Acquire and keep new customers- The retention effect of Word of Mouth

In a recent post, I expressed my thoughts on "Why Referral Programs Suck" from a brand's perspective. Now it's time to look at the weaknesses of referral programs from a consumer's perspective. Think back to a time when someone made a recommendation to you. Whether it was a restaurant, a car, or a SaaS Software platform, that recommendation carried weight with you and played a significant role in your purchase decision. Now, consider for a moment, you find out that your "friend," Matt, who recommended you purchase a $45,000 car, was paid $500 after your purchase. Or worse yet, he got some rewards points redeemable for a cheesy vacation getaway, which turns out to be a sleazy timeshare pitch. What are you thinking?

You might feel…

  • Misguided – The intention behind the referral was not pure. “What’s the deal Matt, you pimp out your friends for cold hard cash now?
  • Indifferent – That recommendation wasn’t authentic, the referral was made for personal gain. Maybe not exclusively, but that doesn’t matter. “That means about as much to me as the ads on the back of a bathroom stall door.”
  • Hustled – Especially if you find out after your purchase. You just spent your hard earned cash based on a recommendation you thought was genuine. What remains of your relationship with that person? With that brand? “Did you actually believe this was right for me, or did you just want a reward?”
  • Less loyal – If a few bucks got you in the door, a few bucks will get you out the door. Your switching costs are no longer tied to any brand affinity, just the dollars and cents. “I’ll stick with this until the next deal comes along.

You get it.

On the flipside, an Advocate recommendation is:

  • Trustworthy – In a study by Nielsen, 92% of consumers said they trust a recommendation from a ‘person they know’, and according to Econsultancy 70% still trust recommendations from people they don’t know.
  • Influential –  Research conducted by McKinsey concluded that “a recommendation from a trusted friend conveying a relevant message is up to 50 times more likely to trigger a purchase.” In another study by Zocalo Group, “90% of consumers said that Word of Mouth was the primary influencer in their purchase decision.”
  • Cultivating Loyalty – The Harris Poll reports that “76% of Brand Advocates said they were more likely to repurchase themselves after recommending a brand or product.” And Deloitte found that “customers referred by other customers have a 37% higher retention rate.”

When referred to your brand based on altruistic and authentic recommendations, consumers are more likely to develop a deeper and more long term relationship with your brand and the Advocates that helped them. Growing your business through Advocacy will result in more loyalty, more Word of Mouth, and more profits.

-Alex Littlewood, Senior Customer Success Manager, Zuberance