Complete Referral Marketing Guide 2023: What Is It & How to Benefit from It?

Referral marketing is when current customers refer new customers to a business in exchange for some kind of incentive or reward.

This can be a discount on future purchases, cashback, or even a gift card. Incentivizing customers to refer their friends and family to your business can tap into a powerful marketing channel that has the potential to bring in new customers at a lower cost than traditional advertising.

Referral based marketing is effective because it relies on the power of word of mouth marketing, which is one of the most powerful forms of marketing. People are more likely to trust recommendations from their friends and family than they are to trust ads or other forms of ecommerce marketing.

Core Loyalty makes it easy to set up and manage a referral marketing program that will incentivize your customers to refer their friends and family to your business.

With a range of customizable rewards and an easy-to-use interface, Core Loyalty is the perfect tool for any ecommerce business looking to grow their customer base and increase sales.

Table of Contents

• What Is Referral Marketing?
• How Does Referral Marketing Work?
• Why Is Referral Marketing So Great?
• How to Make the Most Out of Referral Marketing for Your Ecommerce Business: 7 Strategies
• Getting Started with Referral Marketing

What Is Referral Marketing?

Referral marketing encourages existing customers to refer new customers to a business in exchange for some kind of reward or incentive.

It is a powerful way for businesses to grow their customer base and increase sales, as it leverages the trust and social proof that comes with word of mouth recommendations.

The importance of a referral marketing system lies in its ability to tap into the power of social connections and trust. When a customer refers their friend or family member to a business, they vouch for that business and its products or services.

This kind of endorsement is often more effective than traditional advertising or marketing referral programs, as it comes from a trusted source.

One referral marketing definition is a reward system for referrals. It can be a cost-effective way for businesses to acquire new customers, as they only need to pay for the rewards or incentives given to the referring customers, rather than spending money on ads or other forms of marketing.

This can lead to a higher return on investment (ROI) for the business and can help build a loyal customer base that will keep coming back and referring others.

Referral Marketing Examples

Many successful brands have utilized powerful referral marketing strategies to expand their customer base and boost sales. Referral marketing incentivizes existing customers to refer their friends and family to a business with rewards or incentives in return.

Here are some examples of referral marketing in action:

1. Dropbox

Dropbox famously used a referral program that rewarded users with extra storage space for referring new users. This referral marketing strategy helped the company grow from 100,000 to 4 million users in just 15 months.

2. Airbnb

Airbnb's referral program rewards both the referrer and the referee with travel credits. This strategy has helped the company grow its customer base and increase bookings.

3. Uber

Uber's referral program gives riders a discount on their next ride for referring new users. This strategy has helped the company grow rapidly and become one of the most successful ride-sharing platforms in the world.

4. Harry's

Harry's, a men's grooming brand, offers customers a free shaving set when they refer two friends who make a purchase.

5. Dollar Shave Club

Dollar Shave Club's referral program gives users a $5 credit for each friend they refer who signs up for a subscription.

How Does Referral Marketing Work?

In a typical referral marketing campaign, existing customers are offered a reward or incentive for referring new customers to the business. This can take many forms, such as discounts, free products or services, or credits towards future purchases.

The incentive not only motivates current customers to refer others but also provides a tangible benefit to new customers, making them more likely to try the business and become repeat customers themselves.

Referral marketing statistics, provided by LXA, show that 92% of consumers trust recommendations from people they know, and 77% of consumers are more likely to buy a new product when learning about it from friends or family, according to Buyapowa. Referral marketing takes advantage of this trust and word of mouth marketing to acquire new customers at a lower cost than traditional advertising methods.

Based on Annex Cloud data, referred customers are 18% more likely to stay with a company over time and have a 25% higher lifetime value than non-referred customers. Additionally, referral marketing is often more cost-effective than other forms of advertising.

Referral marketing can bring in new clients with a five-times higher lifetime value than other marketing channels, according to Friendbuy. Referred clients are better qualified than other customers, and that a certain amount of trust has already been built up.

These new customers will already have a higher customer lifetime value just by being referred.

Why Is Referral Marketing So Great?

There’s also ROI in digital ads and email marketing, but less effort and time spent means more ROI goes to referral marketing.

Referrals are the winner here. Almost no money is needed to start a referral sale, but it generates warm leads. After all, people know who exactly among their friends and family would love your products too.

1. Customers value recommendations

Customers trust recommendations, which is arguably referral marketing's greatest persuasive advantage. People trust recommendations and reviews more than traditional ads and are four times more likely to purchase when recommended by a friend, according to InfluencerMarketingHub.

