Why Referral Marketing Strategy Is The Future Of E-Commerce And How To Make one?

Did you know that 84% of customers trust product recommendations from people they know more than brand advertisements?

Now that you know, it's time to take a look at referral marketing strategies. It's one of the few marketing strategies that not only allow you to multiply your customer base, but also generate more leads and promote your business at (almost) no cost!

Sounds too good to be true?

Wait until you read this article and you'll understand why it's possible and how you can do the same for your business !

What Is Referral Marketing?

Referral marketing is a strategy that motivates customers to recommend your products, brand, or services to their friends and family. For instance, you purchased an espresso machine. You were so impressed by your new purchase that you also recommended it to your friend. This way, you become an organic referral.

The referral marketing strategy involves rewarding and incentivizing customers for successful referrals. This in turn, significantly replicates the results of organic customer-to-customer promotion. Nowadays, referrals can happen via email, phone, or social media.

Referral marketing is more influential than you might think, and we can consider it as the future of e-commerce. For instance, more than 90% of buyers trust a brand recommended by close ones, and 74% say they are more likely to purchase a product or service that any of their friends or family members share via email or social media. Data reveals that referred customers spend 200% more, 4X are more likely to refer to others, and 18% more loyal.

The strategy is powerful and effective because it leverages the company’s present customer base and the trust they have built among their family and friends. Resultantly, it brings new customers and generates new leads for your business!

Examples Of Successful Referral Marketing Programs 

Here are a few of the real-life examples of e-commerce businesses that have used referral marketing strategies and nailed them:

Dropbox

Dropbox offered extra storage space for successful referrals and resultantly witnessed explosive growth (went from 100,000 to 4 million users within 15 months). So, with a little incentive, they turned their loyal customers into passionate brand advocates, built a massive customer base, and became one of the best referral marketing examples.

Uber

The referral marketing program offers free rides to users who refer them to their loved ones. This clever strategy has helped Uber attract new users and retain existing riders, making the referral program an integral part of its growth strategy.

Blissim

Blissim's referral marketing strategy is equally effective. Loyal customers can earn 100 points worth 10 euros by referring Blissim products to their friends. Later, this reward can be used to buy beauty products or a box.

Also, the referred customers get the same reward as the welcome offers. Blissim has seen impressive customer acquisition and fostered a sense of loyalty among customers.

Saie

Give $10 Get $10 is Saie's referral marketing program. Through this program, the brand offers $10 off on the first order of new customers, while the referring customers also get $10 off in return.

Saie instructs existing customers to provide their email addresses before generating the link. After link generation, customers can share this link on their social channels or share it with potential customers using the Saie system.  

Amazon

Like other businesses, Amazon has also utilized the referral marketing strategy to boost its growth in the marketplace. Through this program, Amazon urges its customers to refer its wide range of products to new shoppers. Customers who make successful referrals can earn commissions.

The referral marketing program of Amazon has become a golden opportunity for influencers, bloggers, and content creators to monetize their work.

Brooklinen

Brooklinen (a bedding company) has built its customer base through an amazing referral program. The company offers awards to its existing customers (1000 points) for successful referrals. Customers can use their rewards or points to buy a wide range of products. For new buyers, there is a reward of $25 for their first order (while their first order should be $100 or more).

What Are The Benefits Of Referral Marketing?

Referral marketing lets your loyal customers become your business’s advocates by recommending your products. You can offer them referral rewards to cooperate and benefit more from your referral strategy. 

For example, you can expand the customer base. But besides that, there are many other referral marketing benefits, such as:

• Trusted Recommendations:

Humans trust other humans, making referral marketing more effective than traditional advertisements. Think about it. You will read its reviews on social media and other platforms when you buy something.

But if someone from your circle recommends a product, you will trust them and buy it without checking the review. This is why referral marketing significantly boosts the likelihood of conversion.  

