Referral marketing in e-commerce

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Referral marketing Referral marketing in e-commerce

Published on 11.04.2023 by Heinz Bösiger, Head of Retail and E-Business at Meier Tobler AG

New customer acquisition is expensive and takes great effort. That’s why every retailer must encourage its regular customers to buy more or, as I always tell my sales team, “Turn customers into fans”. That’s because fans recommend companies. This is an easy and inexpensive way of expanding the customer base. Word-of-mouth recommendation is another highly effective method for attracting new customers. In my experience, this method is still extremely efficient in referral marketing, if deployed properly and in a targeted way.

What does referral marketing mean?

Referral marketing is a tool for new customer acquisition based on word-of-mouth recommendations and references by satisfied customers. In other words, referral marketing relies on satisfied regular customers who contribute to new customer acquisition. But recommendations are only made if existing customers are satisfied with the service, brand or product. Existing customers make recommendations via a wide range of channels. The greater the number of existing customers, the quicker sales can be boosted using this method. 

Referral marketing with customers

Referral marketing with customers is most successful on a voluntary basis: without anything in return or any incentives, such as discounts, vouchers, commissions or some recognition. Customers should be encouraged to give customer ratings or recommendations on the website, in the online shop, on social media or third-party platforms. 

Referral marketing with influencers

Influencer marketing (in German) is also part of referral marketing. A parasocial relationship can be defined as the unilateral friendship between an individual and an influencer. This is typified by followers perceiving the influencer as a real friend, but the influencer hardly knowing the followers. Through the recommendations generated in the content, the influencers make referrals to their community. 

Referral marketing can definitely be carried out via influencers. The service, brand or product can be promoted via influencers on social media channels. But the influencer must be a good fit with the brand, and vice-versa, as influencers become company or brand ambassadors. The often high fees present another challenge for companies.

Why is referral marketing so important?

Studies indicate that referral marketing is less expensive and more successful than traditional advertising. Referral marketing is also an excellent multiplier. On average, one satisfied customers generates nine recommendations. Trust in a service, brand or product is much higher if it’s been recommended. Referral marketing is set to see rapid growth over the coming years thanks to the younger generation. 56 percent of generation X already rely on referral marketing. That figure is 18 percent amongst millennials and 16 percent for baby boomers. 

How can I implement referral marketing?

There are various options for implementing referral marketing. For example, via customer ratings in online shops. Customers can also give ratings on a Google company profile (previously Google Business), provided this option is available. External platforms, such as Trusted Shops, is another way of obtaining ratings. But companies must succeed in encouraging customers to participate.

Obtaining ratings from your own customers

Customers must be encouraged to give ratings. This may be done through follow-up e-mails, as well as through flyers in parcels. Discounts and giveaways can also be used to incentivize customers to give ratings. Every opportunity should be used to turn customers into advertising ambassadors. It’s not just about ratings, but also sharing on social media channels. Obtaining as many ratings as possible is the key factor.

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Employees bring customers on board

Another option in referral marketing is using employees as advertising ambassadors. Here employees act as a mouthpiece to the outside world and have direct contact with potential customers. They contribute to enhancing the company’s image and promoting a positive purchasing experience. Every employee must identify with the company or brand. TopCC (in German) is a good real-life example of employees contributing to new customer acquisition.

Affiliate marketing

Affiliate marketing is also part of referral marketing. There’s been a real boom in affiliate marketing over recent years. This method presents almost limitless opportunities, but is mainly used in blogs and social media. 

Companies create personal links that can be shared. This means purchases can be assigned to a person and billed directly. The intermediary only receives a commission for successfully brokered orders. This can be a very attractive option for some companies and sectors. The most widely known affiliate marketing scheme is Amazon’s PartnerNet.

What to bear in mind

Understanding that customers have to be encouraged to give ratings is crucial. It’s worth keeping a close eye on how competitors implement their initiatives, as you may gain some useful insights for your own launch. Content sharing should run as easily and smoothly as possible. But it’s important to remember that negative ratings can also be given. This means you need to consider beforehand how to deal with negative ratings professionally. Customers also want to be entertained and to decide for themselves what they want to share or rate. 

Conclusion

Referral marketing should be at the very top of any marketer’s to-do list as word-of-mouth recommendations have been an effective marketing tool for many years. The customer’s trust in the service, brand or product is the key factor.

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