Referrals and recommendations

Recommendation systems and their advantages

Nowadays, people are inundated with advertising messages; everywhere and all the time. This is why TV, Internet and press advertising loses its impact, and yet recommendations by people we know do not. Besides, this form of advertising guarantees a high return on investment, and a referred customer is more loyal than one acquired via other channels. In addition, referral-based activities bring new customers into the company every day.

...and disadvantages

However, like any solution, the recommendation system has its drawbacks too. This method of promotion is both expensive (in terms of gifts, bonuses and discounts) and time-consuming (with hours spent on the creation of loyalty schemes and rules for recommendations, referral-related bonus regulations for regulars, and the preparation of promotions for new customers acquired through recommendations). It also requires sacrificing some of the current profits on the potential for greater rewards in the future.

Customer referrals as part of the loyalty scheme

Many businesses create loyalty-building schemes for their regular customers, and these can also be used while implementing the recommendation system. If we introduce such a system in our company, then it is in the loyalty scheme where we should clearly establish how we will reward our customers for recommending our products or services, and what benefits are planned for those customers acquired in that way.

Making customers recommend our company

How can we induce the current customers for our services to recommend us to their friends? Is the system of rewards for recommendations alone a sufficient lure for them? To make the recommendation system a viable and effective tool, certain conditions must be fulfilled (Fig. 1).

1. High quality and attractiveness of products/services

   Obviously what we offer in terms of products and services must be of high quality because this is the only way for them to be competitive in the market. However, the quality alone is no longer enough, the product or service must be attractive for prospective purchasers and stand out with qualities that competitors fail to offer. Nobody will recommend a product to a friend if it is low-quality, below their expectations or no different from other products of the same type that are already available on the market.

   For example

   The customer orders a bottle of perfume, but she also receives two face cream samples. Therefore, she will have pleasant connotations with the company where she made the purchase. If any of her friends are looking for a supplier of cosmetic products, she will recommend the business, adding “If you buy perfume there, you will get free samples of other products too”.

2. Bonuses: meeting and exceeding customer expectations

   In order to create pleasant associations with what is being sold, it is necessary to follow the rule: “Give your customer more than they expect”.

3. Additional rewards for recommending customers

   One way to increase the number of recommendations is to reward the people who actually make them. Such rewards do not have to be cash prizes, but they can take the form of a discount on the next purchase or an extra gadget: a cup, a cinema ticket or a free calendar.

4. Special conditions at the first purchase for referred customers

   Another idea to increase the number of referrals is to offer special conditions for the first order made by referred customers. This might be, for example, a 20% discount on their first purchase. This makes our regulars more willing to recommend what we offer (“Would you like to buy a TV? Go to X store and you will get an additional 15% discount when you mention the referral”).

5. Building a strong brand

   A strong brand means enormous opportunities and benefits. Who has not heard of Coca-Cola for instance? Frequently customers have some brand awareness even if they have not had any contact with the particular product. Indeed, famous brands are recommended much more frequently.

6. Lower profitability for current orders to boost them in the future

   In order to attract new customers and retain our current base, it is worth giving up part of our profit. This will earn us tangible benefits later on. If discounts are granted to customers who refer and to those who are attracted by the referrals, the profitability of the current orders will definitely go down; however, their number will soar in the future.

7. Loyalty schemes

   A loyalty scheme with rewards for patrons should also specify the rules for recommendations and benefits from recommending the company/ /product/service to others.

8. Understanding the customers and their needs

   We should get to know the customer and their needs. The customer relationship does not end when a transaction is completed; on the contrary, it just starts at that point. At some point after the sales transaction it is advisable to contact the customer and ask whether the product meets all their requirements. In this way, we signal to the customer that we care, and as a result they will more likely recommend our business in their circle.

9. Reasons for a lack of referrals

   If the number of referred customers is small, we should investigate the cause. It is worth contacting several customers and asking whether they have recommended our product and, if not, why not? Perhaps because our reward system related to recommendations is not attractive enough? It is worth checking out.

10. Encouraging recommendations

    A company should clearly encourage its existing customers to recommend its products or services to others. The best way to do this is to clearly specify the benefits for both sides: those who recommend and those who are attracted by referrals.

11. Good marketing: the power of social media and word-of-mouth marketing

    Businesses tend to underestimate the importance and power of social media and word-of-mouth marketing. Yet these are some of the most effective advertising channels, with a high impact on increasing brand awareness in the marketplace.

We should actually look at recommendations from the customer perspective. For instance, if we are planning to redecorate a flat, we rarely browse through advertisements as we would rather inquire among our friends whether they know and have used the services of someone “reliable” or “trustworthy”. This is how it works in other industries too.

Exercises

Task 1. Key phrases

• Read the text carefully and study the vocabulary. Translate the selected
• key words from the text into English:
• polecenie (kogoś komuś):
• pozytywna opinia (o kimś):
• wybredny:
• zalewać (kogoś czymś):
• poświęcić (coś):
• nakłaniać (kogoś do czegoś):
• zwiększać:
• skojarzenie:
• ogromny:
• namacalny:

Task 2. Words in context

• Use the words from task 1 in their correct forms to complete the sentences below:
• However strange it may sound, nowadays customers are becoming more and more demanding, not to say .................... about the choices they make.
• Social trends observed in contemporary business relations tend to emphasize the power of networking and customer ....................
• If we want to .................... our sales dramatically next year, I strongly believe that we need to focus our attention more on pampering our regular business partners than on acquiring new clients.
• The sight of an email from a sassy manager has instantaneously evoked very negative .................... in her mind.
• Both individual tax-payers and business people strongly object to new
• VAT regulations introduced by the government, as they believe, they may .................... tax evasion on an unprecedented scale.
• It is said that banks in Poland have recently been .................... with thousands of complaints from disappointed clients who have decided to open their credit accounts in Francs.
• By definition, assets of a material or physical nature, such as property, land or equipment, along with current assets, including inventory, stocks and cash, are called .................... assets.
• According to business experts, providing written or oral .................... by satisfied clients to new customers has become an effective method of promoting products or services.
• Gaylord Nelson, an American politician, used to say, “the ultimate test of man’s conscience may be his willingness to .................... something today for future generations whose words of thanks will not be heard”.
• Financial advisors warn credit card holders against incurring .................... debts due to precipitative shopping sprees and impulsive expenditures.

Task 3. Comprehension check.

• Decide whether the sentences below are true (T) or false (F) according to the text:
• Traditional advertising or marketing campaigns are no longer as efficient as they used to be in the past.
• Every recommendation system has both its pros and cons.
• Loyalty-building schemes and bonus plans for employees should be implemented in every single company.
• Customers will only recommend products or services if they receive extra rewards or special financial bonuses.
• The author suggests a dozen ways of boosting business referrals.
• Creating positive connotations with a particular brand means retaining prospective instead of current customers.
• Getting to know, and understanding, customer needs is an essential part of customer care.
• An attractive and specified loyalty scheme together with a satisfying, rule-based, reward system will certainly contribute to an increase in the number of received referrals.
• In most cases, even happy and regular customers are rather unwilling to recommend products or services to others.
• Nowadays, the power of social media and word-of-mouth marketing seems overwhelming in terms of their influence on building a strong brand on the market.