One of the most powerful strategies to spark word of mouth activity is using a referral program. The basic idea is rewarding customers for recommending the brand to their friends and family.
Types of referral programs
There are many different ways to implement a referral program, but the most common (at least online) is giving customers a special link they can share with friends. When one of these friends takes an action, like buying a product, the original customer gets credited a reward for the referral.
Another type is using good old-fashioned coupons. When sending out coupons to existing customers, attaching an additional coupon “for a friend” can be a great way to increase word of mouth activity. Just make sure there’s some sort of restriction in place so people can’t use both coupons for themselves.
In case it’s an offline business, it’s usually easy enough to just ask customers who they were referred by (if anyone).
Advantages of referral programs
The first, and most obvious, advantage is that it is virtually guaranteed to increase word of mouth activity as long as the reward is generous enough. People are simply much more likely to recommend a company to their friends (or strangers!) if they, for example, get a cut of however much that person spends with the company.
Another advantage over many other word of mouth marketing strategies is that a referral program has a chance of actually attracting customers who are otherwise loyal to another brand.
There’s also the usual snowball effect that is to be expected with word of mouth marketing – one person tells 5 friends, who each tell 5 friends, and so on. The difference is with a referral program these customers are actually more likely to actively seek out others to spread the message to, even people they normally don’t associate much with. Increased reach is always welcome!
The main worry with referral programs is that the word of mouth activity will not be “genuine”. Take away the referral program and people will talk a lot less about the brand. The question is, does it really matter? That will probably vary from business to business, but the rule of thumb is that if immediate sales are more important than long term brand awareness, then it’s probably not an issue.
Another potential problem is if the reward is too high – this may lead to customers actually spreading the word to strangers who simply don’t want to hear about it. This is especially true if it’s an online product or service, in which case it’s very easy for users to “spam” others with their referral link. This needs to be taken into account, and there needs to be a plan of action in place for handling situations like that.
There’s no doubt that a referral program can do wonders for sales, providing the reward is generous enough (or, consumers feel strongly enough about the brand, but in that case a referral program is not as important). It doesn’t suit every business, but since it’s usually easy to implement a basic program and see whether it works or not, there’s little reason not to give it a shot!