As we move into 2023, businesses are constantly seeking new and innovative ways to reach their target audience and achieve their marketing goals. One strategy that has proven to be highly effective in recent years is referral marketing. Referral marketing, also known as word-of-mouth marketing, involves encouraging existing customers to refer their friends, family, and colleagues to your business.
In 2023, referral marketing is set to become an even more crucial component of a successful marketing strategy. With social media and other digital platforms continuing to dominate the marketing landscape, businesses must find ways to stand out from the crowd and reach their target audience in a more personalized and authentic way. This is where referral marketing comes in.
In this definitive guide to referral marketing in 2023, we will explore everything you need to know to get started with this powerful marketing strategy. From understanding the benefits of referral marketing to creating a referral program that resonates with your customers, we will provide you with the tools and insights you need to make the most of this exciting marketing approach.
So whether you’re a small business owner looking to expand your customer base or a marketing professional seeking new ways to engage your target audience, this guide will equip you with the knowledge and skills you need to succeed with referral marketing in 2023 and beyond.
What is referral marketing?
Referral marketing is a type of marketing strategy that relies on word-of-mouth recommendations from satisfied customers to attract new customers. Essentially, referral marketing is a way of leveraging the power of positive reviews and personal recommendations to grow a business.
The process typically involves incentivizing current customers to refer their friends and family to the business, often by offering rewards or discounts for successful referrals. This can take many forms, such as referral codes, special links, or simply asking customers to share their positive experiences with others.
The beauty of referral marketing is that it can be incredibly effective without requiring a large marketing budget. By focusing on building strong relationships with existing customers and encouraging them to spread the word, businesses can attract new customers who are already primed to trust and value their products or services.
In today’s digital age, referral marketing has become even more important as consumers increasingly rely on online reviews and recommendations to make purchasing decisions. By incorporating referral marketing into their overall marketing strategy, businesses can tap into the power of social proof and build a loyal customer base that will continue to grow over time.
Why is referral marketing so powerful?
Humans are, by nature, social creatures. We naturally share our experiences with our friends.
If we had a good experience, we are wired intuitively to tell all our friends about it. Why wouldn’t we! We want our family and friends to enjoy the great things that we’ve experienced.
Similarly, if we had an awful experience, you’ll be damn sure we’re sharing it with them as well. After all, this is the best way to avoid pain and frustration. By learning from other people’s mistakes, we learn how to avoid those mistakes.
Nielsen says 92% of consumers trust recommendations from people they know.
And this is why referral marketing is so powerful. It’s in-built into us. It’s natural and biological. Like it or not, it happens. And since you can’t stop it from happening, it’s much preferable that you do something about it deliberately (and of course, ensure that they’re sharing positive things about you!)
Too fluffy for you data-oriented person? Don’t worry, this phenomenon has been backed up by statistics as well.
According to McKinsey, referrals influence up to 50% of ALL purchasing decisions. Not only that, referrals generate more than two times the sales of paid advertising.
Plus, according to another study published in the AMA Journal of Marketing, referred customers are more loyal, and bring higher profit margins. How much? As high as 25%!
And here’s something else that might pique your interest.
Referral marketing is essentially free!
Think about it – referral marketing is essentially your customers spreading the word for you. It’s your customers evangelizing about your brand to their friends and family.
Sure, you might need to prepare some assets upfront to seed the initial referrals, but when it kicks off, it’ll be like a virus. Your customers will refer their friends, who will refer their friends, who will refer their friends…
It’ll be unstoppable.
Plenty of companies have reached millions of dollars in revenue on the back of their referral marketing strategy. Here are two well-known examples:
1. Dollar Shave Club
Dollar Shave Club, a subscription-based grooming company got its initial start as a company through a referral marketing campaign.
In 2012, Dollar Shave Club released a cheeky and humorous YouTube video titled “Our Blades Are F***ing Great”. It featured their CEO Michael Dubin delivering his monologue in a sarcastic manner.
How did the video do?
25 million views!
Not only that, Entrepreneur reported that in the first two days of the video’s debut, over 12,000 people signed up for Dollar Shave Club’s razor delivery service. By the end of the week, they had 25,000 customers.
The initial customers loved the ad so much that they told all their friends about it, which spread and went viral.
5 years later, Dollar Shave Club sold to Unilever for $1 billion in cash.
Dropbox, a file-hosting cloud service was founded in 2007 by Drew Houston and Arash Ferdowsi.
Like many startups, Dropbox struggled to grow its user base. They had turned to search engine marketing as the answer to their growth bottleneck, but it was an epic failure.
