Social Media

Referrals Are the Most Cost-Effective—and Trustworthy—Ad Strategy

Only 36% of consumers trust social network ads. So is social media a bad use of your budget? No way! But referrals are the more cost-effective ad strategy.

Referrals Are the Most Cost-Effective—and Trustworthy—Ad Strategy

Your customers may trust your product, but your advertising strategy may be a different story.

In the new world of online advertising, customers are empowered by their ability to discover and interact with brands on social media and share recommendations across a massive network of friends, family, and industry peers.

Why rely on a company’s ads when they can pick and choose from hundreds of products based on recommendations from people they trust?

According to a recent Nielsen study, only 36 percent of consumers trust outbound ads on social networks. And people’s trust in traditional forms of advertising (e.g., TV, radio, print, and so on) has dropped by as much as 24 percent since 2009.

On the opposite end of the spectrum, 92 percent of consumers trust recommendations from friends and family members more than any form of advertising—either online or off.

Data on the value of referrals has been around for a while, but tangible data on the actual ROI of referral advertising has been hard to come by—until now. A white paper by MarketShare provides concrete evidence that word of mouth directly drives sales and amplifies other forms of advertising to a significant degree. The research compared media ad spends, online word of mouth mentions and sentiments, Facebook metrics, and other factors, and it came up with some exciting—although not surprising—findings.

While traditional advertising can potentially build brand awareness, it doesn’t necessarily translate into sales. Nor does it resonate with customers in the same way that inbound referrals from social media do. With traditional outbound advertising, you’re essentially throwing money at a wall and hoping something sticks. Not a great way to manage your money.

Referral marketing, however, has been proven to be the most effective means of acquiring new customers—and keeping them. Referred customers are likely to spend 13.2 percent more and have a 16 percent higher lifetime value. In other words, you’re not only generating more revenue, but also creating brand loyalty that extends that boost in revenue beyond a one-time sale. For a B2B SaaS company dependent on a low churn rate, a steady stream of referred customers can make all the difference in the world.

So word of mouth is not only the most trusted form of advertising, but also the most valuable and cost-effective strategy for building your brand and driving sales. It’s no wonder McKinsey called word of mouth “the most disruptive factor” in marketing.

Disruptive? Maybe. Effective? You bet.

How are you promoting customer referrals online?

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