Why Top E-Commerce Businesses Love Referral Marketing

by Friendbuy

September 1, 2020

Whether the incentives include discounts, free gifts, cold hard cash, or other rewards, many of the top e-commerce brands use referral marketing programs to expand their customer base through their current shoppers and subscribers. 

A well-designed referral program can be a catalyst to build lasting customer loyalty and boost brand awareness. E-commerce customers are flooded with offers—especially online—which means marketing content tends to get lost in a sea of ads.

Referral marketing is the one channel that can cut through the noise and capture your customers’ attention. Looking for more evidence? Here are a few reasons why leading e-commerce brands prioritize Referral Marketing

1. Referrals drive higher-quality leads at a lower cost per acquisition (CPA). 

Referral programs aren’t just a fun way to spark customer engagement and sharing. Successful referral marketing can achieve conversion rates of 10 percent or more, at a cost per acquisition of $5 or less. 

Referred customers also tend to have a 30 percent greater lifetime value than other new customers. And they convert five times faster than through other channels, allowing your marketing spend to stretch farther.

See how Nuuly used Friendbuy to drive thousands of new subscriptions within  weeks of launch. >>

2. Shoppers trust their friends’ recommendations.

Word of mouth remains the most influential form of marketing. A referral program harnesses word of mouth by making it easy for advocates to share their love of your brand through social, email, and other digital channels—all while being rewarded for their efforts and encouraged to share again and again.

Relationships and trust are powerful factors in consumer purchasing decisions. One survey found that trust influences 81 percent of purchasing decisions. By leveraging your customers’ existing relationships, you can reach more of your audience faster and at minimal cost. 

3. Referral marketing builds an army of brand advocates.

The sales funnel doesn’t end as soon as a customer makes a purchase. That’s just the beginning of a much longer, highly valuable relationship.

Post-purchase is the perfect time to delight your customer, strengthen brand trust, and hopefully turn them into a passionate advocate for your brand. Referral marketing accelerates this process. When you offer a little reward for vouching for your business, customers end up loving your brand even more—and they’re happy to spread the word among their friends.

Referral programs activate the segment of your customer base that loves your brand but doesn’t feel compelled to recommend it to their friends. By adding an incentive that’s easy to take advantage of, you can turn passive, one-time customers into enthusiastic promoters and repeat buyers. 

4. Your cost per lead (CPL) is lower, which leads to better ROI.

Compared to other forms of marketing, referral programs offer excellent ROI thanks to their structure. Companies only pay out incentives when new customers are converted, and launching a referral program is relatively low-cost with a good referral partner. 

An excellent example of this ROI potential is Nuuly. When the clothing rental subscription service first launched, the company wanted to scale quickly by launching a referral program that would build a large customer base and drive subscription revenue.

Within weeks of launching its referral program, Nuuly achieved more than 2,500 new subscriptions through customer referrals. Some of its top brand advocates were responsible for more than 500 referrals on their own, demonstrating the value of activating brand advocates who have a significant presence on social media. 

5. Referral programs are designed to scale with your business.

Referral marketing is built to accelerate growth for your business. As you scale your e-commerce brand, your referral program is perfectly positioned to scale with it.

This makes referral marketing an excellent long-term strategy for growing your brand. Unlike paid acquisition, through which an influx of spending may launch you to new heights but then leave you to maintain that momentum on your own, referral marketing serves as a powerful customer acquisition engine through every stage of growth. 

Unrivaled Performance and Efficiency

E-commerce brands are in fierce competition with each other to win the attention of potential new customers. Referral marketing gives you a direct line to your target audience by empowering your customers with the tools to promote your brand on your behalf. 

Want to see how referral marketing builds scalable success for brands? Download our Nuuly case study today.

See how Nuuly's referral program generated thousands of organic subscriptions within weeks.