Welcome to Thanx Media’s “Elements of E-Commerce” blog series. Follow along as we wade through the nuts and bolts of e-commerce technologies that you need to know.

What is Referral Marketing?

Friends don’t let friends buy junk. Referral marketing looks to that trust—it asks your customers to spread the word about your company and products. Referrals put information and offers in front of new customers with an inherent personal recommendation.

A referral through a marketing program is an email or link sent by-a-friend-to-a-friend telling them to sign up for offers or buy products. The original customer might be given something in return for engaging other people. These incentive arrangements can also be part of influencer or affiliate marketing campaigns.

Word-of-Mouth and Recommendations are the Strongest Advertising

Does referring really work? There’s no question, it does.

An almost hard to believe example is Airbnb’s test referral program. The company offered existing customers cash to use toward future travel if they referred a friend. Almost every one of the referrals sent out actually led to a new Airbnb user! (2,161 existing Airbnb-ers referred 2,107 new users.)

You might question if that was a fluke, but there are so many reasons that referral marketing is one of the strongest ways to advertise:

1.  It’s the thing people trust the most:

⋅  83% of buyers say they trust recommendations by people they know. And 66% trust consumer and editorial opinions. (Nielson.)

⋅  84% of B2B buyers begin their decisionmaking with a referral. (LinkedIn.)

2.  Recommendations lead to high value customers:

⋅  The Harvard Business Review reports that in one case study, referrals led to new customers who were 18% more loyal and had 16% higher sales value.

3.  Referral marketing can have effects beyond the single referral:

⋅  Visibility. Even when referrals don’t lead to new buyers, the very fact of information sharing increases a company’s visibility. Asking a customer to send five referrals will promote your brand awareness, even if only one of those referrals leads to a sale.

⋅  Existing Customer Loyalty. Referral bonuses give your existing customers a reason to stay connected to your brand and products. You can add these incentives to other loyalty programs, doubling up on your customer care and giving you more chances to encourage your existing customers to make referrals.

4.  Most consumers are happy to make recommendations:

(But marketers need to make it happen!)

⋅  83% of satisfied customers are willing to refer a product or service but only 29% actually do. (Texas Tech.)

With all this evidence that it works, it only makes sense that we’re going to help you sort out how to run a strong program. Join us in Part II of our Referral Marketing discussion for ideas on incentives and referral media that will get attention, and Part III for a breakdown of resources and technology that will support a long-running program.