Referral Marketing simply refers to ‘word-of-mouth’ marketing. It is where a person who is happy with a product or service shares his or her experience with another person with the goal of promoting the said product or service. It works better than any other form of marketing because of the trust factor - People tend to trust testimonials that are based on the personal experience of the buyer than on seller promotions that are based on the goal of selling a product. Think about it. Would you buy a product because the seller says that it is good or because your friend says that it is good? I’m pretty sure you’ll go with the latter.
With this, it is very important to implement a referral program even in offline businesses. Word-of-Mouth is powerful and it is the only way to get more customers - a goal that almost all offline businesses share.
However, it seems that offline business owners are having some trouble implementing a referral program in their business.
Let’s find out why.
Why Referral Marketing is Harder for Offline Businesses
Admit it. Referral marketing may seem enticing but it looks too complicated to implement on offline businesses.
Here are four common reasons why offline businesses don’t have referral programs.
Reason #1: There is No Plugin or Tool for Referral Program Creation Offline
Online businesses have it easy. There are embeddable referral codes, plugins and softwares that can help them implement a referral program with a click of a button.
But offline businesses have nothing more than real word-of-mouth from people who have personally experienced doing business with them. They usually just focus on buyer experience and forget about creating a referral program.
Reason #2: Creating a Referral Program Offline Can Get Overwhelming
Reading about the benefits of referral marketing is interesting. You get to see the personal experience of various business owners who implemented it in their business and gained amazing results. But there’s a question if the same will happen to an offline business owner who doesn’t have a website.
Why do business owners quit when they are about to implement a referral program?
It can get too confusing.
When offline business owners do decide to create a referral program, they can get overwhelmed with all the specifics of creating it. First, there are so many ways to create a referral program. They can give out coupons, host a contest, give cash and the likes. Deciding on the type of referral program to implement can be quite daunting. Second, there is a question on the type of reward that should be released. Should it be a discount coupon? A product? Cash? All these specifics are often enough to delay the release of the referral program. In worse cases, it can even prevent it from launching altogether.
So if you do decide to create a referral program, don’t get overwhelmed with the specifics. Take one step at a time or look for help. It will make the creation process less stressful for you.
You’ll learn more about the specifics of creating a referral program for your small business below.?
Reason #3: Analysis Paralysis
When you decide to launch a referral program, you’ll encounter some metrics such as your sharing rate and conversion rate. Sharing rate is the amount of shares a particular referral link gets in a certain period of time while conversion rate is the amount of sales generated from each share. Some people tend to get too fixated on these numbers that they fail to tweak their referral program according to the needs of their customers. Don’t do this. Forget the numbers and ask your customers about their experience instead.
Reason #4: Overwhelming Cost
I’ll be honest. Referral marketing is not all rosy with all its success stories. The downside of referral marketing is that it requires business owners to spend some money in exchange for exposure. Referral marketing requires an incentive - incentives require money.
For bootstrapping small business owners, this is unfathomable. Some of them dismiss the idea of creating a referral program just for this reason.
But listen to me for a minute.
Look at what PayPal did. Paypal spent as much as 60 million dollars just to get members.
Why did they do this?
Because they know that they will get their money back in the long run.
With more people using PayPal, they also became the leading brand when it comes to online payment processing and they will make more money because they take a cut in each transaction.
Now: I know that you don’t have 60 million dollars. But investing even just a bit of money to get exposure is worth it.
According to Nielsen, people are 4 times more likely to buy when they are referred to a product or service and they have a 92% chance of buying if they are referred by a friend.
Will you seriously pass this opportunity to be known in your niche just to save money?
Don’t do it. You’ll actually miss all the money that you can make just from not having a referral program.
How to Implement a Referral Program in Your Offline Business
Implementing a referral program in your offline business is easy. All it takes is 3 simple steps.
STEP 1: Understanding The Types of Referral Programs
Again, a referral program is where you ask your customers to refer people to your business. For online businesses, this can come as a website visit or subscription. But for offline business owners, this can come in a form of a visit or a purchase.
Referral programs are sorted based on who you choose to reward. Here are the three types of referral programs that I know.
Reward the Referrer
First, you can choose to reward the referrer. The referrer is your customer and you give them a reward when they bring a friend who successfully made a purchase in your business.
