Referral Marketing: 5 Types of Referral Marketing

Referral marketing (or word-of-mouth marketing) is a customer acquisition strategy that incentivizes current customers who recommend a company’s service or products to people they know, like a friend or family member. A simple referral program often includes a basic reward system, offering the referring customer discounts off their next purchase, gifts, or insider perks in exchange for bringing in new potential customers.

In addition to being cost-effective, this marketing strategy often has relatively high conversion rates (converting browsers into paying customers) when compared to traditional advertising—this is because potential customers receive recommendations from their friends, whom they are more likely to trust than an unknown brand. Referral programs can be especially advantageous to a startup or new business with a small network of customers. Once the referral program gathers momentum, trackable word-of-mouth marketing helps the brand isolate their target market, revealing the type of customer a successful referral is likely to come from.

While marketers may talk about referral marketing on its own, it usually doesn’t exist in isolation—instead, it dovetails with other digital marketing plans and strategies (including lead generation, social media marketing, retention plans, and search engine optimization, or SEO) to create a comprehensive marketing campaign that addresses every stage of the customer’s journey.

The objective of referral marketing is to turn loyal customers to brand advocates who recommend the company to their friends, growing its customer base and increasing sales. New customers gained from referral marketing are theoretically more likely to purchase the brand’s products or services because a trusted connection recommended them. Common referral marketing strategies rely on any number of techniques to encourage satisfied customers to offer word-of-mouth recommendations to their acquaintances, though it often involves a referral rewards system.

Referral marketing can take several different forms:

1. 1. Digital customer referrals: This classic strategy takes the form of a basic customer referral program that existing happy customers can use to share a service with their friends—like an online form, a landing page, or an email template with a referral link. These established pathways allow for automation of the referral system, making it easier for a company to track and generate sales through referring and referred customers.
2. 2. Influencer support: While many referral marketing campaigns focus on existing customers reaching out to friends and family, a broader type of referral marketing is influencer advertising. Influencers—including social media stars or podcasters—working with particular brands may share unique discount codes with their audience, increasing brand awareness and driving purchase.
3. 3. Rewards program: The most widespread referral marketing tool is a robust, established rewards system for referrals. A referral marketing program can use a number of win-win approaches—your business may offer small incentives for referrals (like coupons, upgrades, or cash back), rewards based on referrals converting into sales (often higher than simple referral incentives), or a tiered referral system (offering bigger rewards after a certain number of referrals). This system should be public-facing and visible across your various marketing channels, motivating your customers to recommend their friends.
4. 4. Social media comments and tags: Brand followers tagging their friends in social media posts is another form of referral marketing. For example, a business may ask users to tag a friend or two in the comments, either responding to a prompt or entering a joint giveaway. This can offer a simpler, less-forward way for customers to put your company on the radars of their friends and family.
5. 5. Testimonials: Sharing customer case studies on a brand’s website qualifies as referral marketing. While the readers of these reviews don’t know the customers leaving the testimonial, they can choose to treat the reviews as honest evaluations—and usually trust recommendations from customers over sales pitches from sales reps.

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