Why Do Referral Marketing

Modern marketing is getting harder and more expensive all the time, due to a combination of (i) the ever increasing costs and reduced effectiveness of digital marketing; (ii) the fact it's getting harder and harder to reach customers due to ad blockers, spam filters, banner blindness (iii) and because consumers increasingly distrust adverts, celebrity endorsements and influencers. And to cap it all, consumers are typically less loyal than they used to be. By comparison, the business case for referral marketing is clear. This is because studies consistently show that consumers trust word-of-mouth, or recommendations from friends and family. The reason that referral marketing often works so well is due to better matching and social enrichment, which means that a referral is likely to reach the right person at the right time, be read and be received from a trusted source. As a result, new customers gained from referral marketing are often better customers than those obtained from other marketing channels, and spend more and are more loyal. While referral programs are often directed at customers or clients, they can also be restricted to certain audiences such as a class of customers or clients (e.g. loyalty scheme members), employees or for business partners, affiliates and influencers. And while often the action being driven is a sale or subscription, it's not always the case, as any action that has value to the business and can be tracked can be driven by a referral program such as joining a loyalty scheme, downloading an app, signing up to a newsletter etc.

A good referral program is clearly one that succeeds in bringing good quality customers who spend more and stay for longer.