So if you run a gym, you will want to reward your customers who refer friends who signs up to a monthly membership at your gym. This is a good example of the Reward-the-Referrer Program.
Reward the Friend
Some people don’t like to use referral codes for one reason: they don’t get anything out of it. But you can counter this friction by also rewarding the friend. This doesn’t need to be anything great. You can give them a simple discount code on their next purchase. It will just encourage them to buy and they may even invite more friends in the process.
Reward the Referrer and Friend
You can also do a combination of the two. You can do this by rewarding the referrer and friend.
There are a couple of questions that you must answer when you do this.
First, there is a question on how much each party should get. Should it be 50-50 or should one party get more than the other? The answer will depend on the nature of your niche. For some niches, it may be better to give equal amounts. For others, the referrer should get a higher amount.
Aside from that, you also need to know how much you should give. For example, if you decide to give $50 rewards, does that mean that both parties will get $50 or will you split it to $25 each. Again, the decision is up to you.
A company called Greats decided to give $10 to both referrer and friend. They did this because they are targeting millennials who love to share information online. These people are very stylish and they think that the amount and structure of the referral program is perfect for their business.
DapperTime, on the the other hand, decided to just give $10 for each referral. What is interesting is their tagline - they tell you that ‘We are literally trying to give you money here!’ and that fuels their campaign.
STEP 2: Deciding on a Reward
Once you understand the different referral programs that you can create, you have to decide on the incentive. This is an important step because you simply cannot run a referral program without this. Below are some questions that you can ask to determine the best incentive for your program.
1 - What Do Your Customers Care About?
The answer to this question will vary from niche to niche The key is to know the type of reward that will appeal the most to your customers. Some ideas are cash, discount coupons (single or multi-use) and others. For friends referred, you can also give discount coupons and cash. The best way to know the answer to this question is to ask. Go ahead and ask your customers. Then choose the one that they liked the best.
2 - Will They Do Repeat Purchases?
The second question is about repeat purchases. This can have a massive impact on the type of reward that you should give.
If you are selling a product that is bought regularly, then you should go for discounts. Since these people are repeat purchasers, they would be happy if they can get the next products at a lower rate.
From here, you should choose whether you should give cash discounts or percentage discounts. A good rule to follow is to consider the price of the item or service. If the price is too high (over $100), then you should go for cash instead of a discount. Discounts seem more enticing for lower priced products or services.
For products that are rarely bought, it is better to go with cash discounts or free cash. Why? Well, discounts for future purchases are just irritating. Let’s say you bought a motorcycle for $2000. If they give you a 50% discount in your next purchase when you refer a friend, it will not really matter to you. And it can even irritate you so much that you will not refer anyone. The lesson? Don’t do that to your customers.
BONUS QUESTION - Are Your Rewarding Pre-orders?
Some industries allow pre-orders. This is where the product is paid even before the product comes out. The problem with this setup is that it often stops people from buying in fear that they will have to wait a long time to wait for their products. You can counter this by rewarding pre-orders with cash discounts. This means that they get to have the item at a lower price if they choose to pre-order.
Plus, you can extend this to include pre-order referrals. This means that you reward people who get others to pre-order.
Tons of sales for your business.
STEP 3: Implementing a Referral Program in Your Business
Now that you understand the different referral programs and the types of rewards that you can give depending on the nature of your customers, it is time to implement your program in your offline business. With the two requirements ready, I can easily launch a referral program in two simple steps.
1 - Create Coupons
First, you must print those coupons. This can be a coupon that entitles the receiver to free cash, free products or services when redeemed or a certain percentage discount. Be sure to include the mechanics of the referral program in the coupon.
2 - Inform Your Customers
With coupons on hand, it is time to let your customers know that your referral program exists. You can do this by attaching the coupons to the official receipts when a customer makes a purchase or you can have a blown-up poster in your shop.
BONUS: Give Special Coupons to Influencers
If you want people who are far from your store to know about your business, you can do this trick. Just send a special coupon to influencers in your niche and ask them to promote your product or service. In exchange, you can give them a free product or service and they also get future discounts with every referral they do.
Can you see the power of referral marketing for your business? Even if your business is mostly done offline, that doesn’t mean that you should dismiss the idea of having a referral program. Referral programs is just about creating a system to encourage your customers to spread the word about your business. It is that simple.