Understanding & Unlocking the Value of Customer Referrals

While an increasing number of brands are recognizing the tremendous value of their established base of customers, many businesses are ignoring the untapped multidimensional value that these existing customers can deliver beyond their own transactions. Providing a referral (a.k.a refer-a-friend) program to your customers can provide:

  • An incredibly economical customer acquisition channel.
  • A tool to extend the affinity to those customers already loyal to your brand.
  • A relevant method to retain your established customers.

Understanding the Value of Referred Customers

Here are 15 head-turning stats that illustrate the enormous value customer referrals deliver:

  1. An average of 2.4 billion brand-related conversations occur each day (Word of Mouth Marketing Association)
  2. 92% of consumers trust referrals from people they know (Nielsen)
  3. People are 4 times more likely to buy when referred by a friend (Nielsen)
  4. 77% of consumers are more likely to buy a new product when learning about it from friends or family. (Nielsen)
  5. 81% of U.S. consumer online purchases are influenced by their friends’ social media posts (MarketForce)
  6. 74% of consumers identify word-of-mouth as a key influencer in their purchasing decision. (Ogilvy)
  7. Word-of-mouth is the primary factor behind 20% to 50% of all purchasing decisions. (McKinsey)
  8. Consumers rely on word-of-mouth 2x to 10x more than paid media. (Boston Consulting Group)
  9. Word-of-mouth has been shown to improve marketing effectiveness by up to 54%. (MarketShare)
  10. The lifetime value of a referred customer is 25% higher than that of other customers (Wharton)
  11. Referred customers bring you 25% higher profit margin. (Boston Consulting Group)
  12. A referred customer is 18% more loyal than a customer acquired by other means. (Harvard Business Review)
  13. Referred customers are 4 times more likely to refer more customers to your brand. (MarketForce)
  14. Customers referred by other customers have a 37% higher retention rate. (American Marketing Association)
  15. Customers acquired via referrals spend 200% more than average customers. (American Marketing Association)

Unlocking the Value of Referred Customers

While it’s hard to dispute the multidimensional value of a referred customer — from increased average order value (upwards of 200%) to extended lifetime value (upwards of 25%) — many brands still struggle with how to actually design and develop an effective referral program for their customers.

Designing your customer referral solution should focus on:

  • Customer Acquisition: Your solution should be designed to transform your loyal customers into evangelists while identifying and motivating a brand’s top influencers to help increase their referrals. This results in a low-cost, highly-effective customer acquisition channel for your brand.
  • Centralized Data: It’s critical for your program’s efficacy and optimization to have visualized referral data to understand performance as well as trends and tendencies over time. Overlaying this with behavioral and transaction data reveals how various incentives, tactics and promotions can motivate both referrers and referrals.
  • Shared Value: The most effective referral program is streamlined and simple in approach while delivering shared value to both the referrer and recipient. This is instrumental in serving as a motivation factor for both sides of the equation and still ends up being significantly more economical than a brand’s typical fully-loaded cost of acquisition.
  • Customer Intelligence: Precise identification and multidimensional understanding of a brand’s most valuable referrers via segments, personas, analytics, scoring and insights can be used to identify similar customers to cultivate into effective referrers of your brand.
  • Streamlined Technology: Personalized, automated referral marketing programs with easy-to-use customers solutions are key to success — for both your customers and your marketers. The platform should facilitate maximum flexibility for rewards that can include points, discounts, dollars, merchandise, etc.
  • Real-Time Optimization: Versatile optimization through robust referral campaign performance analytics and program reporting is critical to driving your program’s relevancy and efficacy. This is important not only to determine the appropriate initial structure of your referral program, but also to adjust to shifts in customer behavior over time.

Given the tremendous multidimensional power customer referrals can provide to your brand with both acquisition and retention, there’s never been a more critical time to incorporate a robust referral program into your customer strategy.

Start delighting your customers and boosting business

Watch your loyalty programs, gift cards, strategic offers and marketing communications over achieve when driven by Clutch’s comprehensive marketing solutions.