• Higher Quality Leads:

With referral marketing, you can bring higher quality leads that can convert into loyal customers. Remember that referred friends trust the friend’s recommendations. Therefore, customers whose friends recommend your products are 4X more likely to buy your products and convert 5X faster. So, saying that referral marketing also helps conversion rate optimization (CRO) would not be wrong.  

• Cost-Effective Marketing:

Referral marketing is a low-cost strategy that drives sales and boosts customer loyalty by rewarding loyal customers. Plus, with this marketing strategy, you only pay for the results you are getting. So, spending money on ads that may not convert is unnecessary.  

• Improved Customer Retention:

Referral marketing brings new customers who come to know about your products through their friends. That is why they trust your brand products like the way they trust their friends. It is how referral marketing deepens the bond between your bond and new customers. That is why the customers you get through referral marketing or customer retention strategy stay with you longer and are more loyal.  

• Enhanced Marketing Reach:

In referral marketing, you approach potential customers by utilizing the existing customer's networks. In this way, referral marketing extends your reach to more people and amplifies your marketing efforts.  

• Increased Engagement:

Referral marketing fosters a sense of customer community and encourages active participation, ultimately increasing customer engagement. Remember that choosing your customers for your referral program strengthens your relationship with them and fosters loyalty. When you reward them, it encourages them to refer your brand to more people. 

• Better ROI:

In traditional marketing, the cost can fluctuate without any assurance that the investments will pay off. For example, take Facebook, where businesses or brands have to pay more so potential customers can see their messages.

However, referral marketing attracts highly qualified customers who usually make purchases. That is why the ROI is higher in referral marketing overall. 

• Scalability:

Referral marketing can be easily scaled and has been found effective in customer retention and growing your customer base efficiently. The referral code from a friend or family member proves that you need to purchase from a store where you have never bought anything else. If a business does not get any customers, the referral strategy generates leads for the business even then. 

• Positive Brand Perception:

Recent studies have shown that more than 70% of smartphone users look for word-of-mouth reviews before buying anything online. Moreover, one-third of online shopping happens because of friends' recommendations. This clearly shows that products recommended by friends or family always boost a brand’s reputation and credibility. 

Why Has Referral Marketing Become Indispensable For Successful Long-Term E-Commerce?

The e-commerce landscape is continuously changing and presents you with both opportunities and challenges. So, to thrive in this ever-evolving marketplace, understand these challenges and try to cope with them. 

The best strategy to overcome these challenges is a referral marketing strategy. How? Let’s find it here:  

Challenges Faced by E-Tailers in 2024:

Below are some of the challenges faced by e-tailers in 2024: 

• Intense Competition:

The e-commerce statistics reveal that e-commerce sales will increase to 8.8% this year (2024). So, saying that e-commerce business is booming in the present era would not be wrong. Also, a 9% growth rate is projected for 2024; with that, the business is expected to bring remarkable opportunities. 

Conversely, it will increase the competition and make it harder for businesses to stand up and get more customers. Not only this, the cost of tech, fulfillment, and media is also expected to rise. 

So, like other e-commerce businesses, if you also want to stay ahead of the competition, start developing referral marketing strategies, as their low cost will bring you better results quickly!

• Customer Expectations:

For now, more and more people are shopping online. Managing their ever-rising demand and expectations (fast shipping, excellent customer services, and seamless user experience) has become a real challenge for e-commerce business owners.

But, it is crucial to manage and fulfill the demands of customers to boost customer acquisition. If businesses fail to meet customers' expectations, their reputation may be affected, and they might lose customers, and competitors may come up on top. 

• Technological Demands:

Not only are the market trends changing, but technology is also evolving rapidly. So, staying ahead of the competition is crucial to keeping up with the latest technological advancements. Otherwise, you may lose opportunities for growth and a customer base. 

However, implementing advanced technology can demand a significant investment, challenging many businesses. Technological limitations and compatibility issues can also be factors a business owner cannot ignore.

