What is Referral Marketing? Referral Marketing Definition
Referral marketing is a marketing initiative which incentivises happy customers to act as brand advocates in order to generate more sales and revenue for a business.
How Does Referral Marketing Work?
The way referral campaigns work is simple.
Companies offer incentives to existing customers to refer their family and friends.
To make referral campaigns more effective, incentives are not only offered to referrers but also to the referrals. This way, both parties are incentivised to participate.
Referral incentives can be in the form of discounts, store credits, freebies etc.
For example, a hotel could run a referral campaign that rewards their existing customers with a 15% discount on bookings for every referral. The people in return also get a 15% discount on their first booking.
In summary, it’s a win win situation for all parties involved. Companies get new customers, existing customers get incentives, and new customers get incentives as well.
The great part is that new customers can also join in the referral campaign which can spark a chain reaction.
Examples of Successful Referral Marketing Campaigns
There are a lot of companies that have achieved wild success with referral campaigns.
Some companies have used referral campaigns to attract millions of new users.
One of the first companies to achieve wild success with referral marketing on the internet was PayPal.
PayPal ran a referral campaign in the early days of their company. For their campaign, the electronic payments company paid new users $10 for joining the platform and existing customers $10 when they invite others.
This was real cash that people could spend right away. At first it seemed like a gamble but it paid off big time.
PayPal grew to 100 million users with referral playing a major role in this hyper growth.
Another one of the famous referral marketing campaigns is the Dropbox’s Referral Program.
Inspired by PayPal’s campaign, Dropbox gave existing customers 500MB extra space for every new user they referred. New users also got 500MB of bonus spaces.
The results of this program were astronomical. Dropbox grew from 100,000 users to 4,000,000 users in just 15 months.
More than 3 million direct referral invites were sent by users.