March 19, 2018
Word-of-mouth has always been an important component of smart marketing programs. That applies to virtually every industry, including the financial sector. That truism, however, begs several questions, including the following 3:
- How much do consumers trust referrals from friends?
- Are there strategies (like providing incentives) that boost referrals?
- Do referral programs when effectively executed produce a strong return on investment (ROI)?
By the Numbers
According to RewardStream1, the answer to each of those questions is "yes." Consider for example these several metrics garnered from a host of relevant studies:
- The trust rate for "recommendations from people I know" is 84%, higher than that for branded websites, social media, email marketing, TV spots and banner ads
- More than half of consumers say they'd be more likely to refer a friend if they received some form of tangible incentive for doing so
- Referrals have the lowest cost per customer acquisition of any marketing strategy
- Bank customers who come from referrals are 18% more likely to remain with the bank for longer periods of time and generate 16% more in profits than non-referral clients
How to Do Bank Referral Programs Right
That said, some bank referral programs are substantially more successful than others. According to CenterState2, those which achieve the highest degree of success follow best practice marketing strategies, including the following 6:
- Offer a powerful incentive: as noted above, banking customers respond to strong incentives, but it's important to choose one which is both cost-effective and persuasive. For example, giveaways work, but they can be costly. A better alternative is to offer free services, like free elite checking for a year or free consultations with a private banker or investment advisor.
- Make it tangible: referral programs are more effective when customers receive something physical which symbolizes the value of the incentive. If for example your incentive is access to elite checking, you could give customers an attractive business card (signed by the bank CEO) or even a small trophy. These inexpensive giveaways can also reinforce your bank's brand and messaging.
- Reinforce high-priority marketing goals: different banks have different priorities. For example, you might want to increase business loans, in which case you should target current customers who were recently approved for such loans, and who had a positive experience with your bank. The point is, the more your referral program is targeted to demographics which reflect top marketing objectives, the more likely you'll be to achieve those goals.
- Get focused: bank referral programs shouldn't be open-ended. Like any other marketing strategy, they should exist within a defined time period, and each "referee" (the current customer tasked with getting referrals) should have a specific goal for the number of referrals he's expected to deliver. For example, you could give each referee 5 cards to give away and tell him that each is good for the next 3 months. In creating these limitations, you both empower your referees and make it easier to measure the effectiveness of your referral campaigns.
- Create a plan to deliver on your promises: when current customers agree to refer new customers to your bank, they're putting their own reputations on the line (as is your bank). For this reason, you need to ensure that you have a sound plan to deliver on the incentives you offer your referees. That means everyone at the bank needs to know precisely how the referral program works, what services are included in the incentive, and that they should treat referees like VIPs whenever they interact with your bank.
- Always measure campaign results: you can't improve the effectiveness of your referral programs if you don't know what's working, and what isn't. That means you need clearly stated (numerical) objectives, and that, at the end of each campaign, you need to measure the extent to which you achieved those goals. In addition to tracking the achievement of objective goals, you need to implement strategies to determine how satisfied both referees and referred customers are with your program, perhaps by sending them a survey via email.
Like any marketing strategy, bank referral programs work when employees understand clearly their roles and responsibilities in making those strategies work. You can vastly increase the odds of success when you have effective training programs in place. To learn more about the ways our continuing education training services will foster your employees' professional growth—and help you grow your banking business—contact us today.
- RewardStream: Referral Marketing Statistics Don't Lie
- CenterState: One of the Best Bank Referral Programs: In 6 Easy Steps