4 Types of Referral Marketing to Try (with Examples)

Building a good reputation will always take you far in the business world.

Trying out referral marketing strategies such as word-of-mouth, user reviews, and incorporating social media platform sharing is great for enhancing your image and boosting brand awareness.

In light of this, let's check together 4 types of referral marketing and discuss how your loyal customers can benefit your marketing plan.

We’re covering the following:

  • What is referral marketing?
  • Why is referral marketing important?
  • 4 types of referral marketing you can use

 Let’s get started!

What is Referral Marketing?

Referral marketing is the practice of spreading the word about a service or product via a company's existing customers rather than through conventional advertising.

Moreover, referral marketing includes word-of-mouth marketing, which happens when people tell potential customers about a company.

Dropbox did nothing but use this sort of marketing method and achieved wonderful results.

Onboarding can be a terrible experience for consumers, but Dropbox changed things up and simplified the process as much as possible for a win-win situation.

To illustrate, Dropbox offered its customers the chance to acquire free extra storage space by asking their friends to join.

When the company used this referral reward system, it became one of the most effective referral marketing campaigns ever and Dropbox swiftly expanded to 4 million members, attaining 3,900% growth!

In addition, users received the following email as soon as they joined up and enjoyed the perks as soon as they finished signing up.

Since users got to enter the email addresses of their relatives and friends in exchange for more storage space, Dropbox attracted many new customers at the same time.

The important thing here was to include the referral program as one of the onboarding phases.

Instead of the typical wording "Invite your Friends" in referral schemes, Dropbox went for something more personalized. 

"Get more space," they stated; an appeal to the user’s self-interest rather than just spreading the message about Dropbox’s referral incentives.

Moreover, Dropbox has various alternatives for bringing users' friends and family members on board. 

They could promote the referral offer on social media or transmit their unique referral code through whatever channel they chose, such as messaging applications, email, SMS, etc.

So Dropbox could sync your contacts from services like Gmail, AOL, and Yahoo and send out mass invitations, as you can see here:

Also, the company established a separate panel that users could view at any time to monitor the status of their referrals, which is very practical.

Why is Referral Marketing Important?

Referral marketing needs promotional efforts and prizes to attract clients, yet it’s so worth it!

It comes with several benefits, including the following:

  • Allows you to target a specific audience:

Your current customers are familiar with your product or service, allowing them to suggest your product to those they know would benefit from it. 

Consequently, without a costly advertising strategy, you’ll get high-quality targeted clients who need the advantages your product delivers.

  • Helps you get more valuable consumers:

According to data collected over the years, referred customers seem more valuable than those not acquired by referral.

For instance, a Harvard Business Review report found that customers obtained through recommendations at a major German Bank were:

  • 16% more profitable and valuable
  • 18% more likely to remain with the bank, enhancing customer loyalty

These stats derive from a period of more than three years, in which time the referred customers became regulars and as valuable to the bank as the people who referred them.

  • Assists you in keeping track of client satisfaction:

A referral program can be used to gauge client satisfaction. 

Successful, high-performing referral systems with many referrers often imply high levels of happy customers.

However, if you're having trouble getting recommendations, you probably need to gather feedback and enhance your client experience.

  • Broadens your market reach:

Referral marketing works significantly to expand your reach and visibility by using your consumers as brand champions. 

While certain settings and events are off-limits to conventional advertising, a customer mentioning your wonderful product or business to a friend or colleague has practically no limitation. 

In addition, customer recommendations will also assist you in extending your client base since many individuals have a wide network of friends.

  • Boosts return on investment (ROI):

If you compare a referral program's ROI to that of various other marketing tactics, you'll see that it’s significantly higher. 

Strong referral campaigns and initiatives generate big revenue increases—10 to 20% for well-known products and up to 100% for newer ones.

Those are some serious numbers!

4 Types of Referral Marketing You Can Use

Referrals are partnerships that benefit everyone if done correctly. 

Here are four real-world business referral examples that used these techniques to obtain new clients and boost their forms of advertising.

Type #1: Word-of-mouth referrals (Direct)

Word of mouth is not a one-time event but rather a long-term process. 