It turned out that their cost per customer was $388. At that time, Dropbox was only a $99 product. It didn’t make sense.
They eventually decided to take a leaf out of PayPal’s book and set up a referral program.
How successful was their referral program?
In only 15 months, they went from 100,000 users to 4,000,000 users! Dropbox eventually grew to a multi-billion dollar startup, and recently filed for IPO to be listed on the Nasdaq.
If referral marketing is so powerful, why are you getting less than half of the referrals you should be getting?
If referral marketing is ingrained into our psyche, why are you getting so few referrals? Why are you not getting more shares and more customers? Why are you not going viral?
According to an Advisor Impact study, 83% of your satisfied customers are willing to refer you to their friends.
But only 29% of them actually do.
Why the discrepancy? Why do such a large segment of your customers express interest in sharing… but only so few of them actually do?
To answer that question sufficiently, we need to take a step back. We need to begin from first principles.
For you to start getting word-of-mouth, you need to first have something for people to talk about, to remark about. This means, in order to get people talking about you, you need a WOW product.
What is a WOW product? It’s not a clever acronym that stands for something. It literally means you need to have a product that makes your customers go “Wow! What a wonderful experience! I need to tell everyone!”
However, knowing what a WOW product is doesn’t mean anything. It’s easy to say you need something remarkable and leave it as that. The real question is – how do you achieve it?
You can achieve it through one of two things (or both):
1. Unexpected utility
A product with unexpected utility is a product that solves a specific problem better than anything else in the world.
This is typically led by innovation. It involves either creating something that has never-yet-existed or tackling a problem that has long been present but neglected.
Here are some examples:
Tesla Model S
The Tesla Model S was not the world’s first-ever electric car. There were many attempts to make one, except that it was always unfashionable and ugly to drive.
The Tesla Model S was different. It was the first ever electric car in the world to become a status symbol, something that even James Bond might want to drive. It was sexy, reliable, safe, and acknowledged by the different motoring authorities to be a superior vehicle.
We all know this story.
Before the iPhone was introduced to the market, the mobile phone was a limited tool. You could text or call and that was all.
But Apple went back to the drawing board and decided to design a phone from scratch. They wanted a phone to do more than it did. They wanted a phone to be as powerful as a computer.
When Steve Jobs introduced the iPhone, it immediately became newsworthy. It was an entirely new class of product by itself; they had succeeded in making a mobile phone do more than what it did before – taking photos, listening to music, having a touchscreen, etc.
2. Tell a meaningful story
What if you don’t have the budget or resources to innovate? What if you’re just a small business? Or what if you’re dropshipping?
Is creating a WOW product out of your reach?
Fortunately, it’s not. You can tell a meaningful story that your customers can get behind. A story about why you started your company. A story behind how your products were chosen and developed. A story about the tedious process you went through to get your products out to your customers.
Whatever it is, you can tell a wonderful story that your customers love.
How do you tell a story that will touch your customers and invite them to join you in your mission?
In a guest post on the famous venture capitalist Fred Wilson’s blog, FakeGrimlock suggests that you should create a “minimum viable personality”. To do that, you need to answer 3 questions:
- How do you change your customer’s life?
- What do you stand for?
- What do you hate?
Once you have the answers to these questions, you can start implementing those answers into your brand and its marketing collaterals – your images, your logo, your website, etc.
Here are some examples of how some companies have created stories that have gotten their customers raving in support:
Toms is a shoe company with a special business model. For every pair of shoes you purchase, Toms donates a pair of shoes to someone who needs it.
The founder, Blake Mycoskie came up with the company and business model after a visit to Argentina, where he learned about the daily struggles faced by people who were without shoes.
This means that, with every pair of shoes you purchase at TOMS, you aren’t merely buying a pair of shoes. You’re buying into Blake’s mission. You’re making the world a better place. You’re helping someone who is in need.
With the story powering the company, TOMS today is worth close to a billion dollars and have given away more than 45 million pairs of shoes.
When Debbie Sterling was studying at Stanford, she noticed her engineering classes were predominantly male. To encourage girls to develop an interest in engineering, she decided to launch GoldieBlox on Kickstarter, manufacturing interactive toys for girls.
Instead of marketing GoldieBlox as a “toy company for girls”, Debbie insisted that GoldieBlox was a movement, one that tried to improve the world by correcting gender equality in engineering.
She eventually raised over $285,000.
It is important you pause here and look at your store objectively. Ask yourself: are your customers spreading the word for you? Are your products deserving of word-of-mouth?
