Advantages and Disadvantages of Referral Marketing for Business

referral marketing is a common strategy used by businesses. This marketing strategy is closely related to word of mouth marketing, which relies heavily on customer testimonials.

The way it works is that companies or businesses hold programs to incentivize customers, who recommend their products or services to others. The form of recommendation itself can be in the form of an invitation to buy, create an account, to share content.

This strategy is considered effective in reaching more customers for the business. Here are some advantages and disadvantages referral marketing, as a consideration for business people in determining marketing strategy for his business.

Advantages and Benefits of Referral Marketing

referral marketing can be one of the marketing strategies that can be run by business people. This is because this strategy has several advantages and benefits, including the following:

• Practical Ways to Work and Relatively Low Marketing Costs

By holding a referral program, both the company and the customer will receive win-win solution. From the company side, with relatively low capital, companies can enjoy marketing results from customers who recommend their business.

Companies do not need to incur recurring marketing costs. After the company launched campaign referral marketing, the business will start to get more sales, without much intervention from the marketing department in the company.

The company simply provides certain incentives to customers. This is where there is no profit for customers, simply promoting a product or service to others, customers can enjoy a number of certain incentives from related companies.

• The target market tends to be right on target

Customers who join a referral program are more likely to know who they will recommend to. They also tend to identify their target audience, so they better understand who needs the product or service. That way, business people can target the right market and match business products and services.

• Bringing Loyal Customers

Recommendation is a form of customer loyalty to a business product or service. Those who make recommendations are considered to understand and trust the product or service. Therefore, potential customers will trust the recommendations made by customers who follow the referral program. Thus, it has the potential to bring in similar customers.

• Can Be Done Offline or Online

Not only can it be done directly by word of mouth, this referral marketing can be done using social networking sites to be recommended to a wider market.

Weaknesses and Problems with Referral Marketing

In addition to several advantages and benefits, referral marketing also has several shortcomings and problems that business people can consider, before carrying out this one marketing strategy. Here are some of them:

• Uncontrolled Customer

When a customer who joins a referral program promotes a business product or service to many people, the business person cannot control how much impact provided by the customer in bringing in new customers.

If business people are not ready when they get impact The very big possibility is that the business will run out of product stock or be overwhelmed by serving new customers. However, this can be prevented with careful preparation.

• Incentive Costs Can Explode

When holding a referral program, business people will definitely promise their customers certain incentives. If the program spreads too fast, while business people are not yet prepared for its impact, then customer trust is at stake.

To avoid this, business people can prepare a good team, as well as clear program terms and conditions, in accordance with the company's objectives and capabilities in providing incentives.

• Bad Testimonials Have a Big Impact

referral marketing is a marketing strategy that relies heavily on customer opinions and testimonials. Testimonials are crucial because they can affect the level of trust and business image in the eyes of customers and potential customers.

Therefore, business people need to prevent and follow up on things that can become customer complaints, such as delays in paying bonuses, inappropriate referral program prizes, and unsatisfactory products or services.

Thus an explanation regarding the advantages and disadvantages of referral marketing. Hopefully it can be useful for business people in determining the marketing strategy that will be carried out.