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This is a guest post from Sharanya Manola.

Word-of-mouth marketing or referral marketing is one of the most trusted forms of advertising. In fact, referral marketers will agree that it’s extremely profitable.

Don’t believe it? Take a look at the following statistics.

  • 92% of people will trust a recommendation from a peer. (Nielsen)
  • Referral marketing generates twice the sales compared to paid advertising.
  • 87% of frontlines sales reps, 82% of sales leaders, and 78% of marketers surveyed say that referrals are the best leads your business can get. (Heinz Marketing)
  • Referred customers have a 16% higher lifetime value. (Wharton)
  • Every referring customers makes an average of 2.68 invites. (Referral SaaSquatch Data Science)

Now, if WOM marketing can be such a huge success why do some customer referral programs fail? The answer is simple. It is your sheer lack of understanding of the psychology of the human mind. To understand better, let’s learn about four principles of psychology in marketing.

Principles of psychology in marketing

1. Social currency: Will it make me look good?

Let’s say your friend wants to take a client out for dinner. She asks for your recommendation. Since it’s a high-stakes event, you suggest a top-notch restaurant by factoring in food, ambiance, value, and hospitality. Next day, the same friend calls to thank and praise you. You can’t help but gush because your happy hormones kick in.

From this example, it is evident that your happiness is a result of the social reward (in recognition of your brilliant choice) handed over to you by your friend. You are also relieved because your reputation is unhurt. Apparently, this longing for recognition reveals how deeply we value our friends’ and family’s opinions of us. And this is exactly what forms the premise of the social currency theory.

Being a referral marketer, you should certainly familiarize yourself with the psychological pull (between the reputation risk and social reward) your customers undergo. Your job is to make their decision-making easier and guarantee they will receive a social reward from their tribe.

Here are two ways you can achieve it. As a Harvard Business Review article suggests, the following will help you convert “customer’s social capital into economic capital”.

  • Craft a simple, transparent and straightforward referral program. Your referral program shouldn’t include any twists or unexpected fine print. Otherwise, readers are likely to question your sincerity and pass up your offer. Notice how Vistaprint keeps their program simple.

Referral Program example

  • Have trust signals on your website. This will amplify your trustworthiness and your customers will feel secure (meaning no risk of referring your brand).

Gather all the social proof (media mentions, ratings, reviews and customer testimonials) you can, because according to Bright Local, 88 percent of consumers trust online reviews as much as personal recommendations.

Dollar Shave Club has an entire page dedicated to club reviews.

Club Reviews example

2. Instant gratification: It’s now or never!

Do you know why some people are willing to spend a few extra bucks to get same day delivery? It’s the instant gratification principle. Generally speaking, all of us want things to happen now rather than later. The moment we realize we have to wait longer, we experience psychological discomfort.

If you see referral marketing through the lens of this pleasure principle, then it will be clear to you why you cannot delay gratification.

If you delay the reward for your customers, you will decrease the reward’s value and dissuade customers from signing up. Already guilty of delaying a reward for your customers? Don’t stress. You can fix it.

One of your best strategies is friction reduction. Let’s dive into some options.

  • Feature your referral program on your homepage: Your customers shouldn’t have to search for your referral program. Make it easy for them and have a clear call-to-action button on the homepage.

Featured Referral Program example

  • Create a simple sign-up form: A lengthy sign-up form looks like a chore. Remove irrelevant fields (fax number, alternate email id, etc.) that discourage them from signing up.
  • Give simple codes and immediate rewards: Assign easy-to-remember codes, (possibly their names). This way, when their friends get the referral message, they’ll easily and quickly know who it’s coming from.Moreover, enable advocates and new referrals to collect rewards immediately. It will keep their motivation to refer high.
  • Make it easy to share: Give your future brand advocates options to share via email, text, or other messaging apps. You can pre-draft a message, making referrals completely effortless.Notice how Airbnb gives the option to share on Facebook and Messenger. Customers can easily import contacts rather than adding them one by one.

Sharing options on Facebook and Messenger

  • Add a FAQs section: Publish a list of questions and answers, so no guesswork is required. As we discussed above, people don’t like to wait. Having answers readily available will simplify your users’ experiences.
  • Be available for LIVE chat: But first, make sure your staff knows everything about the referral process. They should be able to clearly explain and address every query, instead of passing half-baked information.They should also know when to advertise the program to new users.

3. Social proof: If everyone’s doing it, it must be right

Social proof is based on the idea of normative social influence. We use other people’s actions as social evidence, often assuming it stands for correct behavior.

This could explain why we use services like Airbnb, Rover, or Lyft. We trust these businesses because they have massive followings.

The question now is this: How do you, as a referral marketer, build social proof?

  • Engineer a compelling program. Be clear on your value proposition (i.e. what is the “referral reward” and the “friend offer”). This will boost your customer’s excitement and trigger a sign-up and share. Over a period of time, more shares will result in a stronger social proof (safety in numbers + wisdom of friends, remember?). Eventually, this can result in a win-win situation for you, because you create more sales opportunities without spending a dime on customer acquisition. Besides, the sales process gets shorter, and who doesn’t love a short, effective funnel?
  • Get creative. Don’t be in a rush to roll out a generic “10% off on your next purchase” kind of offer. Remember the social capital theory? People want to look good and prefer to pass on exciting/interesting offers.
  • Rope in industry influencers. We already know influencers are a brand of their own. If they share your referral program, your brand’s reach will automatically boost. However, if you are worried you might have to shell out $$$, don’t worry. Seek out influencers who are happy users of your brand. Then, see if they’d be willing to advertise your company for a discounted price or promotion.

4. Cognitive dissonance: Out of sight, out of mind!

Encyclopedia Britannica defines cognitive dissonance as “the mental conflict that occurs when beliefs or assumptions are contradicted by new information.” In the context of referral marketing, it means you stand a terribly low chance at converting your past customers as referrers if you reach out to them after a long time.

Previous customers may not remember why they’re receiving an email from you. Questions such as, “Did I ever buy from this brand?” or “Why now?” could stop them from purchasing with you.

To tackle this hurdle, time your referral program strategically.

  • Prompt cue after a purchase. You want to catch your customer when they’re most excited. During this window, they’ll be more likely to tell others about your program. This could be immediately after a purchase or a positive review.
  • Set email triggers based on website activity. For example, you can send an email to someone who has just left a product review. In the case of an abandoned cart, draw them back with a reminder and information on your referral program.
  • Make it available on their account dashboard. This will encourage them to refer a friend each time they log in.

Spread the word on social media. Referral marketing cannot exist or deliver in isolation. So, align your marketing efforts and make it seamless across all channels. In other words, the messaging should be consistent across all marketing channels.

Wrap up

There you have it. Four principles of psychology in marketing explained to help you become better at referrals. Just make sure you keep them in mind whenever you are drawing out your referral marketing blueprint. After all, if you can preempt your customer’s behavior, then you stand a good chance of converting your happy customers into revenue drivers.

Sharanya helps businesses gain visibility through content that informs & educates. In other news, she’s a plant hoarder.

This blog provides general information and discussion about email marketing and related subjects. The content provided in this blog ("Content”), should not be construed as and is not intended to constitute financial, legal or tax advice. You should seek the advice of professionals prior to acting upon any information contained in the Content. All Content is provided strictly “as is” and we make no warranty or representation of any kind regarding the Content.
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