If it isn’t, then it’s time to dive in deep and analyze what you need to improve. Start working on innovative products that can drive word-of-mouth, or craft a brand story that your customers can support.
If you are sure you already have a WOW product, then move on to the next section to find out how to supercharge referral marketing.
How do you implement referral marketing in your marketing strategy?
There are many ways in which you can design your customers’ experience to be shareable.
For example, you can design your packaging and unboxing experience for the social media sharing experience. Trunk Club excels at this.
Trunk Club goes the extra mile by making sure that the unboxing experience is share-worthy.
By making sure the unboxing experience is “wow-inducing”, Trunk Club subtly encourages their customers to post about it on Instagram or other social media outlets.
Trunk Club is so successful that customers even make YouTube videos of themselves unboxing a Trunk Club purchase, which further amplifies their word-of-mouth.
The unboxing experience is not the only place where you can encourage virality. Remember your “minimum viable personality”? It’s not a vanity, business school exercise where you feel proud of yourself for filling it up.
Your job is to find ways in which you can sprinkle that personality. You could add bits of that personality into your website design, your copy, your images, your product descriptions, and so on.
Here’s how Man Crates does it. Man Crates is a company that sells crates packed with guys’ goodies. Their brand personality is one that doesn’t take itself too seriously.
They communicate this brand personality through instructions on how to open your crate like this:
They even offer a product where you can ship a crate wrapped in duct tape, a nod to the “macho” personality they created for their brand:
It doesn’t always have to be about your product.
2. Provide exceptional customer service
Happy customers share more. How do you get happy customers?
Through exceptional customer service.
Despite constant reminders of how customer support can drive business, truly great customer service is rare. Most companies provide the minimum expected.
But if you want your customers to share about you, then you have to give exceptional customer service.
Look at this story of how a FedEx employee went the extra mile to save the wedding of this unfortunate lady. She had ordered a wedding gown online, but it failed to deliver by the morning of her wedding day.
Bustillos came to the rescue. It took him an hour and a half, but eventually, he found the wedding dress and sent it to her. She was so grateful.
Do you think the lady became a FedEx evangelist after that? You bet she did!
Examine your entire support experience. Is it up to par? Pretend that you’re a customer visiting your own store. Would you, as a customer, share about you with their friends if they went through your customer support?
It doesn’t have to be fancy either. Sometimes all you have to do is to provide after-purchase support. Look into using customer support software like Zendesk to help your customer support team manage the entire process smoothly.
Another element of customer support you can consider incorporating is live chat. Adding live chat into your store (before the checkout process) allows you to handle objections and answer questions before the cart is checked out.
Adding live chat can prevent cart abandonment problems too – customers will feel more secure in buying from you knowing that there is a live person on the other end willing to hear out their questions.
Find out which part of your customer support process you can optimize. Related to the above point: sometimes adding a little humor or personality into the process makes the entire journey fun and enthralling.
Word-of-mouth marketing is cool in theory.
But for many stores, it may not apply. Some stores have products that are so boring that nobody will ever talk about it, no matter how innovative it is. How many people are willing to talk about car parts? Or furniture? Or socks?
A great example of this is Blendtec. Blendtec sells blenders. Blenders are, in my opinion, one of the most boring things you can ever market. Yet, Blendtec managed to turn blenders into a viral phenomenon.How?
Blendtec decided to make videos where they started blending all sorts of different things. From iPhones to golf balls, nothing was spared from the blades of Blendtec’s blenders.
The result? 885,000 YouTube subscribers.
But Blendtec might have gotten lucky, you protest. Blendtec probably chanced upon an opportunity that was one in a thousand – and they took full advantage of it.
You can replicate Blendtec’s success for yourself. All you have to do is to find out which content performed well / was popular in your industry, improve it and promote it. Here’s a simple guide on how you can do this for yourself:
#1. Find content that has performed well in your industry
Head to Ahrefs Content Explorer, and type in a relevant keyword from your industry.
Content Explorer will show all the content that has proven to be popular in your industry. Sort them by social shares:
With just a few seconds of work, I’ve already discovered a potential topic (1.8 million shares?!) to create viral content:
Continue scrolling through the list of articles, and start jotting down ideas.
#2. Improve the content
After you’ve discovered the topics you want to replicate, click through to the content that has generated tons of social shares.
Examine the content carefully. Why did it succeed? You’ll want to discover the important factors in its success so you can replicate it.