2. Increased customer retention rate

Referral program participants are far more likely to stick with your business. Customer retention is frequently one of the top advantages of referral marketing because attracting new customers is more expensive than keeping your present clients.

3. A wider marketing audience

Utilizing your customers as brand ambassadors through referral marketing enables you to expand your reach.

While some places and events are simply off-limits to traditional advertising and ecommerce marketing, your customer's ability to recommend a good product or business to a friend or coworker is essentially unrestricted.

Customer referrals will also let you grow your clientele because many people have a wide variety of friends.

4. Increased customer lifetime value

Customers who are referred by their peers have a positive opinion of your company already. Customers that have been referred by a friend, family member, or coworker typically have lifetime values that are 25% higher than other customers, as quoted by Annex Cloud.

5. Valuable customer data

Consumers in the modern era adore a tailored experience. You offer the benefit of ecommerce personalization to your clients by measuring customer referrals and engagement.

You get good referral marketing ideas and trends from this data, which can help your brand better serve customers' needs.

6. Excellent ROI value

Discounts and freebies will cost your business little, but referral marketing is less expensive than other forms of advertising, including conventional web ads.

Integrating rewards into your referral loyalty program can be more cost-effective, as you can provide points for each referral instead of an immediate gift or discount. This can help you save money in the long run.

How to Make the Most Out of Referral Marketing for Your Ecommerce Business: 6 Strategies

Referral marketing is like having a secret weapon up your ecommerce store's sleeve when it comes to skyrocketing your customer base and boosting sales.

Here are five strategies to make the most out of referral marketing:

1. Launch a referral program.

Launch a referral program to take advantage of the benefits of referral marketing. This involves creating a program that incentivizes current customers to refer friends and family with rewards or discounts for both parties.

Businesses increase their chances of success and encourage more customers to participate in the program through offering rewards to both the referrer and the referred.

2. Optimize your website for referrals.

Make it easy for customers to refer their friends and family by including referral links and buttons on your ecommerce website, in email newsletters, and on social media channels.

3. Use social proof.

Using social proof is another effective strategy to make the most out of referral marketing. Highlighting positive reviews and testimonials from satisfied customers builds trust and credibility with potential new customers.

Social proofs increase the chances of customers referring their friends and family to the business. It can also attract new customers who are more likely to trust a business that has positive reviews and testimonials.

4. Leverage influencers.

Partner with influencers or micro-influencers in your industry to promote your brand and encourage their followers to make referrals.

5. Deliver exceptional customer service.

Delivering exceptional customer service can turn satisfied customers into brand ambassadors who are more likely to refer others to your business.These customers are more likely to refer others to your business and share their positive experiences with friends and family.

6. Offer exclusive referral rewards.

Create unique referral rewards that are exclusive to your referral program, such as early access to new products, personalized discounts, or special offers.

7. Use Core Loyalty for referral marketing.

Core Loyalty is a tool that can help businesses launch a referral program and leverage the power of referral marketing. It offers automated referral tracking and customizable reward options for businesses to incentivize their customers to refer others. Core Loyalty seamlessly integrates into a business's existing website or ecommerce platform to ensure a smooth and uninterrupted customer experience.

It also provides comprehensive reporting and analytics on the referral program, enabling businesses to track the program's success and make data-driven decisions. The platform also allows businesses to create personalized referral pages for customers, making it easy for them to refer friends and family and track their progress towards rewards.

With Core Loyalty, businesses can take advantage of the benefits of referral marketing, such as increased customer loyalty, higher customer retention rates, and increased sales.

Getting Started with Referral Marketing

A referral is far more valuable than a click on a Google Adwords or Facebook Ad. When higher-quality customers land on a page, they increase revenue and return on investment.

While referral programs may function entirely as an inbound strategy in some circumstances, they can also be used as a complementary channel to conventional marketing. Referrals and conventional advertising have previously been found to complement one another nicely.

Referral marketing helps businesses of all sizes to grow their customer base, increase sales, and improve customer loyalty.

Businesses can tap into the power of word of mouth marketing and reach new audiences by incentivizing existing customers to refer their friends and family.

Referral marketing offers some key benefits, including higher conversion rates, increased customer lifetime value, and lower customer acquisition costs.

Core Loyalty is a referral marketing software that can help businesses launch a successful referral program and get the most out of their referral marketing efforts.

With its automated referral tracking, customizable reward options, seamless integration, comprehensive reporting, and personalized referral pages, Core Loyalty can help businesses to incentivize referrals, track their success, and make data-driven decisions.

Unlock your business’ full potential with Core Loyalty.