Definition
Referral marketing is a marketing technique that seeks to take advantage of the recommendations and referrals of current customers to attract new consumers. That is, it consists of encouraging customers to share their satisfactory experience with friends, family or acquaintances, and thus generate a snowball effect that increases the user base.
Effectiveness of referral marketing
This strategy is very effective, as it is based on the trust and credibility that customers have in the recommendations of their close circle. In fact, according to a Nielsen study, 92% of consumers trust recommendations from friends and family above any other type of advertising. In addition, according to Harvard Business Review, customers acquired through referrals tend to be more loyal and have a higher life value for the company.
Advantages of referral marketing
Among the benefits of referral marketing we can mention the following:
- Build trust and credibility: As mentioned above, customers trust recommendations from those close to them more than traditional advertising. This is because these are trusted people who do not have a direct interest in selling a product or service, so their recommendations are considered more genuine and reliable.
- Increase the user base: By motivating current customers to share their positive experience with others, the company can attract new consumers and, therefore, increase its user base.
- Reduces customer acquisition costs: By not having to invest large amounts of money in advertising, the referral marketing strategy is more profitable and effective in terms of acquiring new customers.
- Encourage customer loyalty: Customers who recommend a product or service to their close circle tend to feel a greater emotional connection with the brand, which increases their level of loyalty and loyalty to it.
- Increases customer lifetime value: According to a study conducted by the University of Pennsylvania, customers acquired through referral marketing tend to have a higher life value for the company. This is because, having been recommended by someone they trust, they have a greater predisposition to make repeated purchases and acquire additional products or services.
Examples of Referral Marketing
Referral marketing has become a very powerful marketing tool for businesses looking to increase their user base profitably and effectively. Below are some examples of companies that have successfully implemented this strategy:
- Airbnb: Airbnb rental platform uses referral marketing to attract new users. Every time a user invites a friend to join the platform and the friend makes their first booking, both the guest and host receive a credit to their account to use on future bookings. In this way, Airbnb not only attracts new users to its platform, but also fosters loyalty and increases the lifetime value of its current customers.
- Dropbox: Cloud storage company Dropbox was one of the first companies to use referral marketing as a critical part of its growth strategy. When a user invites a friend to use Dropbox and they accept the invitation, they both receive additional storage space for free. Thanks to this technique, Dropbox managed to increase its user base by 60% in just 15 months.
- Uber: The ride-hailing company Uber has also used referral marketing to attract new users. Every time a user invites a friend to use the service and they take their first trip, they both receive a discount on their next trips. With this technique, Uber was able to increase its user base by 26% in just one month.
- Tesla: The electric car company Tesla has used referral marketing in a very original way. When a customer convinces someone to buy a Tesla using their referral code, they both receive discounts on the purchase of a new vehicle. In addition, the customer who makes the recommendation has a chance to win a free ride on Elon Musk’s new SpaceX rocket. This referral marketing technique has been very effective for Tesla, as it has managed to attract new customers and foster the loyalty of its current customers.