The Benefits of Word-of-Mouth Marketing: A Guide for Businesses

As a business owner, you know the value of having a loyal customer base. These customers are not only repeat buyers but they are also your brand ambassadors, spreading the word about your products and services to their network. These are the huge benefits of word-of-mouth marketing. If harnessed correctly, it can be a significant driver of growth for business referrals.

Word-of-mouth marketing is all about creating buzz and generating positive conversations about your brand. It is a form of organic marketing that relies on the recommendations and endorsements of happy customers. There is no better lead you can get than one that is referred by a trusted source!

Word-of-mouth marketing has been around for centuries and it is still one of the most powerful tools businesses can use to generate leads and build their brand. With the rise of social media, it has become easier than ever before to reach a wider audience through the recommendations and endorsements of happy customers. In this article, we will explore the top benefits of word-of-mouth marketing and how it can help your business grow. Plus, we’ll take you through how to automate your word-of-mouth marketing using referral software.

What are the actual benefits of word-of-mouth marketing?

Word-of-mouth marketing should be a key focus for any business, as it can lead to a range of benefits that can help to boost growth and revenue. Word-of-mouth marketing is something most brands are achieving on a small scale organically but can be greatly accelerated by launching a referral program. You can view our full guide on this here 👉 How To Create A Referral Program – 8 Steps You Can Follow

Benefit One: Reduce your marketing costs

This type of marketing is incredibly cost-effective, as it relies on the recommendations and endorsements of happy customers, rather than a large marketing budget being spent on Google or Facebook ads. This means that businesses can save money on advertising costs, while still reaching a wider audience through the positive buzz created by their satisfied customers. Your customers can influence their friends, and therefore make them more likely to buy from you in the future.

Benefit Two: Improve your ad targeting

Word-of-mouth marketing is highly targeted, as it is based on the recommendations of trusted sources. This means that leads generated through word of mouth are often of higher quality, as they are more likely to convert into paying customers. Additionally, word-of-mouth marketing can help to build trust and credibility for a brand, as customers are more likely to trust the recommendations of friends and family than they are to trust advertising messages. This can be particularly valuable for businesses in competitive industries, as it can help them to stand out and differentiate themselves from their competitors.

Benefit Three: Increase your volume of incoming leads

Another significant benefit of word-of-mouth marketing is its potential to increase the volume of incoming leads for your business. When customers share their positive experiences with others, it can create a ripple effect that leads to more people becoming interested in your product or service. By launching a referral program, you can vastly increase the number of referrals because you’re providing an incentive to motivate and encourage word of mouth. This means that businesses can benefit from a steady stream of inbound leads without having to invest heavily in advertising or other marketing channels.

Furthermore, word-of-mouth marketing can help businesses penetrate deeper into their target markets. For example, if your business caters primarily to a certain age group or geographic region, word-of-mouth marketing can help you increase visibility and trust with that same demographic.

Benefit Four: It’s risk-free

If your referral program is set up correctly, you should only be paying a reward for a referral once it converts. This means a lead was referred to you and that lead took the necessary actions required for it to convert into a paying customer. Your community and customers can tell their friends about you (word-of-mouth marketing) but only if those friends actually buy would you pay out a reward. This means that you pay nothing until the referral converts into revenue.

83% of consumers are willing to refer after a positive experience—yet only 29% actually do.

— Texas Tech

There’s a huge opportunity for businesses to leverage the brand loyalty they’ve built over time. As a business, you can reduce your marketing costs, improve your ad targeting, get more leads, and do all of this pretty much risk-free.

What techniques can businesses use to encourage word-of-mouth marketing?

Word-of-mouth marketing can be a powerful tool for businesses looking to generate more leads and build their brand. It is a form of promotion that relies on satisfied customers to spread the word about the company’s products and services.

There are specific techniques you can apply in your business to increase word-of-mouth marketing. Try to implement these tactics if you want to actively focus on getting more referrals.

1. Provide excellent customer service

Great support = more referrals

The most effective way to encourage word-of-mouth marketing is to provide exceptional customer service. By providing excellent customer service, you can create satisfied customers who are more likely to recommend your business to their friends and family. If you already work hard to keep up your brand image, you won’t have to do much to implement this technique.

2. Offer rewards and incentives

Reward and incentivize referrals

If you have a formal referral program, you’ll be able to offer rewards and incentives in a largely automated way. Offering incentives such as discounts, free trials, and referral programs can motivate customers to talk about your business. For example, you could offer a discount to customers who refer a friend or family member to your business. More on finders fee’s here.