Then, ask yourself, how can I improve this page? Here are a few things you can consider in improving a page:
- Make it more in-depth
- Make it more up-to-date
- Create a longer list
- Make it better designed
- Make it different/target a different angle
#3. Promote it
Content will not get be discovered if you do not promote it. Once you’ve hit “publish” on the piece of content, start promoting it. Pretend you’re a Hollywood producer who just released a blockbuster movie – you’ll want to be everywhere where everyone can see it.
Promote it on Facebook Groups and LinkedIn Groups. Answer questions on Quora or share them on forums. Reach out to people who have email lists and ask if they would include it in theirs. Reach out to journalists and see if they have an interest in covering it.
You can use the “Who Tweeted” button in Content Explorer to discover influencers who have previously shared the article you’re trying to replicate:
Simply sort them by number of followers, reach out to them, and see if they would be interested in sharing your content.
#4. Leverage the power of influencers
Influencers are people who have built a large audience. They possess tremendous influence over their fans who yearn to look, dress, think, or live like them.
Every recommendation given by these influencers holds sway over which product trends, which product goes viral, and which product gets sold out. Kylie Jenner (pictured above) famously caused Snapchat to lose $1.3 billion in market value after she told her fans she “no longer” uses the app.
This also means that it is a huge opportunity to work with them to promote your products to their audience – and spread word-of-mouth for your brand.
Work with them in different capacities and get them to endorse or recommend your product to their audience.
You can do a simple sponsorship campaign:
Or you can also get them to endorse your product by getting them to model for your ads.
It doesn’t have to be a large-scale, expensive campaign either. For example, ModCloth famously named their dresses after famous fashion influencers. These influencers were flattered and later on bragged about it to their audience, driving free word-of-mouth for them.
#5. Implement a referral program
What is a referral program?
A referral program is a deliberate, systematic way of getting people to make referrals to your business. It is a way to incentivize your customers to spread the word and get their friends to buy from your store.
To set one up, you can either use a custom-built solution (usually limited to massive brands) or an automated referral program solution like ReferralCandy, a Shopify app.
To ensure the success of your referral program, there are two main components you must optimize.
The most important part of a referral program is the incentive. After all, a referral program is rewarding your customers for spreading the word.
Getting the incentive right is 80% of your referral program’s success. Think clearly about what would be a meaningful incentive for both the advocate and the friends they are referring to.
Don’t be afraid to experiment, and don’t be afraid to switch up your incentives along the way.
Here’s a rule of thumb we recommend for incentives:
- If you’re selling something people buy once/rarely buy (e.g. mattresses), give cash incentives.
- If you’re selling something people buy often (e.g. makeup/clothes), give a discount coupon.
Without promotion, nobody will know about your referral marketing program. Make sure it is visible so that your existing customers know they can join.
You can let visitors know about your referral program by adding a link to it in the header of your website.
You can also include it in the footer.
Send an email to your existing customer base and invite them to join.
Some software allow you to attack your customers right in their “hot buying zone”, usually right after they just purchased something from your store. This is called a post-purchase popup. Include one after they buy to encourage them to join your referral program.
If the referral marketing software allows, you can also attach a referral widget that informs visitors about your referral program.
Best Referral Marketing Examples
Now that you’ve seen how you can leverage referral marketing in your marketing strategy, it’s time to look at some good examples of how effective referral marketing can be executed.
You can also take a leaf out of their books and emulate their success.
In a post on Tim Ferriss’s blog, Jeff Raider, the co-founder of Harry’s (a grooming company) describes step-by-step how they used referral marketing to acquire over 100,000 emails in preparation for their launch.
Harry’s created a two-page microsite that gave away different products to potential customers depending on how many friends they referred.
This was their campaign:
eJuices is one of the world’s largest online e-cigarette distributors. Billy Wilson, the founder, started the company after meeting his current business partner Paul Davey. They initially started by selling vapes in retail stores but decided to move the company online.
To grow the company, they looked for different marketing channels. They tried participating in trade shows, sold their products in-store, and even built their own website.But true exponential growth came when they started to use referral marketing.
Here’s their referral program:
Their customers love eJuices and were more than happy to share about it with them. After observing the infinite loop of customers bringing friends, and their friends brought friends, eJuices knew they had found their most powerful marketing channel.
Today, eJuices carries 1,700 brands with several million dollars in sales.
Referral marketing can be a powerful component of your marketing mix. Don’t leave things to chance. Don’t wait for it to happen organically. Try out some of the strategies mentioned in the article to help you increase your brand’s audience and customer base.