• Rising Cost of Ads:

E-tailers are grappling with the rising costs of advertising, especially cost-per-click (CPC) rates on platforms like Meta (formerly Facebook) and Google. As more businesses compete for online visibility, ad prices have surged, making it more expensive to attract and retain customers. This increased cost of digital advertising can strain budgets, particularly for smaller businesses, and requires a more strategic approach to marketing spend. Businesses must now focus on optimizing ad campaigns, targeting the right audience, and leveraging organic marketing methods to maintain profitability amidst these rising costs.

Uncontrollable Factors

Aside from the challenges mentioned above, many other uncontrollable factors can make survival in the e-commerce business impossible. For example:

• Economic Instability:

Global economic growth is slow and expected to be lower due to geopolitical tensions. E-commerce businesses are also facing the effects of this economic instability, as consumers already have less to spend on their products due to inflammation, contributing to present economic instability. 

•  Regulatory Changes:

E-commerce businesses have a global reach. Many businesses take advantage of this and increase worldwide shipping to increase scalability. Unfortunately, however, it also has a major drawback. Changes in regulations and policies significantly disturb operations, resulting in costly adjustments. 

• Market Trends:

Keeping up with the changing consumer expectations and market trends is a challenging task but crucial for the success of your business. But how could you stay up with evolving market trends with the same outdated marketing strategies? If you want to compete in the crowded marketplace of e-commerce, where you witness a new trend every day, develop innovative marketing strategies like referral marketing strategy, which involves Incentive-based referrals. 

Balancing with Customer Loyalty

E-tailers should focus on customer loyalty to survive in the ever-evolving, highly competitive e-commerce marketplace and cope with uncontrollable factors. Loyal customers can make repeat purchases, increase brand awareness and traffic generation (bring new customers), provide valuable feedback, and advocate for your brand.

Saying that loyal customers can buffer you against external shocks and generate a steady revenue stream would not be wrong. The good part is that you can easily take your e-commerce customer loyalty to the next level. For instance, you can:

• Invest in customer service to ensure that you meet customers halfway. The skills you need to master in this regard are patience, clear communication, and empathy.

• Offer exclusive perks to your customers to make them loyal. For instance, you can offer free shipping vouchers or discount codes. It will urge customers to repeat purchases and increase the average order value.

• To make loyal customers, always offer them personalized products. It lets the customers know that your products or brand is relevant to the customer’s life and goals.

• People love to know more about your brand. To give more value to your customers, you can give them exclusive looks into your business, which can be high-value educational posts.

• Start a customer loyalty program. For that, encourage the customers to visit your store and offer them irresistible gift options.

• Actively seek and analyze the customer’s feedback. It will help you improve your products and overall customer experience.  

Referral Strategy as the Key

With an expansive outreach and lower operational costs, a referral marketing strategy has become the future of e-commerce. This strategy can boost your business in a challenging and competitive market.

It is a viral marketing technique where people share your products and services, bringing new customers. For spreading the word about your business, you offer them rewards. So, now you might be thinking why this network marketing is so important for your business and how it brings remarkable results. Below is the answer to your query: 

• You generate Referral marketing leads that you cannot reach through traditional advertisement.

• Referrals also boost your brand’s awareness and let you develop social proof (that no one can object).

• It is an efficient way to grow your business and increase its popularity and exposure. This way, we can get new customers.

• Finding new clients can be expensive, but not with referral marketing.

• A referral strategy is more effective than other marketing strategies because it involves telling the world about your products through the people they trust.  

How To Set Up A Successful Referral Marketing Strategy?

Good word of mouth from your loyal customers regarding your products changes the perception of your brand and compels the prospects to purchase. But remember that referrals don’t come up on their own. 

An effective strategy and an incentive push are required to let your customers generate valuable word-of-mouth for your business. In case you don’t know how to set up an effective word-of-mouth marketing strategy for your business, here is a guide for you:

Define Your Goals:

To begin, clearly define your objectives and goals. It will give you a direction and help you measure how successful your strategy is. So, before developing the strategy, ask yourself a few questions:

• Are there any specific geographic areas that you want to target?

• What aims do you want to achieve through your referral program? Whether you want to boost sales, increase customer acquisition, or enhance brand awareness.