3. Make it easy for people to refer

Offer customers a comprehensive and user-friendly mechanism to refer to their friends and relatives. A highly effective approach entails issuing each customer with an exclusive referral link or directing them to a dedicated registration page where they can register to refer friends (this is called an opt-in referral program). Subsequently, upon acquiring their referral links, customers should be afforded effortless means to disseminate them via social media platforms (Facebook, Twitter, LinkedIn) or direct messaging channels (Whats App, Telegram, Email).

4. Advertise your referral program or referral scheme

If you want people to actively refer, they have to know about how your referral scheme works. Make sure you communicate clearly what people can get for referring their friends to your business, and what the benefit is for the friend they refer to. The simplest way to do that is by launching a formal referral program. Once it’s launched, you’ll need to start thinking about how to encourage your loyal customers to refer to their family and friends.

You can promote your program inside your product or website. You can also advertise your referral program on social media. Find out which platforms your customers spend the most time on, and post about your referral program there. Another way you could advertise your program is to promote it on your businesses’ physical and digital real estate.

One of the most effective ways to advertise your referral program is by sending a direct mail to your customers and database, announcing that you’re now offering rewards to anyone who wants to generate positive word of mouth about your business.

5. Track and monitor your referrals

track and monitor your referrals

Word of mouth should ultimately lead to your business generating more referrals. Be sure to track those referred leads accurately so that you can thank and reward the people sending new business your way. You also should ensure that the friends they refer have an excellent onboarding experience, as this builds trust with both the person referring and the person invited.

Some techniques you can use to track your referrals are monitoring social media and tracking the reach and referrals generated by each participant’s referral link (you would need referral software to do this). You should also track the conversion rate of all the referred leads that you generate so that you can understand the quality of leads being generated by your referral program.

By tracking what people are saying about your brand, you can identify any areas where you need to improve your referral scheme. Do you maybe need to improve your incentives? Or do you need to do more work to promote your referral program so people don’t forget about it? Either way, tracking your word-of-mouth campaigns is a technique you can’t forget. It will also help identify your most loyal brand advocates who spread the word about your business on a regular basis — think of these people as a loyal fanbase that you can nurture over time! If you know who these fans are, you could build personal relationships with them to further accelerate their word-of-mouth spread.

What strategies can businesses use to track the success of word-of-mouth marketing?

Word-of-mouth marketing has become an integral part of the marketing strategy for many businesses. While it is an effective way to generate more leads and build brand awareness, it can be difficult to track its success if you are new to referral marketing.

In this section, we will discuss some strategies that businesses can use to track the success of their word-of-mouth marketing campaigns.

1. Monitor social media mentions

Social media is a great platform for businesses to engage with their audience and track their brand mentions. By monitoring social media conversations, businesses can identify which products or services are being talked about and what customers are saying about them. You can also track how often people are sharing their referral links across social media, simply by running a public search like this 👇


2. Use referral tracking software

Referral tracking software is a great tool for businesses looking to track the success of their word-of-mouth marketing. This software allows businesses to track the referrals they receive through their official referral program, and then easily identify who referred who. By using this data, businesses can identify the most valuable referrers, and learn more about what motivates them to refer. You can also stay on top of the ROI being generated by your referral program so that you know the impact it’s having on your overall growth strategy.

tracking word-of-mouth

3. Run surveys

Running surveys is an effective way for businesses to collect feedback from their customers and track the success of their word-of-mouth marketing. Surveys can be used to gather information on what products or services your customers feel comfortable recommending, what they would change about your referral program, and also what your new referred customers think about business. By analyzing the results of these surveys, your business can identify areas of your referral program that need improvement, and you can adjust your referral marketing strategy accordingly.

Surveys for word of mouth

4. Track brand searches on Google

The more people talk about your brand, the more you will see searches for your brand’s name on Google, Bard, and ChatGTP increase. This is a simple method that you can use to measure how much talkability there is around your business online and in the real world. Every time someone tells their friend or audience about your business, it acts as a trusted advertisement for your brand. You’ll then see that organic searches of your brand’s name increase month over month on Google.

Word-of-mouth marketing can lead to an increase in brand searches, social media mentions, as well as sales – because when customers refer their friends and family to your business, they are more likely to actually follow through and make a purchase. This is because referred leads come with social proof built-in, if someone’s friend already buys from you that’s a great sign that your brand can be trusted!

