[1] Referral marketing is a tool used by various businesses and corporations across a wide variety of different industries to grow and build customer bases.
In the past, referral marketing was purely focused on spreading information through verbal interaction with a close network.
[citation needed] There are three fundamental elements that help define and differentiate referral programs from organic WOM (word of mouth).
Lastly, is a reward or incentive given to the existing customer by the company for the successful conversion of their network to their products and/or services.
The former is much more common and includes rewards such as cash, prizes, discounts, shopping vouchers or the service itself for a limited time.
[6] The latter referral marketing program benefits the existing customer through increasing reputation and gaining special treatment from the parent company through working without economic payment on presentations and online forums for example .
[7] Referral marketing was questioned by managers for the effectiveness and material benefit it could bring to a company in comparison to organic WOM and other means.
Many platforms allow organizations to see their referral marketing return on investment (ROI), and to optimize their campaigns to improve results.
It delivers abundant outlets for customers to share their opinions, product favourites, and experiences, including the company's website and through social media.
Advocates can provide their family members and friends with personalised links including unique referral codes and advertisement information through e-mails, blogs and instant messages.
[5] Literature has determined that the customer value and contribution derived from referral programs are higher for a firm than those sourced from other means.
It also noted that referral programs can better target high value customers who are more likely to retain the service provided, at a lower cost than conventional marketing means.