The most trusted form of marketing has remained referral marketing, and with millennials and generation Z trusting friends and family recommendations more than paid advertising, companies are changing their focus to word of mouth marketing. In order for creating a successful referral program, companies need to study and understand the human psychology behind making a referral to a brand.
After doing some research on the subject of the psychology behind customer referrals, we came to the conclusion that there are a few key factors that contribute to customers referring businesses to friends and family.
- Social status
Humans like sharing experiences and recommendations with people. So in order for someone to be willing to make a recommendation to your business, they’ll have to be able to identify with your company’s brand and mission. This plays an important role in customers making referrals – being able to promote a business they’d want to be associated with, a business that will improve their social status and image in front of their social network.
We can take as an example a customer of a luxury fashion brand, they’ll be more than willing to make recommendations to friends and family because they are going to be perceived by their network as someone who has a strong fashion sense and is wealthy.
- Feeling of reciprocity
Even though referrals happen a lot in conversations, adding an incentive to a referral will make your customers make recommendations more than without rewarding them.
Humans have practiced reciprocity ever since the beginning of times, in situations where you expect a favor when you make a favor for someone else. It is encrypted in our DNAs to have this state of mind, even when donating to charity, someone will expect something in return – a thank you.
By adding a reward, like a free product, gift card or cash prize, will give your customers a feeling of reciprocity and then, referrals will follow.
- Timing is everything
In a study conducted by Texas Tech University we found that almost 83% of customers are willing to make a referral after a positive experience, only 23% of them actually do. This is because the buyer’s remorse happens.
Let’s take as an example a time where you bought a new jacket, you loved it at the beginning and you thought it fits perfectly and the quality is amazing, but after a few days you start questioning if you made the right choice to purchase this jacket. Will anyone in your friends circle have the same one? What if you paid a higher price, but you could’ve found a cheaper one online? Time passes by and you won’t feel so inclined into making a referral about the store you purchase the jacket from to friends and family.
That’s when implementing a referral program, you’ll have to give your customers the opportunity to make a referral right away – the moment when they feel the happiest for purchasing from your business. This will cut out the buyer’s remorse and help you gain new loyal customers from referrals.
In summary, convincing a customer to make a recommendation to your business takes a lot of effort and understanding of human behavior. But the benefits of customer referrals are enormous: from higher customer satisfaction, building brand loyalty and trust, to higher customer retention and increased sales.