92% of people trust recommendations from their friends and family members, and 77% of people are more likely to buy a product when it is recommended by someone they know.

Google track word of mouth

What are some examples of brands leveraging word of mouth to grow?

Below we cover the best examples, but we also list some cool referral program ideas here. The most famous example of word-of-mouth marketing is Dropbox.

Dropbox is an online storage platform, which means if you want more space, you’ll need to pay more — unless you refer a friend! This is how their referral program worked: 500MB of free storage for every friend you refer! Your friend also gets 500MB of free storage too. This is called a double-sided referral program (it’s a bit more costly but better for customers). The result? 3900% customer growth in 15 months. Unbelievable!

dropbox word of mouth

How about Paypal?

Paypal is another powerful example of real-world marketing that worked. When Paypal started back in the early 2000s, they simply gave people $20 for opening a PayPal account. And when the new account holder referred a friend, they got another $20. Originally, they launched their referral program with a double sided incentive — $20 to the person referring and $20 to the person invited. Obviously, this got pretty expensive fast as they saw rapid growth, so Paypal reduced the value to $5 and then scaled their referral program from there. The result? Paypal grew 10% every single day during the launch of their program, ultimately growing their user base from one million to five million in just a few months!

paypal word of mouth

There are also examples of real-world businesses using word of mouth to grow. Word-of-mouth marketing works in most industries these days because it’s just so easy for customers to share their referral links with friends and spread the word about your business.

Optimus referral program (education industry)

Refer a friend and get a discount on your future course, the friend you refer will get a discount too, it’s a win-win! Education is the perfect industry to launch a referral program in because people with similar interests usually flock together and love talking about those interests.

word of mouth marketing education industry example

Angel’s Cafe referral program (food and beverage industry)

A classic invite-your-friends campaign offering a voucher to your friend if they try Angel’s Home Cooking Cafe. This campaign performed extremely well for one simple reason… People love to give their friends free food!

word of mouth marketing examples food and beverage

Ourbus referral program (travel industry)

A classic give-and-get campaign. Share your referral link with a friend and you’ll each earn $15 towards a bus trip in the future! We all know that people already love to share their love of travel, so this is a great niche to actively find ways to increase word-of-mouth spread.

word of mouth marketing travel industry

Radius referral program (Insurance industry)

A give and get that was simple and powerful. In times that are economically tough (like 2023 when this program was launched), people in the UK needed basics more than luxuries. This is why Radius used a reward and an incentive that would encourage their customers with what they really needed – fuel. Give £50 of fuel, get £50 of fuel.

radius referrals insurance industry word of mouth

iKhokha (B2B software industry)

Business owners received a cashback reward for referring other entrepreneurs to switch to iKhoKha payment processing software – and the business they refer received a 10% discount on their card machine plus a chance to win additional funding to grow their business.This is a great example of B2B Referral Program.

word of mouth example

Auspac Solar referral program (Solar industry)

A big reward for a valuable referral! This program offered $250 for every friend you refer who installs solar panels supplied by Auspac. If you’re going green to save the planet, it makes sense that you’d want your friends to follow suit too!

Solar industry word of mouth

What impact can word-of-mouth marketing have on customer loyalty?

word of mouth marketing trust

Word-of-mouth marketing has a significant impact on customer loyalty, as it is one of the most effective ways to build trust and establish credibility with potential customers.

Referred customers have a 16% higher lifetime value than non-referred customers.

Wharton School Of Business

When customers receive a positive recommendation from someone they know and trust, they are more likely to try out a product or service, which can lead to increased sales and more loyal customers for you. Additionally, when customers have a positive experience with a brand, they are more likely to share their experience with others, which can lead to even more word-of-mouth marketing and referrals!

Word-of-mouth marketing also provides businesses with valuable feedback and insights into their products and services. When customers share their experiences and opinions, businesses can use this information to improve their offerings, address any issues, and ultimately provide a better customer experience going forward.

Overall, word-of-mouth marketing can have a significant impact on customer loyalty by building trust and credibility, increasing sales and customer retention, and providing valuable feedback and insights for businesses.

In conclusion, word-of-mouth marketing should be a key part of any business’s marketing strategy in 2023. By harnessing the power of positive customer recommendations and endorsements, businesses can generate more leads, build their brand, and save money on advertising costs.

It’s a no-brainer!

If you’re ready to kick start your journey with referral marketing, you can read our full comprehensive guide on the topic here 👇

Referral Marketing 101: A Comprehensive Guide for Business Owners

Learn By Referral Factory
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