Benchmark Report: How Is Referral Marketing Looking in 2016?
RewardStream, in conjunction with Demand Metric, just hosted our webinar presenting the results of our 2016 referral marketing benchmark report. You can download and read the entire report here, and we thought we’d provide you with a quick summary of some of the findings.
Get the full report here.
Why Did We Sponsor This Study?
We live and breathe referral marketing so it’s obviously very important and of great interest to us to stay up to date with current referral marketing trends and opinions. RewardStream works with clients using our referral marketing software every day but we always like to hear from the broader market; we were interested in hearing from existing clients and potential clients alike. Our aim was to get answers for four key questions:
- How do marketers perceive referral marketing and its value to their business?
- How does referral marketing perform compared to traditional acquisition methods?
- How is referral marketing being used by marketers?
- Are automated referral marketing systems being adopted to enable customer advocacy?
The results were very positive in favor of referral marketing, with most of the marketers we surveyed agreeing or strongly agreeing that referral marketing is an effective channel for acquiring new customers.
Despite strong support for referral marketing, many marketers have still not adopted a referral marketing program for their business. However, compared to the results when we did this survey in 2014, there is a slight increase in the number of marketers reporting that their business uses some form of referral program.
Out of the marketers with referral marketing programs, the majority stated that their referral programs were managed manually in-house. In our experience, managing programs in house often results in sub-optimal performance, and creates programs that are hard to administer. . Regardless of the size of your business, an automated digital referral platform is the easiest, time saving and most cost effective way to manage a referral program.
Half of the marketers surveyed who currently do not have a referral marketing program claim that they will launch one in the future, though for the majority this future date was unspecified. Many marketers had legitimate reasons for not being able to commit to a launch date, reasons we will touch on shortly.
What’s So Good About Referral Marketing?
Our referral marketing study asked participants to rank what they consider the benefits of referral marketing. Unsurprisingly, acquiring new customers came out on top. However, the marketers we spoke with were also aware of how a referral program can benefit other aspects of their business too including promoting or cross-selling products and gaining valuable customer insights.
Referrals are such a good tool for acquiring new customers that marketers consider word of mouth to be the among the top three channels for acquiring new customers, with those three leading methods only differing in perceived effectiveness by 1-2%. Despite this, referral marketing is not used as often as other less successful customer acquisition channels.
What Obstacles Do Marketers Face?
Money; backing from the executive level and lack of experience or resources feature heavily in the list of obstacles and barriers reported by marketers without referral marketing programs.
These results highlight many of the myths surrounding referral marketing. They also demonstrate why marketers who want to launch a referral program should work with RewardStream. An automated referral platform – like the one RewardStream has built – requires limited resources or hands-on management. Our solution also does not require marketers to be very knowledgeable or experienced in the field of referral marketing. Marketers can come in as novices and still end up with top results.
As far as cost and budgeting are concerned, we regularly talk about how referral marketing has a low CPA / high ROI ratio but this time, we’ll let the results from our study do the talking:
About two thirds of those we surveyed with experience with a live referral program confirm that referral marketing has either the lowest or one of the lowest CPAs of any customer acquisition program.
Marketers with referral program experience also had some challenges to report. For example, getting customers involved and turning referrals into customers are big hurdles for many businesses. Others struggle with tracking and analyzing the data.
Again, these issues highlight why marketers should work with an experienced provider of automated solutions like RewardStream. (Solutions like ours come with the built-in functionality to assist with conversions and monitor the program results, but enough of our self-promotion for the moment).
What Types of Customers Are Acquired Through Referral Programs?
In the time that has passed since our 2014 survey, the percentage of new customers acquired through referral marketing as reported by the participants in our study remains largely unchanged.
The types of customers acquired through referrals also remains similar to the 2014 findings. However, it is interesting to see the percentage reported for loyal customer acquisitions jumping by 9%.
Many things work together to create loyal, repeat customers: quality and variety of the products or services on offer; good value for money; convenience and –of course – rewards. Customers who feel valued by a brand are more likely to be loyal and to refer their friends and family to the brand. Rewards are a major component of referral programs and the majority of the marketers who took part in our study agree that they had success rewarding customers through a referral program.
Though not as popular as they were two years ago, account credits and free gifts remain the most common rewards offered by businesses. The use of paper coupons has dipped dramatically, clearly a victim of our increasingly digital, paper-free world.
The Bottom Line
The bottom line is that referral marketing works and has great support from marketers who have experience with referral programs.
The main things to keep in mind about referral programs are:
- Customers trust the word of their friends and family more than any other type of marketing.
- Referred customers are more likely to make a purchase.
- Just because referral marketing is new to you or your brand doesn’t mean it won’t work or that you should just stick with your traditional marketing methods. Referrals have worked for others and they will work for you too.
- Promote and market your program.
- Offer a reward or incentive that means something to your customers.
We’re just skimming the surface here. If you are interested in an even deeper look at our study, we highly recommend downloading the whitepaper. You can also reach out and speak directly with one of our referral masters.