Trend for 2022: Referral Marketing is dead…..long live Referral Marketing

Referral marketing is dead... Long live referral marketing

While any prediction in the midst of a global pandemic is fraught with danger, we are confident that 2022 will be the year when referral marketing finally emerges to be so much more than just a simple customer acquisition channel.

The year ahead will see its transition into a powerful tool that unlocks the full potential, not just of customers, but all the people, partners and affiliates that already know and love your brand, delivering you a hugely valuable new source of business growth. And it will do this at a fraction of the cost you are used to seeing from other marketing channels.

And this will be possible due to the massive advances referral marketing has made in the last few years:

It’s taking the DNA of referral marketing.

If you think for a moment what the essence of a referral program is, it’s this:

  • A means to identify people who like or love your brand;
  • and reach out to them and ask them to tell friends, family and colleagues about you;
  • providing them with an easy and safe means by which to do so (e.g. send emails or messages direct from a mobile phone in one click);
  • where the success of the referral is accurately tracked using tracking links, codes or memorable words; and 
  • where you typically offer a thank you reward to the referrer and a welcome incentive to the new customer for each verified transaction.

This is the basic mechanism that allowed brands like Uber, Dropbox, Airbnb and Tesla to scale rapidly without spending a fortune on marketing.

Building upon some huge advances and applying them to other audiences

Thankfully, referral marketing has not stood still since it was pioneered by Uber and Dropbox etc. And in common with other industries, like loyalty, referral marketing has now taken huge strides forwards adding advanced features like gamification, A/B testing, omnichannel and deep integration with back-end systems.

And because of these massive steps forward, brands can now harness the technology, techniques and psychology commonly used in referral marketing to leverage partners across their entire ecosystem as acquisition machines, tapping into the latent potential of each of these groups:

  • Employees
  • Influencers
  • Affiliates; and
  • Partners

But why now? Why 2022?

Because of Mark, Sergey and Larry and their walled gardens

The walled gardens of Facebook and Google (or should we call them Meta and Alphabet now?) have trapped marketers into a cycle of ever-increasing costs and diminishing returns. And while marketers know they just can’t keep tipping ever more of their marketing budgets into the coffers of Meta and Alphabet year after year, it takes real courage and conviction to take out your marketing chisels and start to break out from these walled gardens. 

Let’s look at the facts:

1. The costs just keep rising

Despite a temporary pandemic-induced drop in 2020, CPCs on Google have again resumed their relentless upward march. Ad Age recently reported that, on any given day in 2021, Google Ads were 30-40% more expensive than the previous year and GroupM predicted that search advertising spend is expected to grow 19.3% in 2021.

In industries close to our heart, given that we power referral marketing for many leading telecoms, utilities and financial services brands, Wordstream reported these eye-watering average category CPCs:

  • US$54.92 in gas and electricity;
  • US$54.91 in insurance; and 
  • US$44.28 in loans.

Meanwhile, Mediapost reported that, in Q2 2021, compared with the same period in the previous year, marketers spent 41% more on social ads. And Hunchads reported average Facebook CPCs rising steadily throughout 2021.

And even before the pandemic days, a Liveintent survey found 85% of marketers were worried about the rising cost of Facebook ads, and 47% believed they would be “priced out” if ads prices continued to rise.

Are we the only ones that think this isn’t sustainable? 

2. And they don’t even work (all the time!)

As if the constant price rises aren’t enough, there seems to be growing evidence that these ads aren’t working as well as they used to. A recent Forbes article highlighted the number of leading brands who turned off paid ads completely and saw absolutely no effect on their businesses. 

Advertisers turn off experiments
 

3. And there are alternatives

Well, if Airbnb getting 91% of its total web traffic for free without paying a penny to Google, Amazon, Facebook or Apple (‘GAFA’) didn’t impress you, then you are a hard person to please.

But then consider how the UK recipe box provider Gousto recently announced that due to its branded TV advertising, it now gets 82% of its customers organically or through referral, neither of which has a direct cost.

And if you’re still not convinced, how about the Brazilian fintech Nu Bank, which has 40m customers and announced that it got 80% of all customers in Brazil from its referral program despite offering no referral reward and only offering the referred-in friend nothing other than a non-guaranteed better chance of becoming a Nu Bank customer. Now that, to me, is astounding.

So beyond the customer, who else can I invite to refer?

Actually, it’s not so difficult to imagine how this can work by sharing a few examples:

  • Pet and veterinary insurers like Trupanion and Ageas could partner with providers of pet food and pet products to cross-promote each other’s products to a very targeted customer audience;
  • Telecommunications brands like T-Mobile, EE and Bell could partner with mobile phone manufacturers like Samsung, Oneplus or Xiaomi to offer special deals if their customer matches a subscription with the telecoms brand with a named phone, thereby greatly increasing the reach of their marketing across both customer bases;
  • Leading utility brands like EDF, British Gas, Epcor and Engie could promote green energy plans via micro and nano influencers and affiliates who have run or contributed to green energy blogs;
  • Brands that have large workforces like BT, Vodafone, HSBC and Vitality can enlist their employees to drive customer acquisition by giving them time-limited special offers that they can share with friends and family.

