Referral Marketing: Trusting People’s Word


We have heard and experienced as well that many people recommend us to use some sort of service or the product they have been using or tried once using. Who knew sharing the experience or telling reviews about some product or service would be a part of marketing? Yes, indeed what you have just read is true. The sharing of reviews, experiences, and suggestions to use the product or the service is known as ‘Referral Marketing.’

Referral marketing is a word-of-mouth initiative designed by a company to incentivize existing customers to introduce to their contacts to become new customers of the business. This strategy makes you and your business reach audiences that are unexpected, unable to reach, track, influence, and measure the message content. Referral marketing is a tool used by various businesses and corporations across a wide variety of different industries to grow and build customer bases. In the past, referral marketing was purely focused on spreading information through verbal interaction with a close network. Modern-day referral marketing now heavily relies on social media and the internet, allowing the scope of referrals to increase dramatically by reaching a far broader audience.

There are multiple advantages to referral programs. Typically, referral customers are better matched due to the existing customer knowing both parties and being able to determine the benefits to the potential new customer; given the product or service is useful to the referrer, the prospect has a higher chance of also finding it useful. This brings higher-value customers to the company or authority at a lower cost. With a referral from a close tie, there are implications on the referrer’s reputation if the product or service is not well received, given the higher value placed on a personal recommendation rather than an advertisement. Thus, it is in the referrer’s best interest to recommend a product or service that is not only useful to the potential prospect but also something that they themselves have used.

The referrer may not be impartial if compensation is based on the prospect joining the customer, not just for the referral. Incentives can place an ulterior motive on the referrer’s end, which can introduce a drive to ‘sell’ referrals in order to receive compensation. This can result in uncertainty from the referred customer, and reduce trust in both the existing customer and company regardless of the product or service sold. This does not happen with pure WOM given that there are no incentives given to referrers by a company to recommend. A large majority of referral marketing programs will compensate regardless of the longevity or quality of the new customer; this creates a moral hazard favoring opportunists and potentially harms the genuineness of the recommendations.

A study done on referral marketing, say that the above-mentioned disadvantages are minimal in front of the advantages of referral marketing. Spread a word and market about your business for kind of free!