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Advertising is a vital aspect of the media industry, but marketers know that it is imperative to build trust with consumers. Globally trust in advertisement is low, especially in North America. Ultimately a lack of trust in paid advertisement translates into a lack of action on behalf of the consumer.
According to a Nielsen study, 88% of respondents are more likely to trust recommendations from people they know, compared to any other channel. Consequently, referral marketing is an effective channel for growing an eCommerce business. Let’s explore the benefits of referral marketing and how you can build a referral marketing strategy for your eCommerce business.
Referral marketing, also known as word-of-mouth marketing, is a promotional strategy that encourages current customers to refer new customers, usually offering an incentive for one or both parties.
Customer acquisition cost is how much you are spending on the process of attracting new customers to your business. According to industry reports, average customer acquisition cost has gone up approximately 60% over the last 5 years.
One major contributor to the rise in CAC is that many businesses heavily rely on paid advertising. In recent years, paid advertisement has become less effective and more expensive due to privacy changes and declining ROAS.
Thankfully, a referral program is a very cost-effective way to bring in new customers while also raising their lifetime value. In fact, according to industry studies, leads generated from referral marketing have a 16% higher lifetime value.
When a customer joins a referral program, they think about friends and family who they believe would be interested in your product or service. As a result, these leads are more likely to convert because you are reaching someone who is likely already interested in your product and the referral is coming from a trusted source.
According to this study, leads generated by referral marketing are four times more likely to convert.
When a person sees an advertisement, they have no reason to inherently trust the ad or your brand. When you reach your target audience through a trusted source, like a friend or family member, that trust is partially transferred to your brand.
The basis of a referral marketing strategy is that existing customers, who love your products, will share it with people they know through a refer-a-friend program on your website. The referral system generates a unique referral link for them, which can then be sent to their friends and family. When that friend or family member makes a purchase, one or both parties earn a reward. The reward can be anything from a discount, free shipping, or free sample.
This type of program builds customer loyalty because it incentivizes them to share your brand with others and the reward will also encourage repeat purchases.
The best place to start when planning a referral marketing strategy is determining a customer acquisition budget and choosing your referral incentives accordingly.
Then you need to decide who will be receiving the reward.
A commonly used strategy is to offer a discount like “give 15% get 15$”. Meaning, the referral link will give the new customer 15% off their first purchase, and once they make a purchase using that link, the existing customer will get 15 dollars off their next order. However, those with a tighter budget may choose to only reward the person making the referral, to lower the overall cost of the program.
Next, you will have to choose which software you want to use to keep track of your referrals. For Shopify merchants there are a number of referral marketing tools available in the Shopify app store. Let’s discuss the top software options and what they have to offer. (Prices are in USD).
A referral strategy incentivizes repeat purchases but providing customers with a great experience is what really drives retention. Solid branding, nice packaging, great customer support and of course an amazing product is what leaves a lasting impression and inspires people to rave about your company to friends and family. A good shopping experience is always the most important factor when customers are deciding whether to shop with you again.
Cultivating customer loyalty involves providing customers with a feeling of connectedness to your company. An effective way of creating this bond is by communicating your brand values. According to the 2020 Consumer Culture Report, 71% of consumers prefer to buy from companies that align with their values. Additionally, customers who resonate with the same values your brand portrays are more likely to suggest your products to others.
Once you have established your referral program, use your key marketing channels, like email and social media to let your customers know about it. Make sure to highlight all the rewards they can earn! Additionally, an easily accessible landing page on your website is also important to communicate the details.
Adding a referral program into your overall marketing plan is a win-win situation. You get free word-of-mouth marketing while the customers get rewarded for sharing great products with their friends and family.
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