Recommendation and referral matter to people
As per a survey, it has been observed that more than 80% of consumers say that recommendation from their friends influences their purchasing decision to a great extent. Also, it has been seen that more than 70% of people take recommendations from completely unknown users and their reviews too influence their buying decision.
Faithful customers aren’t immortal, referrals and recommendations are needed
Some various big brands and companies have loads of fans. However, still, they have to advertise themselves all the time and keep in touch with the audience. The reason for doing this is because they know that even loyal customers would not stay with them forever, so they have to advertise and keep the customers updated if something new comes.
The strengths and weaknesses of referrals
The main strength of a referral is that people have formed a strong assumption about the product as it comes from their closed ones. Its major weakness is that it spreads its really fast and can also create a misconception in other’s minds as friends could opt for a product for entirely different reasons.
Referral marketing example from the 1970s: Dungeons and Dragons tabletop game
It is a top-rated role-playing game which is usually played with 5 players. The unique thing about the game was that only 1 person could purchase the gaming rulebook. Its marketing strategy was set up in such a manner that one person of trust amongst them would market the game to his friends or known people. This strategy helped them increase sales rapidly.
Which one works better- referral vs paid ad example (part 1)
Let us understand this better by an example, if 50 regular customers bring profit each month. Each of the 50 customers advertises to work with you 4 times during the year and recommend the business to their friends and family. This implies that of regular customers, you get 200 recommendations in a year.
Which one works better- referral vs paid ad example (part 2)
Now, just assume that the recommendation was given in the company of 3 people, now you have 600 recommendations a year. Keep in mind that only one person in the organization has expressed the requirement for the kind of service recommended. (See Why do websites have so many ads?)
Which one works better – referrals vs. paid ad example (part 3)
Just be positive and expect that another 30% of these 600 recommended the business of their friends. This 30% more are additional recommendations. Therefore, the business has received a total of 780 recommendations yearly by word of mouth.
Which one works better – referrals vs. paid ad example (part 4)
Now, just presume that from your 50 regular customers, 10% of them were so content with the services that they thought of writing about it on Facebook. Infer that each one of them has 300 friends and just assume that at least 50% of their friends will see the status. That makes 1095.
Which one works better – referrals vs. paid ad example (part 5)
Out of the 50% people who saw the status, assume that 10% of the people liked the status. That makes 1204. Suppose these regular clients do this thrice in a year, so they bring in a total recommendation of more than 3000. Thus, it makes recommendations of around 3800 people yearly.
Which one works better – referrals vs. paid ad example (part 6)
These 3800 people might not become your customers instantly as there are a lot of businesses that cannot wait so long for gaining profits and increasing sales. Therefore, its alternative is to run a paid campaign on a social network site for a couple of days. In these types of campaigns by paying $10 you can reach up to 1, 00,000 people.
Referrals and paid ads work best if combined
As discussed in the above article, referrals can reach around 3800 people, on the contrary, through paid ads you can reach 1, 00,000 people in just a couple of days. Both methods have its own advantages and disadvantages. Thus, when you combine both of them together, you can incur huge benefits. (See Methods for increasing client conversion online)
What are the effects of referral and recommendation in marketing?
What Is Referral Marketing? Why Referral Marketing is So Succesful? What are the effects of referral marketing?