Referral marketing (also referred to as word-of-mouth marketing) is an important approach for bringing in new customers. But while it can be an important component of increasing awareness and introducing new customers, it doesn’t work in all settings. This article highlights some important considerations in determining if referral marketing is right for your marketing strategy.
What are the opinions of your customers of your product
Before beginning a referral marketing approach, it can be useful to ascertain what your customers actually think of your products. While it is easy to assume that every one that is buying from you genuinely likes your offerings, this need not be the case – some may be using it because it is too difficult to switch to an alternative, and some users may be doing so because it is the option that the company has chosen. Gaining a sense of your current customer perceptions can help avoid an ill-advised referral campaign, that sparks more negative reactions than actual referrals.
Are your customers specifically likely to know others that will also benefit from your product
Another thing to consider with referral marketing is the extent to which your current customers are actually likely to know others that they can refer.
In some situations this may well be the case – potentially colleagues or friends that have similar needs. In other situations, your customers may be relatively disconnected from one another – making referrals more difficult to achieve.
Can you encourage referral marketing
It can be useful to consider if there are ways that it is feasible to actually encourage referral marketing. Potentially there are discounts that you can provide existing or new customers to actually encourage your customers to make the referrals. Unless there are some benefits that you are able to provide, it becomes a lot more difficult to actually drive referrals.
What churn-rate do you see with customers acquired through referral marketing
When evaluating the referral marketing campaign, it is important to consider whether the campaign actually succeeded in bringing in new profitable customers, or whether it is simply generating a substantial amount of customer churn.
A danger of the approach is that generates short-term interest – potentially new customers taking advantage of an initial referral promotion, only to quickly cancel their subscription when the trials run out. This may be particularly true when customers primarily refer new customers to themselves get a promotional credit – referrals are made more based on the bonus, rather than because the referred customer is expected to value the service.