Referral: turning customers into ambassadors.
The final stage in the AAARRR funnel is Referral. A phase that is regularly underestimated, but can offer an incredible amount of value to your company for relatively little cost.
Then why do entrepreneurs take so little advantage from it? Why does referral get little to none no attention compared to the other phases in the funnel?
“A brand is no longer what we tell the consumer it is – it is what consumers tell each other it is.”
72% of marketers still do not recognize and leverage the value of customer referrals. (Loyalty360).
Do you fall into this percentage? Cause if you do, you might be sitting on a gold mine. It is certainly tempting to put a lot of energy into the first phases of the funnel, attracting and getting new customers is almost immediately linked to an increase in turnover and thus more profit. Nevertheless, it is in the Referral phase that you have the best chance of attracting as many potential high-quality leads as possible, and it would be a shame not to invest time in this.
It may be that your company or department is not yet large enough to be able to pay the same attention to each phase in the funnel and it’s sadly common to hear about a 100% awareness / acquisition focused approach. Even if that kind of strategy can work out well, you should still think of not losing all these new users right away. It would certainly be a waste of all the time, money and energies you put into it, and, unfortunately, it happens on a regular basis.
Time is one of the reasons why the importance of the Referral phase in the funnel is not perceived as it should be. People feel they have too little time to put the same amount of energy into each part of the funnel and therefore often postpone the last phase. It is not a priority on the agenda. In addition, you could be fooled into assuming that current users are already so enthusiastic about the product that they automatically pass it on to friends or family, so why putting in the effort? Does it sound familiar?
84% of customers take actions because of personal recommendations. Word of mouth is important.
1. The underestimated importance of referral
The referral phase is about using current customers to attract new ones. But how to turn them into ambassadors for your brand? When it comes to good word of mouth, existing customers are the key to success. If you think about it, you have already invested the necessary energy in them, so who better than them to ensure that the quality- and the number- of your leads increases? After all, you have a lot of information about them, and they know exactly how your service or product works. They saw the value of the product and have already experienced the AHA moment, hence they are more likely to share their enthusiasm with friends or family. Speaking of, did you know that people are 4 times more likely to buy when referred by a friend? (Nielsen)
2. Net Promoter Score
Use a net promoter score (NPS) to measure how loyal your current users are. You could include it in a newsletter or “Thank you” page, for example. A simple question that gives you direct insight into customer satisfaction. Even if this particular question will not give you an insight into why people think what they answered, it certainly is a first step in the right direction. Be careful though, because there is a big difference between what people report in the NPS and what they actually do. Do your promoters refer your product to their friends and family after they have completed an NPS? To be sure, make it measurable. Make sure that the promoters end up directly into your referral program after they have completed a NPS and reward them for that. Because why giving a new lead a welcome discount when it’s your current, loyal user who has actually done all the work? Instead of saying “When your friend signs up you will receive a ten euro discount on your next purchase” try to say “Get your friend to sign up and receive both a ten euro discount”. In this way you give a reward to both the referee and the referral: this is what we call a two-sided referral campaign. The exact reward depends entirely on your business and on what is possible for your company to do. You can calculate the value of your new lead by looking at the CLT and the costs you invest in the acquisition of your new lead. This can give you an indication of what your incentive can be. Another example of a referral campaign is to make it a game element and to use the social network of your customers, a so-called Bounty Campaign. Users share their experience with your product to gain as many social shares or votes from their network as possible to ultimately win a prize or something.
3. Referral vs Awareness
You will see that are a lot of similarities between creating Awareness and using Referrals to attract new leads. In both cases what you are trying to do is attracting new users. However, through a referral you are more likely to get a good quality lead, thanks to, let’s say, word of mouth. When talking about awareness, you have to put more effort into it yourself, because the new user does not know anything about your brand yet. You start from scratch without the certainty that you will reach new users who can be really valuable to you later on. Referral, on the other hand, literally means letting your most loyal customer become ambassadors and do the work for you. For sure, it should always be encouraged but the greatest part of it is that when it works, it works by itself and it is free.