As a start-up, the market is yet to recognize the existence of your business entity but it normally feels good when a client from a referrer walks in and you are just like ‘wow.’ You realize your referral network has been automatically activated. Therefore you sit and wait for the next referral to walk in. The worst thing you can do to a small business or even an established business is to wait for a client instead of looking for them. You need the clients more than they need you.
I guess it is not news that established entrepreneurs or companies put so much emphasis on referrals, not just in hiring but also in building their client base. Well, having your service or product brand creates awareness to the masses on its own without your effort – referral from existing clients can be such a liberating task force in your marketing strategies. Though, I wouldn’t classify referrals as a marketing strategy.
You realize that some companies have invested so much in the quality of service delivery at the expense of thwarting their marketing strategies henceforth render their business growth through customer referrals only. A referral business would most probably have market niches in financial services, telecommunication services, real estate, maintenance services, and many others.
Why advertising agencies are referral businesses?
Advertising agencies rely so much on customer referrals because it is generally an effortless means and rather cheaper method to beat the market competition. Referral marketing is necessary but it shouldn’t be the pinnacle of securing clients otherwise you end up with average and peer acquired clients only.
Referral business is one of the customer acquisition techniques that are highly dependent on how you render your services. An existing client is more inclined to talk about your service to his or her friends or relative if the service is rather incredible or disappointing.
Humans are inherently the agents of negativity bias therefore even the slightest miscalculation in your all-time-quality service is enough to give your service a bad name. Therefore service quality is very essential in getting away with referrals.
Advantages of referral business
It rules out the buyer’s remorse tendency
Most referred clients normally do not harbor a second thought about your service or product because they have encountered proof of credibility from a trusted person either a friend or relative. Therefore it gives you an easy time dealing with clients since such clients believe you are the real deal and do not come with a lot of questions.
It is easy to master
Most business entrepreneurs will agree that of all marketing ideas, second-party recommendation by word of mouth is the easiest to perfect. Word-of-mouth marketing is know-how that once mastered, the results just become automatic.
It is a low-cost strategy
Having your existing customers market your product saves you the extra cost of sales and marketing. Cost-benefit analysis is rather very crucial in any business. The idea is to maximize profit at the lowest cost.
Builds trust
Most marketers are known to be pathological liars because lies sell more than the truth. However, the fact that your marketing agency doesn’t really exude a trustworthy personality, a prospective client will sometimes ask for proof of credibility. However, this whole proof of credibility process wouldn’t have been the case if the client is recommended by a friend or a family member. The fact that someone he or she knows is using or subscribes to your services creates trustworthiness in your service in the case of a new client.
However, the above reasons why referrals play an integral part in business growth are not enough to marginalize the aspect of including sales enablement in business growth. Relying solely on referral marketing is treading on dangerous grounds. Eventually, it will dawn on you that your business is not performing to its optimum level when the sales-force is not enforced.
Referral marketing should be a compliment to your primary marketing strategies but not the focus. E-commerce is on the verge of a time when most businesses cannot do without an online presence. Online marketing creates various platforms like SEO, webinars, Linkedin, and search engines to leverage marketing efforts. With new digital marketing ideas propagating a paradigm shift in business, referral marketing is rendered rudimentary. Therefore the digital native times are gradually ruling out the oral referral programs.
The world’s economy is yet to get on its feet following the recent blow on the global market by Covid 19 global pandemic. In a way, the catastrophe might have accelerated the time for introduction into social media marketing for most existing businesses and new businesses. This was a clear demonstration of where technology is stewarding the advancement in life as we know it. For business, it advocates for diversification in its mode of operation, whether in marketing, customer service, management, or service delivery.
Therefore having referrals as your main method of generating leads as a marketing strategy is akin to denying your business a chance to achieve its full potential. This is because referrals are a by-product of your marketing techniques that secure clients that brings the referees. There is no way you are going to get referrals if you don’t have an established client base.
Let’s look at how disadvantaged you place your business when the only way to bring customers on board is through referrals.
Disadvantages of referral business
There are so many opportunities that you are missing if you are always waiting for your existing customers to do the hard work for you.
Limits the ability to secure more clients
Big organizations and big business owners understand that the market is continuously growing creating a constant scramble for clients. Unless you have diversified your marketing approaches, you will be recording a dwindling sales performance. Technology has created numerous opportunities to reach more clients at once in e-commerce therefore referral business has a very small window to survive in this age.
Gives control of your lead generation to another external party
Referral marketing is like doing passive marketing by proxy which is never guaranteed since you have no control over it. Generating new leads should be your primary responsibility because you control who to approach and when to approach. When you have no control over your lead generation, your business can not make achievable monthly targets and plans. It is like operating on luck which is the worst form of conducting business.
Increases chances of having a negative brand image
You risk having a negative brand image if your service is not satisfactory to a specific client. The worst-case scenario is if the client in question happens to know another client that subscribes to your service but with the same problem. Unsatisfied clients are a leaking time bomb especially when these clients know each other. They can easily give your brand image a negative review. It is easier and safer for your business to manage your clients if most of them are not in the same social circle.
Missing the quality clients
Referrals normally happen within a specific social circle or peer-selected group of people. Normally, people identify with lifestyle class and social circle. Therefore a potential customer will most certainly be referred by someone within their social circle. This creates a limited market niche for your service because it factors into the relationship between your existing clients and the people they always interact with. For instance, if one of your clients is the anti-social type, you can expect only so many referrals from him. Essentially referrals deny you the chance to explore other areas of quality leads because it is limited to a specific class of people and their social capital.
Requires extra commitment
If your only mode of marketing channel is referrals, you will have to work extra hard to satisfy the existing clients that will refer you to other people. This approach normally comes with extra services that might take a toll on you if you manage to get many clients. It also comes with having difficulty in saying No to a client with a less profiting budget.
Unreliable
The fact that you have no control over referral marketing means the whole process is unreliable. Clients come and go all the time but having one conduit of getting the clients isn’t a smart move especially if you cannot control the conduit. You cannot guarantee that all your clients will attempt to refer at least one person because so many factors are at play that depends primarily on the client. What if the client is new in the neighborhood and the social circle is too small? What if the client isn’t satisfied by your service? Anything can happen and referrals do not last forever. Consequently, at one moment you will have to look for the clients by adopting other means of marketing.
Misinformed clients that may not be your target customers
Most existing clients will not give detailed information about your service to a referee. Sometimes the information given is also misdirected therefore you find correcting such information repeatedly quite discouraging. Your referrals might include even misdirected clients who are not even your primary target customers.
Short term strategy
For a business intending to grow, referrals can only take you so far. It is majorly conditioned to profit the business if you get more customers from the referrals. The referral business works on a circular mechanism where the input is dependent on the output and vice versa. The cycle creates a feedback loop that can be short-term depending on whether the feedback loop is negative or positive.
Inconsistency
Not all your existing clients are going to refer someone else to you. The referrals you are accustomed to getting are normally subjects of luck. This creates inconsistency when compiling your monthly performance reports. Recording inconsistency in your performance leaves no room for scaling your prospects of success in the business.
Although every business should re-analyze their business strategies when they do not get referrals, it shouldn’t be a top-of-the-list marketing strategy. Referral shouldn’t be the primary marketing strategy for any business that intends to create a larger customer base.
