The Pros & Cons of Word of Mouth Referrals
Have you ever used an amazing product or service and had to tell the world about it? This is where Word of Mouth (WOM) referrals become your businesses new favourite marketing superpower! WOM is an important communication tool for every trades or services business, as each happy customer can direct new ones to you. When successful, WOM referrals increase your credibility and engagement, offer free promotion and help you build your brand positioning as a trades or services business.
We all know that personal connection drives purchase decisions so integrating this exciting strategy into your trades or services business – and knowing how to do it well – will give you just the kick you need to drive sales.
The Positives
Trust
Building trust with consumers might be a bit of work initially, but the results are worth it!
According to a study conducted by Nielson, 92% of consumers trust referrals from people they know. Therefore, new customers for your trades or services business who are referred are more trusting of your business since they were introduced to you from a trusted source.
Credibility
A major advantage to WOM referrals is credibility which can help build your brand as a trades or services business owner. Similarly to trust, messages about your business become more believable when people hear them from someone they trust. When a brand pays for marketing messages, customers are less likely to think they are authentic as they assume the messages will be positive in an attempt to get them to buy.
Improved Customer Retention Rate
Referrals for your trades or services business commonly result in more loyal customers which leads to an improved customer retention rate and flow-on referral effect. According to a 2013 study by Goethe University, customers referred to businesses were 18% less likely to leave than other customers.
Customer satisfaction is the first step to retaining customers which then gives you the power to attract other people to your business.
Empowers WOM
Encouraging your customers to recommend you encourages WOM to happen thus leading to scalability. This is a great way of connecting with a large pool of people that you may not market to normally.
By empowering WOM, referrals can also lead to a stronger target audience for your trades or services business. A brand is brought up in conversation when discussing new products and services. This often leads you to a targeted audience as the brand is placed in the front of high quality and targeted leads.
Little to No Cost
Usual marketing strategies can quickly become expensive however, referrals are an inexpensive way to market your trades or services business. The simple interaction of customers in the marketplace, sharing their experiences, has no direct cost. If you have existing customers who you have already built a positive relationship with they can become a great asset to your trades or services business and can contribute to your offline marketing strategy.
The Negatives
Less control
Referral marketing means there is limited control over your brand messaging as you are relying solely on the positive or negative experiences of your customers. This can lead to problems with the positioning of your trades or services business as satisfied customers may promote you as the most affordable and budget-friendly service when you’re actually aiming for a luxury, high-end position in your market.
Reviews come at the customer’s goodwill (and memory!). WOM is largely a product of chance and there are so many factors such as fear and uncertainty that can lead to a customer missing the opportunity to get you new clients for your trades or services business. Unfortunately, your customers are not always thinking of you. Even your most loyal customers can forget to refer people to you!
Consumer Experiences vs Reality
Managing consumer expectations can be difficult with WOM referrals as customer experiences will differ when using your product or service. Varying customer expectations can also enhance or dampen their experience which can lead to glowing reviews or negative WOM.
Maintaining Hype
Eventually, the buzz of a new product or service dies over time. Once the hype stops, the consumers’ interest in and knowledge of your trades or services business halts. Relying solely on WOM marketing decreases the opportunity of your customers understanding the complete story of your brand through multiple outlets.
Time Intensive
Although WOM referrals are usually cost-effective, they require a fair bit of time to set up correctly. Business coach, Nancy Michaels suggests that the right ‘moment’ is key. After establishing a track record and building a relationship with your customers, petition them to “return the favour” of a job well done with a referral for your trades or services business. However, if you ask your customers too soon, this can give off the wrong impression of your brand.
Difficulty Evaluating Results
WOM mostly takes place during informal conversations between consumers therefore it can be difficult to determine whether business improvements came from WOM. Usually, businesses will conduct brand awareness surveys, monitor sales data or use POS inquiries to establish how new customers discovered the business, but this isn’t always practical for trades and services businesses.
So, how do I win new business through referral marketing?
It is important to note that WOM effectiveness is much more difficult to measure than other traditional marketing tactics therefore, WOM mustn’t be the primary source of marketing for your trades or services business. Other strategies must be used in conjunction with WOM referrals.
You can make WOM referrals work best by developing tools that make the process easy for customers to tell others about your trades or services business. This can include online forums, feedback tools and increasing your presence on your business’s social networks.
Share your favourite customer testimonial in the comments below!
