Significance of Referral Marketing on Inbound Marketing

Marketing today is about reaching out to the customer at the right time, right place and the right answer to their needs. It is no more done in the traditional ways where communication used to be a mere monologue by a brand. Marketing communication has evolved to become a dialogue between the customer and the brand where inputs of customers drive the marketing strategy. Increasing competition and high awareness among customers have made sure that marketers can no longer sit and wait for their customers to find them. We have moved from traditional ways of Outbound Marketing to more engaging methods of Inbound Marketing.

Getting customer coming to your house instead of you renting a space in their head is the essence of inbound marketing. It has various facets like SEO, Blogging, Social Media, and Direct Emails. No single marketing tactic works entirely on its own but each one of them needs to be looked at carefully to make the most of your marketing investments. One such facet is the concept of Referral Marketing.

Referral Marketing works on one of the very important elements of a brand equity: Word of Mouth. Referrals are essentially the Word of Mouth through which an existing customer refers the brand/product to a new customer. Referrals have always been viewed as an organic by-product of the company doing a successful job and have been considered as an afterthought for most marketers. The times have changed and Referral Marketing can no longer be considered a byproduct or an afterthought to the marketing strategy. A good referral strategy can give a huge payout to any product and be the driver of the sporadic growth for the product and its brand.

How does it add value?

People tend to refer services when they feel that the other person will benefit from it. People come to an expert for advice because they need a service. A genuine incentive free referral guarantees that the referee belongs to your TG.

A reference is the admission of the fact that “I am reaping the benefits of this service and you might like it too”. It is the word of a friend who has no or less conflict of interest than a marketer.

Reach and acceleration
The pyramid of a successful strategy referral provides a deep and fast penetration of the market. It is a separate a higher quality acquisition channel.

Better conversion rates
The relevance of a referral makes it much more likely for a customer to adopt the service. It has the tried-and-tested certification by a friend.

Higher Retention Rate
With the aptness of the product and the trust factor involved, a referee is more
likely to stay with the service as opposed to an average customer.

Demand Management
In certain services, a referral strategy can be a great way to estimate and contain the demand the number of referrals you plan and the referrals you generate.

Where to Start?

Besides providing a great service that would drive your customer to
recommend your customer one should look to optimize the action

Finding the right advocates
We find experts, celebrities, bloggers who are a brand in themselves. People
do not want put effort in searching, they just want the best.

Friends are great personal influencers as they know your customer the best and the referee trusts them.

Social Media
It is one of the most popular channels for organic growth. Find which social
media platforms are working for you the best.

People who have created a brand for themselves that people trust. The content they have in their posts, photos, and blogs give high value to anything they endorse. Making smart investments here could have the high yield.

Open reviews posted by current (or former users) are a source for trustworthy
information about your product. Make sure to reward positive reviews though
networks like Net Promoter

Make it easy for customers to refer your service
This sounds like a no brainier but you will find many websites and apps where
the action is referred is hidden in a corner and too complicated to go through. Push them at least once and keep the action handy. The action should save time for both advocate and referee

Have a referral program
Even though 83% satisfied customers are willing to refer, only 23% of them
actually, do. They need a push to make it happen.

Referral Strategy

Focus on every step of the funnel: Performance metrics. Your referral acquisition metrics include not only your conversion rate but your referral action rate, impressions, CTR, conversions, and revenue. Every referral strategy would have a unique set of it and every transition has a different value for you.

Advocates are by definition, are the existing customers who refer your service to anyone who is a potential customer.

Shares per Advocate
This measure the program amplification. This may differ on the type of incentive you provide the advocates.

Social Shares
These measure the penetration of the program how much on what channels did our referral program generate impressions. Platforms could be SMS, Mail, Twitter, Facebook etc.

This is the basic CTR for every referral and also CTR for every channel. This will depend on the intensity of referral, the relation between the advocate and the referee.

Friend Conversion Rate
The number of customers acquired through different referrals. This will determine (generally) whether or not a referral earns a reward. It will differ on industry to industry, what the incentives for the referee are, how expensive is the product.


There are a few things you have to care for while designing a referral program:

Find the right incentives
It is not just about showering the customers with rewards for referrals. You have to understand your customers’ needs. Product based incentives for low engagement services will not have an effect on the advocate, in fact, it may dilute its value. Also, a high reward isn’t necessarily the best. Studies have shown that a moderate incentive gives higher participation in referrals than an outrageous one. It makes the referral seem genuine.

Start Early
It is never too soon to start a referral program. Referrals are a great way to acquire new customers and when you do have a good customer base, it will be the driver of your growth. Plan your marketing budget and strategy keeping referrals in mind.

Build fences for reward Junkies
It is one thing to have a good advocate and another who just gives you numbers. Multiple accounts, fake sign-ups, own referrals are very common sights when a high incentive is given without much thought. These
will give you numbers but won’t help you in generating loyal business. Make sure your referral design has no loopholes has proper limits to incentives.

Here are some of the most successful referral programs

Extra space by Dropbox
A product based incentive that has a lot of value for the advocate is a superb incentive. 500MB extra cloud space for every successful referral increased their sign-ups by over 60%.

Capacity management by one plus
One plus used an invite only marketing strategy that made the product look exclusive and the customers didn’t mid the wait. This gave them great information for their production forecasts and they were able to meet the demand.

Two way two level incentive by Airbnb
25$ to both advocate and the referee and 75$ more if the referee becomes an advocate. Patched along with investing on influencers like tweets from a celebrity named Anthony drove Airbnb’s growth in China.

Free rides by Uber
Simple and elegant. A free ride to both the advocate and the referee is one of the reasons for Uber’s dominance in the Indian market. The the success of the strategy is the simple understanding of the incentive and a very easily accessible referral mechanism. The incentive provided also promotes trials
and increases business.

Donation by referral
Companies like Far West Capital has partnered with fundraisers and the incentive of every successful referral goes to a charity of your choice. Lesser known but is an interesting concept. This creates a better image for the company and accomplishes CSR objectives.


Inbound Marketing is no more a reactive marketing strategy in today’s highly competitive business scenario. Marketers are now making Inbound Marketing a part of their core and proactive marketing strategy. Referral Marketing, among all the facets of Inbound Marketing, should be specially employed early in marketing strategy. It can tremendously help in an initial growth phase of a product or a brand as it helps in creating a large customer base in a very short time through Word-of-Mouth. A large customer base leads to increased brand awareness which is undoubtedly the biggest challenge
for any new product or a brand in its initial years. Thus, Referral Marketing can be most beneficial for a product or a brand in its growth journey. Airbnb reported up to the triple of its daily bookings after launching the referral program [Forbes]. For an already established product/brand like OnePlus and
Uber, referrals can help in attracting new customers or in promoting a new product or a service. Multiple touch points in customer’s digital space have increased the scope and reach of referral marketing. It is safe to say that referral marketing has become one of the most successful Inbound
Marketing tactics in recent times.

Like what you read? Give Tanmay Kasliwal a round of applause.

From a quick cheer to a standing ovation, clap to show how much you enjoyed this story.