The opportunities are countless. Let’s look a bit closer at each of these in turn:

Employees

Your employees, contractors and agents are some of the most powerful yet criminally underused sources of potential brand advocates within your reach, particularly when you have a large and geographically dispersed workforce. This is not only because of their potential reach, when you consider that each individual employee, contractor or agent has friends, family, previous colleagues, social followers and other pools of influence they could tap into (sports clubs, parent-teacher associations, political parties etc.), but due to the credibility of their advocacy.

They are likely to be domain experts, by virtue of working in your business, and because they have committed their career (and pension) to you, this makes their recommendation very believable. Yes, they have self-interest in the prosperity and longevity of your business, but nobody who values a friendship recommends poor quality products or services to a friend for their own monetary gain. Well, let’s say almost nobody. 

Imagine if you are looking for a new barbecue and your best friend since school days happens to work for Weber. He or she, as a domain expert, can explain to you the pluses and minuses of gas vs charcoal vs electric BBQs, and run through the virtues of the offerings of each of Weber’s competitors. That is not only super useful but really credible advice. Now imagine how powerful that proposition then becomes when your friend then says “I can send you my personal link or code so you can get 20% off if you buy before the end of the year”?

Now you may say, doesn’t this happen anyway? Well yes and no. It may not happen as often as you like and when you want. The advantage of using a referral program for employees is that you make it easier and safer for your employees to do this. And when you add an exclusive staff discount or other benefits that is not available elsewhere, there is almost an opportunity cost of not referring that friend. Particularly, if the offer is time-limited and is likely to expire soon, you can get extra sales when you need them, like in the winter season when you probably sell very few BBQs.

In many companies, the ability to allow staff to offer a limited number of discounts to friends and family is seen as a company perk. But adding in referral mechanics and psychology can extend the reach of your employees’ influence and bring you even more good quality clients.

Influencers

We wrote a previous article about influencer marketing and the different types of influencers from mega (or celebrity) to macro and micro and even nano influencers, and how you can use referral marketing to connect with each of them and better use their reach to bring you new customers or clients. 

While referral programs naturally lend themselves best to working from micro and nano influencers, it’s difficult to think of a scenario where the techniques and tools of referral couldn’t make any influencer campaign more effective. For example, using gamification leaderboards, client dashboards, proper tracking and verification of referrals, etc. However, the reality is you can’t spend as much personal time and attention with micro or nano influencers, so a referral program makes good sense. Whereas we could (almost) understand if you were personally sorting the blue M&Ms out of the packets for Ariana Grande or Billie Elish, the smaller guys are going to have to get standard packs!

But in essence, what we expect to see in 2022, is that referral technology and tools will increasingly be deployed with influencer campaigns to increase reach and accountability of your influencers, and not just to drive new customers, but also to find new influencers for your brand.

Affiliates

Your brand may already work with affiliates, whether through a public or private affiliate network, or on an informal basis using your own tracking links. Either way, one of the main drawbacks of an affiliate program is the time you need to spend running it, chasing and incentivizing affiliates, and reconciling affiliate leads with outcomes. While affiliate networks like Awin and CJ Affiliate help reduce the work required for many of these tasks, using the capabilities and tools of referral marketing can both increase the reach of an affiliate program and also automate the verification of and payment for affiliate leads. 

We expect to see affiliate programs increasingly adopt the techniques and tactics of referral in 2022. 

Partners

Your business partners, current or future, offer an immense, and often untapped opportunity to scale the reach of your business. Particularly when those partners already serve your ideal customer personas and/or allow you to tap into new geographies or niches. By using the technology, techniques and psychology of referral with your partners you can tap into the brand connection and credibility they have with their own customers, employees and partners to generate referrals for your business. But here is the interesting part: when you consider that each of the customers, employees and other stakeholders of your partners will also have their own friends, family, colleagues and other influence circles, referral marketing techniques can help you reach far beyond even the immediate reach of your partner. That is potentially really supercharging your partner program to deliver a completely new magnitude of new customer (or client) referrals.

Think for one moment beyond just customers and clients

Of course, the primary and ultimate goal of referral marketing, and all marketing it should be said, is to generate new customers or clients. But the same technologies, techniques and psychologies you can use with employees, influencers, affiliates and partners to generate new customers (or clients) can also be used to source more employees, influencers, affiliates and partners as well. Think of this, to paraphrase Jeff Bezos, like the fly-wheel of word-of-mouth marketing. With promotion across your channels matched with the right copy, calls to action, rewards and incentives and the use of clever psychology, you can use word of mouth marketing to achieve almost any company goal.

Where to go from here

If you share our vision, or if you would just like to know more, then please get in touch. We would love to share more about where we think this is all going. Yes, it’s early days, but we feel that we are at the inception stage of an exciting new journey, and we would love to hear your thoughts and comments.

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