• Which type of customers would you like to connect with through your referral program?

• Most importantly, how many referrals should your referral marketing strategy generate?

Once you have clear goals, it will help you develop an effective strategy. It will also help you align your marketing strategy with your desired outcomes, ensuring a purposeful and focused strategy.

For example, if a business wants to target a specific area, it will have to offer coupons or discounts to the customers of that specific location. If the target is to connect to people outside the direct network, partnering with an influencer will be the right decision. It will help the business to reach a broader audience quickly and effortlessly. 

Identify Your Best Referral Sources:

A referral source is someone in your network who recommends your products or business to new prospects. Identifying the best referral sources, which could be your loyal customers, is one of the most important steps in your referral generation strategy.

Your loyal customers will be satisfied with your services or products and will readily become advocates for your e-commerce business. They are not part of your company or business, making their support more influential and genuine.

But, do not consider only the current customers. You can also engage the old customers in your referral programs. So, speak to them. Though you may not have seen each other for a few months, that does not mean you have forgotten each other.

If you have provided them with good services and high-quality products, they still are willing to become referrals for your business. Push notifications and email campaigns can be a great way to inform your referrals about your referral programs, rewards, and benefits.

Along with loyal customers, influencers can be the best referral sources. They can let you easily reach the target audience and extend your reach to a broader audience. You can choose them depending on the type of followers they have and your business field. If turning an influencer into your referral will be worth it, contact him with a marketing proposal or partnership offer.  

Create Attractive Incentives:

Incentives motivate the customers to participate in your referral program. So, create referral rewards that make it harder for your customers to resist referring your products to others. 

Always use the twin gifts to reward both existing customers and referred buyers. Also, ensure the incentives are exciting, valuable, and relevant to the customers. 

For instance, you can offer them something from VIP perks to discounts, an exclusive invite to your webinar, access to your new products, store credits for future purchases, freebies, unique experiences, or cash rewards. 

Of all these, the best are cashback for existing customers and a discount code for new buyers. People love immediate gratification, which can be achieved by providing them with instant financial gain for promoting your products. For example, a ride-sharing platform rewards customers with an instant cashback ($10) for every successful referral and a discount for new riders. 

Remember that instant cashback appeals to customers as they want to earn extra income and save money. So, always choose the right approach if you want to use a referral marketing program to grow your business and build customer loyalty. 

Make the Process Seamless:

Referral marketing should be easy to understand and use. Suppose your customers must complete a long checklist before joining your referral program or sending a referral. Would they like to participate in your referral marketing program? Of course, they won’t.

Ensure you have a user-friendly interface where customers can easily refer your products to others by following a few steps or with just a few clicks on multiple channels. Also, breaking things into a few easier steps, as Duo does, can make your referral program successful. 

Timing and Execution:

The incentive structure and timings are the two crucial factors that decide the success of your referral marketing program. For instance, over 80% of your customers are willing to promote your products, but not all do. 

Multiple reasons can be behind it. For instance, the customers may not know how to promote your products, they may not know what rewards they can get, or your reward thresholds can be high. 

It is crucial to introduce your referral program to your customers at the right time, which could be just after a purchase or a positive customer experience. This will motivate the customers to promote your products and earn rewards, which ultimately boosts the success score of your referral marketing strategy. This strategy will work if your products have a short buying cycle. 

For products having a longer buying cycle, such as mattresses, you can offer your referral marketing programs to would-be customers (who are interested in making a purchase but have not hit the buy button yet). It will push them to make a purchase and refer your products to others.

Besides that, when your customer leaves a positive review or talks about your products on social media, take that moment as a golden opportunity and introduce your referral program. They are already willing to talk about products publically, 

Just after the checkouts, after the repeat purchases, or after renewal, let your buyers know about your referral program. You can benefit from transactional email or your thank you page to request referrals.  

Track and Optimize:

If you want to make your strategy the best e-commerce strategy, get help from analytics and data insights to track the progress and efficacy of your referral marketing program. For instance, you can know whether the customers are slow to adopt your program. Are your incentives failing to attract your referrals?

