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What Is Referral Marketing?

By Carrieanne Larmore
Updated May 16, 2024
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Referral marketing is a marketing strategy that uses networking to gain new clients or customers. The benefits of using this strategy is that referrals through networking are less price sensitive, more likely to make a purchase and more comfortable with the business from the start. Success in referral marketing relies on relationship building and having a product or service that is valued. Getting started in referral marketing can involve having a personable representative at networking opportunities, taking advantage of social media websites and offering rewards for those that send referrals.

Benefits of referral marketing are that someone else is doing the selling for the company and referrals know what to expect when coming to the company and are more likely to convert into paying customers. Referral marketing is based on having others spread the word about the company to their friends, family or acquaintances. Those being referred trust the information they are hearing, so they approach the business more relaxed and with confidence. Referrals are more likely to convert to paying customers when someone they know has had a good experience with a particular service or product. This way, the business does not have to spend as much time convincing the consumer to make a purchase.

Tips for getting started in referral marketing include having well-trained representatives available for networking opportunities, actively communicating on social networking sites and offering products or services that are valued. A representative from the company should attend events and social gatherings in order to meet those that could know someone that might be a potential customer or client. For instance, a business consultant should not go to a convention for business consultants, but instead focus on entrepreneur clubs or events at the local Chamber of Commerce.

Social networking websites are not a replacement for face-to-face encounters, but should be used to supplement and keep relationships with customers active. Rewards are a useful way for gaining referrals, but these should also be used sparingly. Too generous of a reward can result in the business receiving low quality referrals from people taking advantage of the system.

Success in referral marketing depends on several factors, some of which are not controllable by the business. The representative should not be pushing his product or service on others in an imposing manner; rather, he should build relationships and arrange for sales to occur naturally. People do not like being sold to and will be more likely to listen after getting to know the representative better. The company must also have a product or service that is in demand or valued by those they are networking.

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