Understanding Referral Marketing & Affiliate Marketing with its Difference
- Posted on May 4, 2023 by Robert
- Reading time about 5 minutes
Many of you must have come across these two marketing terms that are commonly used by several business sectors i.e. Affiliate and Referral Marketing. Both strategies make use of incentives to drive more revenue but the strategy and techniques used may vary significantly. They make use of incentives to drive new customer revenue but the main difference is that affiliates focus on third-party brand advocates that will help to send customers towards your business for a flat fee. On the other hand, referral marketing is to reward current customers for inviting their friends to try products & services.
In this blog, we will learn about these two marketing types, their differences, and how referral and Affiliate Loyalty Programs work.
What is Affiliate Marketing and How it Works?
Affiliate marketing is focused on building the business relationship between the brand and the affiliate where the affiliate gets paid to promote the brand and is compensated for every visitor and customer earned. They act as agents that help to send qualified traffic to your website and get paid with a commission when a visitor converts.
To make a successful affiliate program, brand advocates must be relevant and trustworthy with the capability to offer engaging marketing materials and convert more leads. New customers don’t need to know the advocate personally, unlike the case of referral programs.
Affiliate programs work based on pay-per-conversion, which means the focus should be on spreading promotional messages to customers. Different from other advertising methods, the affiliate is fully responsible to drive sales for your business. However, the limitation is that affiliate advocates do not have a connection with potential customers, which means minimal personalization. Other affiliates also willingly post reviews or products with recommendations to make a purchase.
What is Referral Marketing and How It Works?
Referral marketing depends on the relationship between your customers, their friends, and the brand where existing customers personally promote the brand & win rewards for both themselves and their friends. By referrals, we mean encouraging satisfied customers to become brand ambassadors, who help to reward users for participation, and the brand is set to win more conversions.
Referral marketing is run by the business itself by making use of personalized outreach that can inspire action and increase engagement. Referral programs rely on personal interactions like bumping into friends & sharing a piece of advice. By using Referral Loyalty Program Software Solution, existing customers are likely to bring in new customers who are ready to act upon their recommendations.
If you are still wondering how referral marketing works, we will explain everything in this section. First, customers who already like your brand refer people to your website or app, and second there’s a reward for them for bringing in new customers.
Rewards in referrals come in two forms
– Altruistic Emotions- sometimes, customers like to help out a friend by sharing the right brand recommendation. When they are truly happy, 2-3 customers are created easily as they hardly look for rewards for referrals. But sharing incentives can be a win-win for both new and old customers.
– Rewards like discounts, credits, etc.
Referrals reward focuses on sending clear invites to bring in new customers and take advantage of the rewards for your future orders. One of the most common ways is social sharing CTAs, which is a single-click process for users and highly effective in winning new customers.
Reasons Why Many Brands Prefer Referral Programs
– Boost user participation in the program
– Segment Campaigns to specific user groups
– Create data targeted for communication channels
– Drive new customer revenue with referral rewards
– Tailored rewards for every user channel boost engagement
Cost of Referral Marketing and Affiliate Marketing
Talking about referral programs, ROI focuses on increasing user engagement and a higher customer base with the expansion of a bigger network of happy customers. This saves sales expenses as customers are helping in conversions both in the long as well as short term. However, if your brand is lacking in customer service, the cost of running a referral marketing program will be more.
To ensure that your referral work best, you must focus on creating satisfied customers by resolving issues faster and continuously keeping them engaged to reap higher benefits in the coming times.
If we consider the cost of affiliate marketing, we have to set the commission rate before getting partnered with third-party brands. Another problem with affiliate marketing costs is that more traffic in affiliate programs means more sales, which means your brand must prepare to pay out for every sale. Paying for every sale can sometimes hamper the bottom line, which is why having a payment structure for affiliate marketing is scalable. As sales increase, commissions may increase, leading to fluctuations in ROI based on products, services, and gross sales.
Both affiliate & referral marketing is somewhat similar as they work towards driving sales for your business but they are functionally different. Referral marketing makes use of existing customer bases to help bring in new ones and organically increase revenue. When we talk about affiliate marketing, it relies on third-party websites to generate more business. Both work for the common motive- to acquire new customers.
Known as a reliable Loyalty Management Software, Novus enables brands across the globe to build custom referral and affiliate loyalty programs exclusively designed to meet specific business needs. Get in touch with our loyalty experts to know more about referral and affiliate loyalty programs.