Track the referrals correctly to collect data from the beginning and ensure your customers receive referral rewards. You can do it manually using spreadsheets or with help from referral marketing tools.

Below are the key metrics that you can use to measure the health of your referral program and find the areas of improvement:

• Customer Participation Rate: Know the average monthly users participating in your referral program. Bear in mind that not all referrals will lead to conversions.

• Impression Rate: The number of reviews that your referral landing page gets.

• Referral Rate: It is the number of referrals made by every participant.

• Response Rate tells you the number of people who visited your page and took action (e.g., signed up for a trial or provided contact info) but did not make the purchase.  

• Conversion: The number of people who purchase the products using the friend’s referral link is high.

• Total Sales: Calculate the impact of your referral program on the company’s overall sales.

• Website Referral Traffic: The number of people who received the referral link and visited your website later.

• Average Order Value: Average amount of a single order.

This data will help you optimize your referral marketing strategy. Based on the results, you can test new rewards, communication channels, or sponsorship methods.

Setting realistic expectations and refining your strategy based on the data can generate substantial returns and boost sales!

Promote Your Program:

Do your customers know about your customer referral program? If not, promote your program on different channels, including your website, social media platforms, email newsletter, and offline touchpoints such as in-store signage or packaging. 

From all these, email is considered the referral program’s best practice as it is more reliable and personal. So, add a quick referral message to any emails you send to your customers. 

For instance, you can add the referral link to your customer’s thank you confirmation email or place the banner in your company's upcoming newsletter. If not, ask for the referrals as you ask for the feedback, just like Casper (mattress) did. 

The CTA (call to action) button at the bottom of the newsletter or a quick link in the email signature can be effective. These buttons or links will let your customers know about your referral program in a natural way. 

Remember that you will not get any results if people don’t know about your referral program. So, consistently promote your gig to generate awareness and urge the customers to participate in your marketing program!

Duo: The Best Referral Tool For E-Commerce Business

You can use referral tools to incorporate the best marketing strategies into your referral program. Tools like Duo make running a trackable referral marketing program easier, distributing post-purchase discount codes to share and rewarding customers with instant cashback if the discount code is shared and redeemed by someone else.

Here are some key features of Duo:

• Instant Cashback: The cashback is transferred to the customer’s bank account when the post-purchase discount code is shared and redeemed by someone else. So, there is no need for proxy refund solutions.

• Customizable Referral Program: A highly customizable and flexible program that best fits many use cases.

• Strong Klaviyo Integration: It allows more customization and lets you reach potential advocates.

• Omni-channel: The discount code is showcased post-purchase on the thank you page. You can also send it via text or email.

• Ready To Use: Sign up and set up your solution within 15 minutes.

• GDPR Compliant: Duo does not store or sell the personal data of your customers

• Seamless Integration: With its productivity and automation tools, Duo let you implement the most effective referral strategies, track them, and get insights to find your most influential customers and A/B  test different cashback rewards.

Duo is the best tool for managing a referral marketing strategy because it gives cashback instead of vouchers or loyalty points to customers. Instant cahback incentives attract customers as they give them a sense of reward. A study by Yotpo (a leading e-commerce platform) reveals that 30% of customers prefer to buy your products if they offer instant cashback. Also, with instant cashback, you do not have to deal with regular refund requests.

So, if you also want to stand out in the competition, optimize your referral program, and maximize the number of successful referrals, automate your referral marketing strategy with Duo today!

Conclusion

Referral marketing, a scalable and low-cost customer acquisition strategy, has been doing wonders for e-commerce businesses around the globe. Aside from getting high-quality leads, it lets you develop strong relationships and deep connections with your present and future customers.

Before starting a referral marketing campaign, set your goals, create attractive referral incentives for your referrals, execute the program, and track its performancesto indetify the areas of improvement. And if you face any issues while developing, executing, or promoting your program, let Duo be your assistant; it will boost your chances of success!