The winter holiday season has wrapped up, but retailers are knee deep with gift returns, year-end inventory and planning. E-Commerce competition is heating up, pressing merchants to innovate, adapt and optimize their digital marketing mix. Search, social, email and affiliate are all popular marketing tactics — but there is another highly effective method of driving traffic and sales you may be overlooking.
Referral marketing is a powerful way to supercharge customer acquisition and sales. However, according to a June 2014 GigaOm Research Report: "Only 39% of marketers use it [referral marketing] regularly, but 43% of those who do use it acquire more than 35% of their new customers with it." This is significant, as retailers stretch their dollars and focus intently on marketing ROI.
Referral Marketing Vs. Word-Of-Mouth
Word-of-mouth is a tried and true way to reach new customers. Over time, satisfied shoppers become brand evangelists, spreading positive sentiment about your products and services to friends and family.
So is referral marketing the same as word-of-mouth and if not, what is the difference?
The value of referral marketing lies not only in the number of customers you reach but how much revenue those customers drive for your store. Here is a basic word-of-mouth marketing scenario: A customer buys a new handbag. Out one night, her friend comments how much she likes the bag. The customer mentions where she bought it. The bag is the perfect size, style, quality, etc. She loves and highly recommends it.
Now, consider referral marketing. A customer buys the same handbag from your store. You then follow the purchase up with an offer. If she refers a friend, she will receive 20% off her next purchase and her friend(s) will also receive 20% off their first purchase. Referral marketing is about brand exposure and driving sales from that exposure. Core benefits of referral marketing are that this tactic can:
Provide an incentive/reward both for referring and buying;
Provide a clear path to purchase, not just a product recommendation; and
Reach people not actively searching for or aware of your brand.
Referral marketing programs also are controlled by the retailer while word-of-mouth is controlled by the customer.
Gifting As Referral Marketing
By its nature, gifting is a form of referral marketing that automatically creates two customers with a single transaction. E-gifting specifically allows a customer to buy an item from your online store and send the gift by electronic notification. The recipient can then select the item details such as size, color, style and confirm the shipping address before the item is shipped.
Even without a proactive offer such as a discount, e-gifting is a de facto form of referral marketing. When someone buys for him or herself, the incentive is self-fulfillment. Conversely, when buying a gift, the incentive is to pick out the perfect item — something the recipient will like and reciprocate with feelings of joy and appreciation. The gifter gets a psychological "reward" and the recipient, of course, gets a new item.
Referral marketing gives word-of-mouth a turbo shot by providing a clear call-to-action. With the act of e-gifting, the giver is in effect saying: "Here is an item from a brand that I like and trust that I think you will like, too." However, instead of just shipping the item and hoping the details are correct, e-gifting directs the recipient to your online store to select the details, creating a path to sale in the form of upselling and cross-selling.
Gifting opens doors to brand/product exposure, often to people who were never previously aware of your brand or online store. For gifters, this often comes through organic search, but referral marketing can create a cycle of giving and receiving. Gift recipients also likely give many gifts throughout the year. That great item she received from a new independent brand becomes the perfect idea for the friends and family on her gift lists.
A Treasure Trove Of Data
If this all occurs even without a proactive offer, imagine what is possible when you leverage gifting data to make optimal and targeted marketing and merchandising decisions. Gift transactions generate a lot of useful information about both gifters and recipients. Retailers can use this data to re-target abandoned gift carts, locate brand ambassadors and generate gift guides/recommendations based on gender, occasion, price points and geography.
This data can also be used to create targeted referral marketing offers in an effort to attract gift shoppers to buy from your store and further incentivize recipients to add purchases on to their gift and become repeat customers. In fact, gifting lends itself perfectly to personalized offers. Using data, retailers can identify their top gift shoppers and target them with sales discounts, using the same incentives for first time gift recipients for their very first purchase.
Retailers of all sizes and types can benefit from gifting data and use it to invest in part of their overall referral marketing program. While proactive offers and incentives do give up a small portion of the profit margin, the long-term goal is to acquire a steady stream of new customers, which ultimately leads to sustained revenue growth and profitability.
Monika Kochhar is CEO and Founder of SmartGift. She is an entrepreneur, business leader and technology evangelist with a passion for advancing the role of women in business. In her current position, Kochhar is responsible for corporate leadership, product and advancing the company's mission of becoming the standard in gifting for brands and retailers. Prior to SmartGift, Kochhar advised winning e-Commerce start-ups into strong exits and spent over a decade on Wall Street trading and structuring investment opportunities. She regularly speaks at events and conferences on e-Commerce, technology, and woman entrepreneurship.