You have heard this before – retaining existing customers is much more cost-effective than acquiring new ones. What is not as widely known is that satisfied existing customers (read word-of-mouth) can be a more productive and cost-effective source of acquiring new ones, complimenting the traditional acquisition programmes. The social networking era has made it much easier to get quick and reliable feedback on a particular product or service via popular platforms such as Facebook, LinkedIn, Tripadvisor, and so on.

A McKinsey report titled ‘ A New Way to Measure Word-of-Mouth Marketing ’ said word-of-mouth generates more than double the sales of paid advertising, can increase a company’s market share by as much as 10 per cent and influences up to 50 per cent of all purchasing decisions.

A Nielsen survey on Global Trust in advertising found that customers trust recommendations from their friends 92 per cent, and editorials only 58 per cent.

Referralcandy.com, where I found the above information, is a solution provider that allows large and small business-to-consumer organisations set up an easy-to-deploy referral programme. Introduce me to your friends and you/both will receive a benefit when you friend signs up. Organisations across fashion, technology and travel are already using such programmes. In India, Citibank will pay you anywhere between ₹5,000-9,999, depending upon how many of your referred friends sign up for their credit cards. Axis Securities has a referral programme that gives you ₹500 brokerage cash back for every successful referral.

Obviously these initiatives are in line with the core objective of leveraging your existing satisfied customer base. Now imagine if apart from making this capability available to people visiting/calling you, you could juxtapose your existing customers’ analyses (transactions/profile/history) to proactively reach out to only those who are most likely to provide referrals. What could that do to the quality and scale of your lead generation?

Many B2C organisations actually do these things – analyse their existing customers, and also reach out to new customers to offer their wares. We all keep getting routine calls from our existing service providers to sell us an add-on credit card or that second sim card. Once you have declined, there are two outcomes – the call ends or the caller asks you to give him names of your friends/families that he could reach out. Let’s call this a lazy approach to getting referrals, because unless he has researched your relationship, what are the chances you will give him your friend’s phone number? Almost nil!

Conversely there have been umpteen cold e-mails/calls for you to buy a new insurance policy or a credit card when you are not a customer of that organisation. What (qualified) referrals do is create an exponential opportunity by adopting a non-intuitive approach, i.e., analyse your existing customers but don’t necessarily sell to them. Ask them whom you could sell to. But ask the right set of customers.

If you have done your analysis correctly you will know those customers who are most likely to give you a referral/lead, those who can provide multiple referrals. You can also accurately determine the best time in their life-cycle to call them. This is a primary customer acquisition channel for certain industries such as recruitment, fitness, and holiday rentals. Why can’t it be applied to other industries?

I am trying to find some statistics which show the impact of referrals but here’s the thing. If you believe the findings of the McKinsey study that if word-of-mouth generated twice the sales of paid advertising, shouldn’t the spend on it be higher than advertising? No? At least 50 per cent? Which is why referral marketing should form a serious part of your overall marketing plan. It’s a point to ponder.

Makrand Jadhav is Co-Founder and COO, Kloutix Solutions

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