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Referral marketing is a discipline of Online Marketing. In this form of marketing, “oral propaganda” is deliberately produced by a company. In contrast to Word of Mouth Marketing, the viral advertising effect of referral marketing is supported by benefits that multipliers such as influencers receive by distributing an offer.
Background and development
Common components of online marketing are SEO and SEA. While the former is concerned with optimizing content so that it ranks better on the SERPs, SEA aims for conversions or leads through paid advertising. Referral Marketing is also referred to as “the third acquisition channel” , since it has the purpose to reach more customers and to provide more conversions or leads. At the same time, it is characterized by the fact that prospective buyers will identify with the brand or the product and receive positive feedback. According to the Word of Mouth Marketing Association, more than 2.4 billion conversions involving a brand occur daily in the US. In this context, more marketing measures are required which increase user commitment. By the fact that customers are more willing to buy something online if friends have recommended the product, the brand or the service , referral marketing is an important tool for branding and conversions alike.
Referral marketing has become established and expanded particularly in the US. Many startups, have greatly expanded their customer base with referral marketing in a very short period of time.
How it works
A referral marketing campaign is usually based on five different components:
- Analysis of potential customers
- Selection of the “reward” for the recommendation
- Development of image and text material
- Selection of online media and social media platforms
- Tracking the campaigns
Social networks play a major role in referral marketing, because sharing content creates the viral effect of such campaigns. In combination with an attractive reward model, the advertising effects can be reinforced once more. An example of a successful referral marketing campaign is the online storage service Dropbox, which became a billion-dollar company within a short time. 
Areas of application
Referral marketing is not limited to a particular type or size of business. Since such actions can be developed with relatively little effort, budget limits do not pose a major problem.
Referral marketing for service companies or new companies, which are not yet very well-known and which so far have only a few customer opinions available on the Internet. In extreme cases, referral marketing could also be developed as an emergency measure to fend off negative PR on a company or brand.
Referral marketing is not aimed at a specific target group. The only requirement for online marketing measures is that the target group uses the Internet. The choice of media is free and diverse. Before the start of the campaign, it is important, as with any action, that the advertisers have clearly in mind what type of people they want to address with the brand, products or the services to be shared. Personas can be used specifically to steer the referral marketing campaign.
However, referral marketing usually takes place in the area of social media. Successful campaigns are initiated via Facebook channels, instagram or blogs, for example. In this context, so-called "influencers" are also important. They are people who have many followers in social networks or are famous in a certain area. They can be used to start recommendation campaigns. However, influencers are often criticised for not labeling their contributions as advertising, even though their "recommendation" on YouTube or other channels is in fact advertising, because they receive something in return.
Benefits for online marketing
Referral marketing is an advertising industry tool, which can achieve many different effects at the same time. The dissemination of offers through recommendations increases the chance that new customers will turn into conversions. With an increase of recommendations, the trust factor of a company, a brand or a product will likewise increase. At the same time, referral marketing can also cause more traffic. This in turn, has the effect that Google and other search engines have more data to evaluate the site. At the same time, referral marketing campaigns provide many social signals for a website by focusing on social networks.
- Referral Marketing – Best practices for 2014 go.extole.com Accessed on 02/11/2015
- The state of word of mouth marketing survey 2014 de.slideshare.net Accessed on 02/11/2015
- Under the influence – consumer trust in advertising Nielsen.com Accessed on 02/11/2015
- How referrals built the 10 billion $ Dropbox empire blog.referralcandy.com Accessed on 02/11/2015