Companies can stimulate word-of-mouth marketing or direct referrals by surpassing customer expectations, just like PayPal did with its existing users and referred customers.

Example: PayPal

Image Source: PayPal

If you were one of the first people to use PayPal, someone likely told you about it. 

Whether you were invited by a friend or heard they were giving out free money to new members.

PayPal spent around $60 million on its referral program; the company would give $20 to each new user who joined the platform for the first time.

And that’s not it!

The company would also reward an existing member with $20 for referring someone new.

This method triggered a referral deluge, resulting in over 100,000 users in only one month.

So, come up with a referral offer that people desire or need; one that not only attracts consumers but also encourages them to spread the news.

You'll have a network of people talking about you and their customer experience.

Additionally, the most fantastic aspect of this successful referral program is that customer acquisition will be far less expensive in the long term than operating conventional marketing initiatives.

Type #2: Email marketing referrals

The power of email marketing can’t be overstated since there are 4 billion active email subscribers

In fact, 64% of marketers use email marketing to reach out to their customers. 

In addition, brands engage their prospective customers via email marketing by notifying them about deals and rewards programs and keeping them up-to-date on new product releases and referral programs. 

Companies also distribute email newsletters to boost client relationships and create brand advocates of lifetime value.

To illustrate, a referral email is a newsletter that encourages your current clients to promote your company with their connections. 

This referral source generally includes a special incentive for both the referrer and the referee, making it a win-win situation for everyone. 

Also, it’s done by establishing a customized referral link or share click button for each subscriber (more on that later), which they may click or copy from the email newsletter.

Example: Revolut:

Revolut is a fintech company that provides digital financial services.

To ensure the effectiveness of their referral marketing campaign, Revolut marketers have created an incentive offer for both current subscribers and newcomers. 

Also, they made sure that their email was easy to look at by using a simple referral template, keeping the referral process as easy as possible.

Now, that’s a great way for any business owner to land new referrals and get new leads simultaneously.

Type #3: Contribute to a good charity

Not all customer referral programs must include discounts, gift cards, coupons, free products,  giveaways, or service updates.

Instead, linking your company with a social cause relevant to your client base might be the ideal answer for increasing referral marketing outreach.

People are naturally drawn to a worthwhile cause,  especially one that resonates with their moral compass.

Take, for example, the software startup and small business, Vena.

Example: Vena

Image Source: Vena

Vena makes a $2,000 donation to a charity of a customer's choosing when that customer refers someone new.

Vena works with organizations such as the American Red Cross, the World Wildlife Fund, UNICEF, Doctors Without Borders, and the Wounded Warrior Project.

What’s your company's mission statement? 

This is a topic that many customers are growing more concerned about. 

Hence, this strategy of different types of referral programs can be great especially if you’re trying to build a more socially-conscious customer base.

Also, it can help you gain satisfied customers and link you with a worthwhile cause. 

Type #4: Online reviews referrals

Displaying reviews on an ecommerce website is a method to maximize the platform’s value as a marketing channel.

Online reviews can serve as referrals but don’t necessarily benefit the creator.

However, they can persuade consumers to buy anything, as seen in the example below.

Example: Amazon

Image Source: Amazon

Amazon takes its ratings very seriously, keeps updating its database to keep everything trustworthy, and only lets people who have placed orders post reviews on their ordered items.

The client's shopping experience is significant and will impact their purchase selections. 

As a result, retailers should promote reviews emphasizing a pleasant client experience and the simplicity of the consumer path.

It’s about time so let’s wrap everything up.

Now Over to You

Creating a referral marketing program for your business requires effort, but the payoff is prospects with a far greater likelihood of becoming customers—even loyal ones. 

Also, with pleased consumers, you're already halfway to success with your company.

You can always sift through your current referral program and make any needed edits to apply referral best practices.

This will help you and your customers reap the full advantages of a high-quality referral program.

Need any help?

We've got you covered; feel free to book a demo with us, and let’s discuss what can work best for you.

Written by:

Nikitas Filosofof

Nikitas is responsible for growth at Viral Loops and also helps customers on 1-on-1 basis to reach success with their referral campaigns. Let's connect on LinkedIn