Here is a guest entry that’s really important to our friends who are trying to market by word-of-mouth. It’s from Annie Tsai is the author of The Small Business Online Marketing Handbook: Converting Online Conversations to Offline Sales (Wiley, 2013, ISBN: 978-1-118-61538-6, $25.00). She is chief marketing officer at Demandforce, an Internet marketing and communication company that advises small- to medium-sized businesses.
Picture this: After a long day’s work, you sink onto the couch and turn on the television. As you flip through the channels, you see a commercial for a new local restaurant. Later, as you scroll through your Facebook newsfeed, you see that a friend has checked in at that same restaurant, posted a picture of his meal, and captioned it, “Delicious! Can’t wait to come back.” Which is more likely to make you reserve a table: the commercial or your friend’s endorsement?
If you’re like most Americans, you’re much more likely to be influenced by your friends’ recommendations (even if they’re “just” online friends) than by ads. In fact, a recent Nielsen report reveals that 92 percent of consumers trust recommendations from friends and family above all other types of advertisements. And they’re four times more likely to make a purchase when referred by a friend.
Here’s the takeaway for businesspeople, says Annie Tsai: Referrals are a huge, sparkly, tied-up-with-a-bow gift—and if you aren’t already working to harness and maximize their power, it’s past time you started.
“Businesses are so busy focusing their energy on acquiring new customers that they often neglect one of their most valuable resources: active referrers,” says Annie Tsai, author of The Small Business Online Marketing Handbook: Converting Online Conversations to Offline Sales (Wiley, 2013, ISBN: 978-1-118-61538-6, $25.00). “Though this may be a small percentage of your overall customer segment, setting up a basic program to support them and encourage their activity is well worth your time and resources.”
In fact, if your company is delivering value to your customers, you probably already have active referrers—even if you aren’t aware of them, Tsai says. These people are posting positive reviews about your business all over the social media landscape and bragging on you to their friends simply because they love what you offer and/or how well you treat them—in other words, because you’ve earned their loyalty.
“Harnessing that loyalty is a no-brainer,” says Tsai. “And here’s the thing: These active referrers often don’t expect or even want incentives for referring others. Sure, you can offer incentives, but don’t think you have to break the bank in order to get referrals from current customers. In fact, I advise that before you spend the time designing a referral program based on monetary rewards, test out how willing your customers are to simply help spread the word.”
If you’re ready to harness the power of active referrers, read on for seven of Tsai’s tips on designing offers that continue to nurture your most valuable customers:
Be an equal-opportunity rewarder. Reward the referrer and the referee. This should be an easy modification if you already have a new customer acquisition deal in place. “Even if you don’t have a formal offer that rewards the existing customer for bringing in new business, find a way to say thank you,” suggests Tsai. “Put a note on that person’s account to give them a little something the next time they come in. The gift could be as small as a coupon for purchase, a small freebie, or a gift card for future service.”
Don’t stop playing after you score the first goal. Provide an incentive to get the referred customer back a second time as a part of the referral program. “It’s the same as when you’re designing deal site promotions or any other new customer acquisition program,” explains Tsai. “Building in a strategy that incentivizes that new customer to return a second time provides you with additional leeway and a captive audience. New customer acquisition through your referral channel is no exception to this rule.”
Be magnanimous with merchandise. Reward customers with retail products instead of services offered to increase perceived value. If you have a retail component to your business, make sure you find ways to leverage this channel. “Offering retail items is a great way to increase perceived value due to the built-in mark up from cost,” says Tsai. “For instance at a salon, the retail price of a bottle of shampoo may be $22, but the wholesale price is half that at $11. Including the bottle of shampoo or any other styling product with a 100 percent markup significantly increases the value of the service delivered to the customer without impacting your bottom line.”
Use gift cards to your advantage. Encourage gift card purchases into your customer base as a key driver of referral business. This is a great way to broaden the scope of your actively referring customer base. For those customers who are evangelists for your business in the offline or online world, gift cards are an easy way for them to introduce your business to friends and family.
“Additionally, if you don’t have a solid handle on precisely which customers are referring business to you, putting an aggressive gift card promotion out there is a great first step,” explains Tsai. “For tracking purposes, you can append the gift cards with some internal coding; if you’re printing them out, simply use a different color or numeric identifier for easy coding. This way, you can track gift cards as they are redeemed and will know over time which promotions generate the highest new customer referral rate. You’ll also know exactly who is gifting your gift cards, so make sure to say thank you with an extra something the next time that person returns to your business.”
Go old school—distribute business cards! Don’t discount the power of handing out some business cards to your favorite customers. Asking for the referral is often the most difficult part of building a referral program; however, you need to educate your customers on how they can help support your business—especially in the beginning.
“Even if you don’t establish a formal referral program, you can use business cards as an easy conversation starter here,” says Tsai. “Simply hand the customer three business cards at the point of sale and say, ‘I’d really appreciate it if you could let a few friends know about the great service you received today.’”
Harness the power of “In their own words.” Use existing customer recommendations and testimonials. “If you have a recent customer review that emphasizes how amazing a product or service is, turn that recommendation into a referral engine by pitching your offer as ‘customer approved’ and share their story,” notes Tsai. “You can go several directions here; including a customer video testimonial, a before and after photo, or a snapshot of their post-visit review are all effective ways to draw new business from your current fans.”
Ask customers to bring a “plus one.” Create referrers using “you and a friend” deals. This is a great approach for businesses for two reasons. First, it turns an existing customer into a returning customer. Secondly, it encourages that existing customer to bring someone completely new to the business. We’ve all heard the adage “the best customers are referrals”—and it’s true. The great thing about this type of customer is that you already know that your existing customer is reliable and operating in potentially socially savvy space. And since they’re a return visitor, you know they already enjoy being a patron of your business. By posting these kinds of deals, you increase your chances of getting more customers like the ones you already have.
“‘Bring a friend’ deals also benefit businesses because they give them a very clear indication of how effective their existing customer base can be at driving new patronage on the business’s behalf,” says Tsai. “Every once in a while—perhaps once a quarter—it’s always a good idea to offer a ‘bring a friend’ deal and test word-of-mouth willingness and conversion within your currently active customer base. Of course, in order to leverage the ‘bring a friend’ deal to influence the ‘now’ sale, the deal must offer a higher discount when purchases or appointments are made at the same time. The customer is able to take advantage of a group discount, or better incentive, and the business is able to measure how effective word-of-mouth is in bringing on new clients in this manner.”
“Remember, if you’re doing your job well, customers will want to tell their friends and family about the great new store, restaurant, service, etc. that they’ve found,” Tsai concludes. “Choosing to spend a little time and energy actively converting those customer fans into active referrers is a no-brainer. And the best news of all is that once you have a successful referral program in place, it will practically run itself. One referral will lead to the next, which will lead to the next, and so on. When you put in the effort to cultivate your active referrers, they can become one of the most profitable segments of your customer base.
“And keep in mind that while increasing the odds that potential customers will make a purchase is one of the biggest benefits of utilizing active referrers, it isn’t the only one,” she adds. “The customers your active referrers bring in are also more likely to work with you if they encounter a problem during their purchase experience—and they may also be more apt to tell others about their (hopefully positive) experience. What’s not to love?”