Referral marketing is an instrument of new customer acquisition, which is carried out through word of mouth, reviews and references from customers. As a rule, the prerequisite is that the customer is satisfied with the provider’s services. In this respect, adequate customer care and loyalty marketing are upstream of referral marketing.
In addition to a company’s customers, other market participants can also be considered as recommenders. These can be, for example, employees or network partners of the company. Network partners are also suitable referrers. You do not necessarily have to have experience with the product yourself, but you do have to be convinced of the performance of the provider, e.g. consulting engineers, architects.
Word of mouth is primarily about conveying information in a positive or negative way. In addition to pure communication, a recommendation implies an influencing indication of action, also of a positive or negative nature, which is usually preceded by one’s own experience with the respective offer. The credibility advantage of personal recommendations over commercial messages has a comparably high influence on opinion-forming, preference formation and purchase decisions.
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Referral marketing is used as an acquisition method in many industries. Existing business contacts are used to win new customers. This can be considered the oldest merchant virtue in the market. Since the advent of Web 2.0 applications, controlled referral marketing, often referred to as viral marketing, has been moving more and more to the Internet.
Referral marketing can be used in both marketing and sales. In sales, a distinction is made between active referral marketing or referral management (Who would be happy about an offer?) and passive referral marketing (Please recommend me to others!). Thus, this instrument can be used for controlled acquisition.
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Referral marketing aims to bring about the largest possible number of positive recommendations in order to generate new customer business and permanently increased sales. Since positive references presuppose customer satisfaction, this is not only the task of sales, but of all departments that can contribute to customer satisfaction. In this respect, the goal of customer satisfaction should be an integral part of the corporate culture. This requires new training opportunities for all areas of the company.
Basically, the area of recommendations by third parties is distinct from affiliate marketing, since in referral marketing a recommendation is made out of conviction. In contrast to affiliate marketing, in which market participants are primarily motivated by commissions and make recommendations (online often in the form of links and offline through corresponding commission contracts).
The effectiveness of referral marketing is justified by the fact that statements made by a provider’s customers are considered more credible by new potential customers than statements made by the provider itself. This is also one of the challenges of referral marketing: the recommendations must be convincing. Therefore, there is a close alliance with reference marketing, which can underpin the credibility of the recommendations.
