing programs, loyalty programs, gift cards, voucher and coupon campaigns and many more. You can run various promotional campaigns by using just one software – no other tools necessary!
Learn how to create your own referral program with Voucherify – Getting Started with Referral Programs.
See how to create API-based referral marketing programs with Voucherify and our partners:
With Voucherify, you get to: