Five guidelines on how startups can use referral marketing to their advantage

One of the oldest and most effective marketing strategies, referral marketing can help companies to effectively target audiences.

Various studies have proven that referral marketing is one of the best forms of marketing when it comes to sales and conversions. Referral marketing or word-of-mouth marketing is when people purchase products based on someone else's recommendation. It is one of the oldest (and still most effective!) marketing strategies out there.

While other marketing techniques are discussed regularly, referral marketing is often ignored. The reason for which a lot of small businesses are not considering it is because of the simple fact that it doesn’t get visible traction like a TV commercial or a paid advertisement.

According to the New York Times, 65 percent of all new business comes from referrals. That means on an average, two-thirds of consumers make purchases because someone they know recommended a particular product or service.

Startups like AirBNB and Dropbox have used this tactic masterfully to offer their target audience effective incentives.

Here is a look at how some startups can implement some basic tactics to use the referral process to their advantage:

Target the right audience

A successful marketing campaign involves two key components, a great message and laser targeting. Referral marketing tends to be much more targeted because people tend to know their friends and social audiences pretty well. Converting sales through this channel is easier as it appears more authentic and convincing when compared to paid marketing programs the referalls may/may not relate to. This allows your brand message to spread more effectively and leaves a deeper impact.

Build the trust factor

Trust goes a long way when it comes to convincing someone to buy something. If we don't trust someone, we aren't going to listen to them.

Neilson Trust Study shows that most credible advertising comes straight from the people we know and trust. More than eight-in-10 global respondents (83 percent) say they completely or somewhat trust the recommendations of friends and family. But trust isn’t confined only to those in our inner circle. In fact, two-thirds (66 percent) say they trust consumer opinions posted online - the third-most-trusted format.) Referred customers are moreover less likely to leave.

This is most likely to occur when you encourage referrals from your existing loyal, satisfied and profitable customers. Making these customers the primary target of your programme is key since happy existing customers are more likely to recommend.

Simplicity and instant gratification

Simplicity is key; if your referral programme is too complex it might not connect with the masses. To guarantee success, the programme must be easy to use; it must be crystal clear to your customers how the programme works and what’s in it for them. Moreover, the company should ensure the sign-up process isn’t tedious and the rewards for spreading the word are tangible and instant, making it a win-win situation for both the referrer and referral.

Expand your reach - go big on social media platforms

Referrals aren't just limited to friends and family. They can come from a variety of sources, provided the receiver of the message trusts them.

Other sources include news publications and media channels, customer reviews, influencer opinions and testimonials. With a simple Facebook status, Tweet or Instagram post, the average consumer can now reach hundreds of friends (who again trust their opinions) in a matter of seconds. That kind of social reach is a critical reason to why referral marketing has only gotten bigger over the last ten years.

Moreover, incentivise and encourage your target audience to share on social media; the buzz thus created goes a long way in reaching more people in no time at all!

Capitalise on influencers

Influencers, (bloggers, celebrities) by virtue of their work are highly influential people. The key is to find influencers whose following is close as possible to your target market; the right ones can be a goldmine of referral traffic and sales. Since startups have to be prudent with their financial spends, it is not necessary to target the big guns out there. One can also look at influencers who are small though still have huge audiences they can reach out to.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)