Referral Marketing is the new orange3 min read

While exiting the Des Moines downtown YMCA last week, I caught glimpse of a lady searching through a phone book. I was flooded with nostalgia and left thinking of my childhood – the last time I remember using one of those (to look up a number anyway). It also left me considering the ways businesses are discovered by new customers. There are those that are searching for you, and those that are referred to you by others. In both cases businesses should think about ways in which they can improve their ability to be found (marketing automation) – and ways of encouraging referrals (referral marketing).

Marketing automation

Marketing automation platforms seek to streamline sales by replacing high-touch, repetitive manual processes with automated solutions. They accomplish this by taking advantage of the internet to reach new customers – or more specifically allow them to be discovered by qualified leads. In terms of the phone book, think of it as finding ways to be first in line for those people thumbing through the pages – only doing so on the internet.

But again, the days of Yellow Pages are limited so marketing automation uses search engine optimization (SEO), inbound marketing, drip marketing, and tracking/analytics to drive customers to your website and improve conversion rates. Google has some complicated algorithms which decide which website to be listed when someone searches for “car insurance” for example. Companies such as HubSpot, Marketo, Eloqua, and others specialize in ways of driving those prospects to your door and using email marketing to convert them into sales.

Referral marketing

Marketing automation is important to capture those prospects that are searching for you online. But what about those prospects that rely on recommendation from friends for services or are not yet searching for you? That is where referral marketing fits in.

A referral is the bridge that connects a company to a new client by means of an existing customer. Because of this direct link between the company, customer, and prospect, trust transfers. Therefore the barriers that exist with a typical prospect and the company are broken down by way of the active promoter. As the trust transfers, the resistance is diminished, and sales are much easier to obtain.

Science in the field of social network theory describes the pre-existing connection between current customers (A), companies (B), and prospects (C) as triadic closure. According to sociologist Georg Simmel “if a strong tie exists between A-B and A-C, there is a weak or strong tie between B-C”. In other words, a link between a company and prospects already exists via current customers. Referral marketing aims at exploiting the relationship between your customers and prospects – as it yields a much higher conversion rate and research shows it brings better fitting and higher profitable customers.

Referral marketing is rapidly evolving online with some companies offering incentive based programs. I recommend choosing a referral strategy that is not based on monetary incentives (as I outline here). After all, people refer friends and family for many reasons (reciprocity, social status, obligation, homophily, exclusivity, etc.) but generally not for personal gain.

Again, both marketing automation and referral marketing are important strategies for businesses to effectively compete in today’s market. Optimizing your ability to be found and leveraging your current customer base are separate, but important components to any marketing plan.

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