by Anton Likhnekevich - June 26, 2019

What do you trust more - recommendations from friends or regular advertising on the Internet? I am pretty sure that you would choose the recommendations. In this article, we will talk about referral marketing: what it is, why it is necessary, and how to do it. Let’s go.

According to the Nielsen survey, more than 83% of people trust the recommendations of friends more than any other advertising.

And for sure:

  • You know friends in person and trust their opinion;
  • They do not try to sell you hundreds of different goods and services every day;
  • Friends are not interested in making a sale - they just advise;
  • You know that friends used the service or product personally, and their reviews are not fake.

Referral marketing is a special sphere of marketing that encourages customers to recommend products and services to their friends. Using properly, it works super efficiently. Let's see what is what.

Brief manual. The one who recommends the product is called a referee. And the one who came on the recommendation is a referral.

 

Referrals or Partners

In order not to bore you with tedious terms and explanations, I want to consider a few examples, so everything will become clear.

David is the owner of a coffee shop. Anna is his regular customer, who comes every day and buys a coffee. Therefore David decides to get several new customers with Anna’s help, and there are 2 ways:

Method 1. For each client who came on the recommendation, Anna gets a free coffee or muffin.

This is a Referral Marketing.

 

Method 2. For each given client, Anna gets $5 instead of free coffee.

This is Affiliate Marketing.

 

In the first case, customers receive bonuses directly related to your business. As a result, they are motivated to continue using your products

In the second case, customers receive money, but there is no attachment to the product. This allows you to attract third-party people who are not interested in your business at all to advertise your product. They may not use the product, but they will still recommend it to their friends since they will be paid.

 

Models of Referral Marketing

We will not go far and again turn to David and his coffee shop.

Model 1. For each client who came on the recommendation, Anna gets a free coffee.

This is a one-sided model. Only the referee gets the benefit.

 

Model 2. For each client who came on the recommendation, Anna gets a free coffee; New Customer gets a coffee and muffin for free.

This is a double-sided model since both sides get a benefit - the referee and the referral.

 

In the first case, business spends fewer resources - bonuses should be given just to one person.

In the second case, invited people to get the additional motivation to try the product - free candy. It is logical that this model is more efficient.

There is another important point. Some people feel remorse when recommending a product to friends for a reward. It seems for them like they are using their friends' trust for selfish purposes. However, if friends also receive a bonus then everything is ok and conscience is clear.

 

Word of Mouth

In fact, besides referral and affiliate marketing, there is a third type.

If David brews awesome coffee, Anna will advise him to friends, relatives and work colleagues without any bonuses. This is called word of mouth - customers recommend the product themselves, without any incentives.

For instance, I advise everyone to read the WellKnown Blog, work at Google Docs and watch the HBO shows. I am not paid for it, I just made my own decision that it is cool and useful.

The surest way to run a word of mouth campaign is to exceed customer expectations. You do not just brew a coffee, but bake delicious cookies for free. Do not just fix phones, but pick it up yourself in a convenient for the client place and time. Do not just develop a website, but also make the basic SEO set up.

Though, often it is enough just to do the best in your job, so clients will surely appreciate this and send friends to you.


Anton Likhnekevich

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