How many people do you know who purchase something just because they saw it in the ads? Probably not too many.

As end consumers ourselves, we make sure any product or service we purchase is worth the cost. So we turn to our family and friends, as well as to reviews and blogs, for an affirmation of the product’s value. The modes of getting referrals may have evolved, but it has been this way since time immemorial.

Many people base their purchase decisions on someone else’s opinion or influence, especially if it’s someone they trust, respect or admire. Unsurprisingly, word-of-mouth is a strong driver of sales and conversions. In fact, many studies have proven that word-of-mouth marketing, also known as referral marketing, eclipses any other selling or advertising strategies.

The power of referral marketing

Referrals come in different forms: a direct recommendation from another person, editorial content, client testimonials, influencer opinions, and many others. Even a celebrity wearing a particular brand on their Instagram post is a form of referral. Each referral is earned advertising for your business.

Referral marketing is so powerful that it accounts for 65% of all new business, according to the New York Tomes. There are three fundamental reasons this strategy should be a key component of your campaign.

  1. It builds trust

Consumers are generally more inclined to trust the opinion of a friend or a favourite blogger over generic advertisements and sales pitches. They assume brands make lofty promises and grand gestures in order to get into people’s wallets. So even if their product or service is actually great, consumers don’t easily take the bait.

On the other hand, there is perceived credibility when a friend or family recommends a product or service. Unless they are well-known brand ambassadors, these people have little to gain for influencing other people purchase decisions. And this is why other people trust their opinions.

  1. Precise audience targeting

If you have ever tried using online advertising platforms such as Google AdWords and Facebook Ads, you would know just how difficult targeting is. You think you already know your audience and you personalise your campaign to suit their tastes and preferences, but still your promotional dollars keep disappearing right before your eyes.

In comparison, referral marketing takes the pain out of targeting your campaign with laser focus because people already know their friends and social audiences well. They know who among their friends would love to hear about a particular product category and who doesn’t. As such, your message is passed to the right audience, spreading more effectively than with most other marketing channels.

  1. Domino effect

When a consumer buys something a friend has recommended and had a good experience with it, they tend to share their own stories and opinions to a different set of people. In fact, according to Texas Tech, 83% of customers are willing to refer after a positive experience. This earned advertising creates a domino effect and brings new business to your doors.

And with the aid of the internet and social media, the average consumer’s reach is so much wider today than ever before, which means the impact of a single referral is enormous. It essentially doubles your sales force without adding to your payroll.

So if you still aren’t investing in referral marketing, it’s time you do. Word-of-mouth marketing is no longer just for small businesses with limited marketing budgets. The fact that big brands like Airbnb and Google are also capitalising on referrals should tell you how much your business needs it as well. Start making it count!