13/09/2011

By Andy Lopata, Business Networking Strategist

A 2010 study has shown that customers who come through referral spend more with a business, produce higher margins to that business in the early stages of their relationship, remain as customers of that business for a longer period of time and spend more with the business over time than customers who come through other routes to market.

If referrals provide such powerful results, why aren’t we spending more time focusing on their creation?

Culturally, we still struggle to ask people for help, yet many of us love to be asked. We’d always rather source a supplier through referral and recommendation than through cold search.

According to Grant Leboff, author of ‘Sticky Marketing: Why Everything in Marketing has Changed and What to do about it'. “In every major channel of marketing, response rates have dropped. Buying behaviour has changed from the days when consumers used to make decisions based on the adverts they saw on the television and in magazines.

“If you want to purchase a product or service today, you do one of two things - ask your network for recommendations or search online.”

Proof of the rise of the power of recommendation can be seen in the popularity of websites such as TripAdvisor.com, where people will see what other people say about holiday destinations and hotels before booking. Amazon have taken this to heart, with reader reviews and ratings forming a large part of any book’s success on the site and their use of what other people have viewed to guide purchasing behaviour.

In other words, if we look at buying behaviour, word of mouth is one of the two main routes people go to. That makes it vital for sales teams to maximise their reach through referral and recommendation. A robust referrals strategy is essential to balance the lost market penetration from traditional routes.

I think that, to an extent, companies do understand this. But most of the approaches I come across are broad, generic and, to be honest, half-hearted. And word of mouth marketing still falls below more traditional routes to market in most business plans and budgets.

Large companies in particular implement ‘referrals programmes’ where they target their clients en masse, yet a more individual, relationship-focused approach is likely to reap much greater dividends.

Setting up an effective referrals strategy takes time and effort, but the returns should surely justify that investment. Much of the focused effort should come in the early stages. An established referrals strategy and culture can then lead to a regular flow of new business being generated without too much additional input.

That strategy is relevant whether you are a start-up business or a large multinational and the techniques should be implemented by managing directors as well as sales teams. Even people with no sales responsibility should be asked to participate in the referrals culture of a firm. After all, they have a network too.

Word of mouth marketing has come to the force in the last few years, hand in hand with the boom of social media and customer review sites. A robust referrals strategy should be at the tip of any word of mouth campaign. Done properly the returns are more measurable and more powerful than any other route to market.

And yet we still don’t invest the time and the resources to make it happen. You, your colleagues and your staff all have the networks available to produce the referrals your business needs.

You just need to recognise that and then leverage those networks to help your business grow.

Recommended - how to sell through networking and referrals
To find out more about how to pick the right networks, implement a successful networking strategy or how to generate more referrals, please visit our website www.lopata.co.uk or contact us at harvey@lopata.co.uk / 01992 450488.

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