Referral Marketing: What It is and How it Works

Work in this direction is already standard among the big brands, which means the rest of the business should arm themselves with the knowledge from this article and build their own referral program. Most of the figures are taken from research, which is available at the links at the end of the article, as well as from my own experience

Referral marketing is getting new customers for a business by encouraging people to talk about your product or service. People don’t like advertising, but referrals from acquaintances or famous people are more trustworthy than direct promotion. Therein lies the secret of the effectiveness of this method.

An additional advantage of this direction is that the published post, review or just a link about you remain “hanging” and will be indexed by search engines, which means they will work for more than one day, unlike classic advertising. Even if the participant of the referral program has few friends in the social network or no blog with fantastic coverage, the constant appearance of brand mentions will already be a powerful signal for higher ranking.

Without special incentives, people aren’t inclined to call their acquaintances to your store; a referral program creates those incentives by involving a huge number of people in the customer engagement process. It works like this:

  • Your customers sign up for a referral program and receive a personal link (qr code, promo code) to your store or to any of your products.
  • They distribute this link in any way they can, depending on their capabilities and desire, by sharing it on social networks, on their blog, or simply by sending it in person.
  • When this link is followed, the referral system determines and remembers that this person is a referral and can give them a special reward that further encourages them to buy.
  • When the referral has made a purchase, the customer is notified in their personal account and receives a reward.

Effective niches

Referral programs are a significant channel for attracting customers in many leading companies, which gives an increase in customers up to 25% in B2C niches and up to 60% in B2B niches. They work in almost every niche of online shopping, and even offline. In the B2C sector, the biggest result is achieved in niches with regular demand (car wash, FMCG), high margin niches (videographer, jewelry), and in niches with high competition (mobile phones).

In addition to attracting customers, referral marketing allows you to stand out in a highly competitive environment, due to the fact that your company will be a household name. 83% of people believe recommendations from people they know more than any other advertising.

In affiliate marketing, one of the most important success factors is studying your competitors’ activity. A good indicator that you need a referral program is if your competitors have similar systems. If competitors in your or related niches are using referral or affiliate programs, that’s a direct call to action.

Referral marketing: terms and qualifiers


The people who will recommend your products and services are called referrers or ambassadors.

The people who use the offer of the referrers are called referrals.

Thus, within the limits of one referral program the same participant can be both the referral and the ambassadors.

There are varieties among ambassadors, too:

  1. Brand ambassadors. These are the average loyal customer who, when properly motivated, will share a good opinion of a brand. They show up when a business has good service and product/service.
  2. Brand advocates. This is also a customer, but his brand loyalty has moved to an entirely different level. He is willing to prove that you are the best company in the niche on and off. You can find examples of brand advocates in the eternal “Apple vs Android” controversy. Advocates show up when in at least one component of the business – marketing-commodity-service – a company is making outstanding progress.
  3. Opinion leaders. These guys aren’t necessarily your customers, but they are interesting to your target audience. If the average person has 100-200 subscribers, they have thousands and tens of thousands. The right recommendation from such a person, brings a lot of sales, so in Russia, do not wait until there is an opinion leader among customers, but look for them themselves with the offer of cooperation.

The format

There are three ways to distribute information:

  1. Link. Suitable for online. The link already contains all the necessary information on the referral and the sponsor.
  2. Promo code. Suitable for offline and online.
  3. QR code. More suitable for offline. For example, advertising on a booth or a bus.

Types of Rewards.

  1. Points
  2. Discounts
  3. Gifts
  4. Money

There are two types of programs – unilateral and bilateral. The difference between them is who receives the reward: in a one-way loyalty program is the reward for the Ambassador, and in a two-way program – both the Ambassador and the Referral.

Another aspect of referral marketing is affiliate marketing. It differs in that it has only monetary remuneration and almost no recommendations in pure form. In this niche are active arbitrage sites, so within this article, we will not consider it.

Lifehack: In the case of cashback, you can put your referral links in paid advertising channels and get some money back from the advertising budget when visitors make purchases.

Launching a referral program

The main mistake and reason referral programs don’t work well is the lack of informational support. You might say that’s a silly thing to do, but that’s what happens with most programs in small and medium-sized businesses. Proper implementation involves the preparation of texts, placements and terms, but also active promotion to your audience using all available communication channels.

I will list the main points you need to prepare for a referral program on the site:

Choose the type of reward and its size based on the appeal to the visitor. Take into account your margin and average check. For a regular online store, a two-way type of program is fine.

Choose places to post information about the program so that it can be easily found on the site. A good option at the start is a separate page with a link from the through menu and the visitor’s account. You can also use the following elements:

  • A banner on the home page
  • Link in the main menu
  • Ribbon
  • Product card
  • Order confirmation page
  • Page after payment

Mark up your pages according to OpenGraph standard. Get a nice preview on any social network or messenger when shared by users. A good option would be to prepare a special promotional post and give it 2-3 hashtags in advance. This will allow you to keep track of publications even through the usual social network search.

And the most important point – informing customers about the launch of the program.

To do this:

  • Send them a concise informational email about the program
  • Include a post in your site’s newsfeed and social media feed
  • Add a link to the referral program terms and conditions to your standard trigger communications
  • Don’t forget to repeat the email every 1-2 months

In addition, you can speed up the emergence of a network of referrals by actively promoting it through paid advertising channels and through opinion leaders.

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