How Word-of-Mouth Influences Referral Programs & Help Generate Brand Loyalty

How Word-of-Mouth Influences Referral Programs & Help Generate Brand Loyalty

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Customers are continuously surrounded by the ads and other various marketing styles of the businesses they visit. As a result, customers have learned to tune out more traditional forms of marketing. Companies need to find another way to effectively bring in more business. According to research, about 81% of people trust recommendations from families and friends over those from businesses.  

What Are Referral Programs & Why Do They Work? 

When you offer excellent customer service, you create happy customers who are enthusiastic about returning to your business. It helps spread the word about your product or service provided by your brand or company. To achieve success, add power to the referral programs and incentivize customers with rewards.  

Customers benefit from bonus points, early access to new arrivals, free items, coupons for future purchases, and more. Referral programs help motivate your current customers to recommend your products/services to their family and friends, or others on social media.  

The benefits of a customer loyalty referral program are two-fold. Not only do you increase your customer lifetime value but also the likelihood that customers will continue coming back for you, thus boosting customer retention rates. Loyal customers are worth up to 10x of the first purchase value. About 18% of Generation X customers say word-of-mouth is the primary way to discover brands. It is excellent news for brands as referral leads usually have a 30% higher conversation rate than leads acquired from making marketing channels.  

Benefits of Referral Programs 

With the help of referral programs, businesses can quickly pinpoint their biggest brand fans and track Word-of-Mouth Marketing the source of new customers. It helps companies achieve credibility and generate twice the sales required for paid advertising.  

Believe it or not, word-of-mouth is a powerful tool that can accelerate the entire customer acquisition process. For this reason, brands must launch a referral program and incentivize loyal customers to promote their brand within their choice of network.  

Let us discuss in brief how word-of-mouth has an impact on generating brand loyalty:  

1. Every Step of the Consumer’s Journey 

Customers offer the best way to promote a product. They have experience in using a product to be perceived as trustworthy. People will recommend your products and services to friends and family when they have a good customer experience. Their feedback has various levels of influence at every step of the sales.  

2. The Most Relevant Touchpoint in Regards to Sales  

Before customers choose to buy a product, they turn to their network to receive feedback to determine whether the product is worthy of purchasing or not. About 41% of users choose to communicate with brands to receive vital information and feedback, which would help evaluate the purchase decision.  

3. Improves Customer Retention 

Consumers who trust and love your brand will give recommendations to their friends and family over those from businesses. However, it will take a considerable amount of time and effort. One customer who can be well taken care of can be more valuable than businesses that have $10,000 worth of advertising.  

4. Referred Customers Are Valuable  

Referred customers carry a positive perception of your brand as it can be promoted quickly by their peers. Customers acquired through word-of-mouth spend 150% more and can create twice as many referrals. Also, these customers have two times the lifetime value compared to customers collected through traditional marketing methods.  

5. Cost-Effective Strategy  

While you can quickly launch social media ads and email campaigns, they are not guaranteed to be consistently effective. Managing referral programs offers a cost-effective way to acquire more customers without spending too much.  

6. Creation of User-Generated Content  

Referral loyalty programs play a crucial role in encouraging brand advocacy and help in sharing your brand story. Some brand influences might even promote your brand on YouTube and Instagram to snag referral rewards from you. Some influencers have an extensive fan base, which means creating more publicity and changes for your brand.  

7. ROI Value 

While gifts and discounts cost very minimal for a company, referral marketing is an affordable way to promote or advertise compared to other modes like traditional forms of online ads. You can save more by streamlining referral marketing system rewards into a general loyalty rewards program that allows you to award points to your loyal customers rather than programs, and helps in encouraging customer loyalty to a great extent.  


1. How does a referral program work? 

A referral program is a system that incentivizes previous customers to recommend products/services to their family/friends. Retail stores create their referral programs as a medium to reach more people. It is a marketing strategy to ask satisfied, loyal customers to become brand advocates.  

2. What are the advantages of having a referral program? 

The advantages of a referral program are as follows: 

  • Word-of-mouth influences every step of your consumer’s journey  

  • Word-of-mouth improves customer retention  

  • Referred customers are more valuable  

  • It is a cost-effective strategy 

3. How effective are customer referral programs? 

These referral programs prove to be an effective marketing tactic that can benefit any business. 83% of online correspondents trust recommendations given by friends and family. The customer referral conversion rate is three times greater than the industry average of about 3.64%.  

4. Why are referral programs effective? 

Referral programs are effective as people instinctively trust recommendations from people they know compared to mass advertising messages. Customer referral has a much bigger impact compared to any other general campaign. It helps in availing first-hand experience with your brand.  

This article was written by Loyal-n-Save, an omni-channel customer loyalty solution for retailers looking to increase customer retention and new customer acquisition.
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Douglas Nolan
Written by Douglas Nolan

He believes in solving real problems with realistic technological solutions that stand the test of time. Seeing his clients struggle to retain consumers, Douglas decided to help his clients by offering affordable and top-class loyalty solutions. Doug loves transforming the lives of his employees by assisting them to develop a solid blend of TQ (Technology Quotient) & SQ (Spiritual Quotient) to excel in their professional & personal lives.

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