Introduction
Have you ever to asked a friend about a solution to a particular challenge? Maybe you were planning to visit a city and you need a hotel accommodation there. Then you remembered a friend who live in that city and asked them the best hotel or accommodation for you. They made some recommendations and it worked great. That friend just referred you to a business that benefitted from being recommended as a great option. It is a typical example of how referrals boost a business.
The truth is that each day, we refer family, friends and even strangers to various businesses. We tell friends about the best taxi, shopping mall, bank, recreation center, household products and much more. To the business owner - the entrepreneur that got the customer who was referred by someone, it is cheap and effective marketing. Often times, the business that got a new customer who was referred knows little or nothing about the referee. But then, they have made money because someone spoke about the businesses to another person.
Entrepreneurs need to value the importance of referral as a key way to get new customers. In fact, they could adopt it as one of their way to grow the business and expand its reach. This method of creating awareness for a product or service is so effective that even big brands and multi-national corporations have adopted it. So what are some of the reasons that make referral a big way an entrepreneur could implement to attract more customers? Consider the following two reasons:
- Marketing based on trust
- Effective directness, efficient multiplier
Now lets get into each of them one after the other. At the end, any entrepreneur going through this presentation should be moved to design or adopt a referral program for their marketing plan.
Marketing based on trust
One of the reasons that referral remains an effective marketing strategy is that it is built on solid trust and confidence. Most times, the people we tell about a new product or service are people that are close to us. They could be our family members, friends, colleagues, schoolmates, neighbors or even acquaintances. These are people that might have known us for many years because of how close our relationships are. They are people that trust us to a high degree and will easily take our word for it.
Now if a very close friend or family member tells you about a product or service that has worked for them for many years, your first instinct could be that they are saying the truth. But what if a marketer or stranger is trying to convince us about the effectiveness of a particular brand, the first instinct here could - are you sure? One could easily become skeptical if the person recommending something to them is a stranger. The difference between the two reactions is that the first person recommending is known and can be trusted based on years of personal relationship. The second person who is a stranger will always be feared.
I recommended this phone which a friend bought
So basically, people easily believe something if the person telling them about it is someone they know for years. So they are very much likely to believe them and give it a try than when a stranger is recommending something to them. Entrepreneurs need to understand that the customers could bring a family member or friend easily to the business because they will be believed.
When thinking about marketing strategies, an entrepreneur could create a referral bonus or some form of compensation for bringing new customers to the business. This way, your customers could be fired up to recommend your business to people they know. This way, your customer-base will grow much faster while you also appreciate those that are making the connections.
Effective directness, efficient multiplier
Another cool thing about referral is that it helps to bring more customers faster than other methods. To begin, referral is often a direct way to reach out to people. For example, we often refer people we come in contact with on daily basis - friends, family members, colleagues, etc. It is often through word of mouth. We directly tell them why a particular product or brand is best and convince them to try it out.
The direct approach in referral makes it an effective way to get a new customer. They are often more likely to listen and try out something new than other forms of marketing. For example, it is not easy to convince everyone through quick TV ads or other marketing avenues. But when a wife or husband tells their partner to try a product, they are happy to do it even if its just to please this person so dear to them. In essence, a direct approach from close confidants is more likely going to turn in a new customer and that is something special about referral.
The other aspect of referral is its capacity to quickly swell the number of new customers for the entrepreneur. I call it an efficient multiplier. Take for example if an entrepreneur designs a good referral program with tangible rewards for participants, it has a multiplier effect. If for example the business has 10 customers. The 10 customers each brought 2 friends or family members, the business will instantly have 30 customers in total. Imagine if the 10 persons brought 10 friends each, there will be 110 customers in total.
The multiplying effect of referral goes beyond the first persons referred. The referrals will like to bring their own referrals, who will in turn bring their own referrals. In essence, 1 customer brought into a business might have a generation of referrals. Now the entrepreneur will be dealing with numbers in powers. One referral might bring another referral, and it continues like that till infinity. It is a proven and fast way to grow new customers - friends of friends and so on.
Finally
I just looked at two reasons above that explains why every entrepreneur should not joke with referrals. It is really going to help the new business grow much faster and reach far more people than other marketing methods. Of course, I did not mention the cost-effectiveness too. It remains the cheapest form of marketing. Most times, we refer people to businesses that know nothing about us. Thats free marketing, isn't it?
So consider implementing a referral system in your marketing plan as an entrepreneur. You might end up happy that you did!
Note: All images are mine
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