Referral Madness 

No, I said referral

As in referral marketing, which means: 

Providing a unique, consistent, and occasionally surprising experience built on insights about your best customers, so that it is in the best interest of your customer and partner networks to recommend and share your business and your content.

Referral marketing is powerful. It can:

  • Lower your customer cost-of-acquisition (CAC), by providing a steady stream of low-cost or free referrals from customer and partner networks. 

  • Increase the lifetime value of a customer (LTV), who can refer an unlimited amount of new business to you.

So, I plan to write a series of posts on referral marketing—why it’s important, what it takes to do it well, and examples of companies doing it well today. 

We start with why

Marketing is changing fast. Just pick a “buzzphrase”:

  • Programmatic advertising

  • Artificial intelligence 

  • Cable unbundling / OTT video services

  • Personalization 

But through all this change—and even because of it—referral marketing remains an important, cost-effective way to find new customers. 

Actually, referral marketing is more important now than ever before. 

Done well, referral marketing makes your company stronger and your customers happier. The buzz about you on- and off-line becomes a growth asset.

The online media landscape 

Online, acquiring a customer is becoming more difficult, and often more expensive. Why?

  • Frighteningly, sixty percent of digital advertising inventory ($76B) is controlled by a Google-Facebook duopoly.

  • A third player, Amazon (of course its Amazon) is making headway, selling $11B in ads last year. 

So you have two massively powerful businesses in control of over half of ad inventory and pricing—with a third juggernaut hot on their trail—and that’s not great for advertisers. 

How about SEO? 

Search engine optimization—optimizing your website for keywords potential customers are searching for—can bring in targeted leads at very low cost.

But: you rank #1 for your keyword? Awesome. You’re still below five ads, because Google controls 90%+ of the search market and has expanded advertising listings at the expense of natural search results:

In the 17 years since Google introduced text-based advertising above search results, the company has allocated more space to ads and created new forms of them. The ad creep on Google has pushed “organic” (unpaid) search results farther down the screen, an effect even more pronounced on the smaller displays of smartphones.

The changes are profound for retailers and brands that rely on leads from Google searches to drive online sales. With limited space available near the top of search results, not advertising on search terms associated with your brand or displaying images of your products is tantamount to telling potential customers to spend their money elsewhere.

Lack of control 

In addition, marketers face:

  • Algorithmic deplatforming, which can shut down your ad campaigns without warning or explanation if your ads trigger an alert.

  • Other unpredictable algorithmic changes, which can throw off your ad strategy, or take that #1 keyword ranking and send it into search purgatory. 

So, in summary. Digital advertising:

  • Is controlled by a duopoly which dictates pricing and can change operational terms without warning.

  • Faces increasing constraints in targeting and tracking potential customers.

  • Is increasingly expensive as SEO efforts are pushed “down the page” by Google.

Digital advertising overall, at about $130B, accounts for 54% of total media ad spending. Lots of money is spent elsewhere.

What about … 

Traditional media 

When we talk about traditional media (TV, radio, and print), the overall message is decline, in both usage and marketing effectiveness. 

Take TV viewing trends, for example: 

In percentage terms, the amount of time 18-34-year-olds as a whole spent watching traditional TV (live and time-shifted) in Q3 2018 dropped by about 17.2% from the previous year. Needless to say, that’s a huge chunk – a drop of about 1 in every 6 minutes in just a single year.

Radio, at $40B of ad spend in 2019, is in a better place:

Deloitte Global predicts that adults globally will listen to an average of 90 minutes of radio a day, about the same amount as in the prior year. Finally, Deloitte Global predicts that, unlike some other forms of traditional media, radio will continue to perform relatively well with younger demographics. In the United States, for example, we expect that more than 90 percent of 18–34-year-olds will listen to radio at least weekly in 2019, and they will listen to radio for an average of more than 80 minutes a day. 

And print? Everyone knows what is happening to the newspaper industry:

So we see the challenges of spreading brand messages online and off. 

Now lets add … 

Decreasing trust in brand messages

In 2016, Salesforce conducted a survey to examine how much each generation trusted various advertising sources. The results revealed that Baby Boomers were much more trusting of actual brand messages than their younger Millennial counterparts who felt more favorable toward online reviewers than brand-sponsored messages. 

People have less trust in brands and brand messages—and instead turn to friends, colleagues, and online reviews for unbiased information. 

None of this is to say companies should abandon traditional marketing channels altogether, obviously. 

But referral marketing provides an additional acquisition channel that:

  • Is completely controlled by the company

  • Lowers acquisition costs and increases customer lifetime value 

  • Acts as a hedge against the challenging cost and consumer trends facing traditional customer acquisition methods

Be referable.

We’ve defined what referral marketing is, but how does a company successfully become referable?

It’s a long, long road
With many a winding turn …

- The Hollies

It’s not easy, and yet it’s all in your control. Being referable requires: 

  • Customer knowledge

  • Culture

  • Content

  • Customer experience strategy

  • Referral tools and processes

  • Partner network 

  • Measurement

In the coming weeks, we will talk about these areas and how to create a referral flywheel, that, once spinning, has your partners and best customers talking about and referring your business, at low cost.