Referral economy

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Referral (re•fer•ral /rɪˈfɜrəl/, “an act or instance of referring”) economy [1] is a system where people help and trust each other by sharing their experiences about a product. Thanks to the social impact of each consumer, the rise of a new economy centralized around the power of the reference has taken place. The keystone of its function is confidence:[2] "92% of respondents trusted referrals from people they knew" - Nielsen.[3] This normally happens among friends, which enhances the value of the recommendation, since there are no trade interests. The intangible value that it produces to the company's reputation is substantial.[2]

This new economy has produced the growth of platforms such as ReferralRock, which offers a small remuneration to those people whose references generate a further outlay of money. Thus, a new way to make money through the Internet has emerged.[2]

When acquiring a good, people give greater importance to the suggestions and are no longer guided by traditional advertising campaigns.[2] In marketing, the only reason that could stop a product research and proceed with its purchase, is the recommendation of a friend. A recent Nielsen study found that 84 percent of global respondents trust word of mouth recommendations from friends and family, making it the most highly trusted among digital and traditional methods of receiving recommendations.[4]

Nowadays, the user which has the greater contact network to transmit information to or, in this case, a recommendation, is who captures more power in marketing.[2]


Referral economy affects every platform or social event where people share their interests. It scopes from blogs to social networks or community pages. Furthermore, the entire Internet is monetized this way and people are often being compensated without them even knowing it.[2] Moreover, 65% of new business comes from referrals, per the New York Times.[3]

Referral programs are strategies focused on achieving references from customers with the purpose of implementing sales or spreading the company image and existence.[4] There are some examples about programs which have obtained results over the average:

  • Dropbox is a file hosting service that offers cloud storage, file synchronization and client software. Despite Dropbox is not appealing as a product, it has been the main reason of discussion in many colloquial talks between friends and family all over the world. His referral program is well known and it is the key element of its actual company size.[4]
  • Uber[5] [6] - Referring a friend is done by opening the app and clicking the "email a friend" button.[7]

Banks. When it comes to money issues where people have special interest and care, they tend primarily to rely on friends and their recommendations on any bank, as these sources are the most trustworthy.[8] The banking business is now built on the basis of relationships. Those companies that have enhanced them as part of its commercial strategy, are now being rewarded.[8] The first step so someone can make a good reference for you begins by finding references for that person. If the company aids customers, they will want to return the favour and the will be transformed into a potential source of recommendations.[8]

Social media. Nowadays it is difficult to conceive a company which wants to be at the height of the expectations if it does not have a social media strategy. Around 55% of people consult these platforms prior to a purchase, which highlights its importance.[9] The evolution of social networks during recent years has turned from a place designed to chat with friends and colleagues into the basement of its marketing policy for most businesses. In addition, the same entrepreneurs and employers register themselves into these online platforms.[10] As for making marketing decisions, social networks have influenced immensely, being the ideal time for companies boost their media strategy as a result. Arriving at this sector without having a concise strategy may cause upset results.[10] Nevertheless, carrying out an appropriate strategy close to patrons, results in great benefit both value and reputation. [10] 71% of buyers are influenced by the reviews found online when purchasing a product. This reflects in what social networks have become, an influence.[10]

In general, a positive increment of 30% on Twitter is four times more effective in provoking additional sales than an increment of the 30% on existing regular advertising.[11]

The top influential sites are: Facebook (30.8%), YouTube (27%), LinkedIn (27%), Google+ (20%), Pinterest (12%), and Twitter (8%).[12]

Travel sites. An example is TripAdvisor, a portal whose original idea, according to its founder Stephen Kaufer, was to focus on opinions of reliable sources such as travel guides and magazines. However, the page had an option for users to add his own comment referring a place, and this rocketed. In a very short time, the page started to be full of people's reviews about their own experiences, surpassing in great number the professional recommendations from its beginnings.[13]

In fact, 59% of users say these sites have the greatest influence on their booking decisions.[14] Peter Shankman, author of the book Zombie Loyalists, says that "the next fifty years of the economy are going to be run by customer experience".[15]


In terms of references, SMEs (small and medium-sized entities) are the great forgotten. The natural process and the referral economy suggest a remuneration; though, while these small companies refer to others by a value of £7,500, almost half of them would not be willing to spend their time establishing a formal remuneration system because of its difficulty or simply because the gain is small. Other companies, a 28% see referencing as a natural process, considering then that it does not require any payment.[16]

At the same time, about 45% of these businesses are reluctant to recommend a good service from others as they see them as potential competitors or just fearing to recommend something that turns out to be finally not good and which could cause the company's reputation to plummet.[16]

When starting a commission structure with SMEs who recommend regularly, there are numerous difficulties. Simplify this process is beneficial to both parts. On the one hand, small businesses will receive a commission previously agreed that reflects their efforts and, on the other hand, will improve the relationship between both entities when demonstrating interest in those who have fewer resources. Develop these series of measurements, will be recompensed in the short and long term.[16]


We measure in order to know if we are adding business value.[17]

The evolution of social networks has taken place in a prohibitive pace. General behaviour tries to measure the impact that each user generates as well as the impact that they add within the economy. Yet, it is difficult to participate in an optimum way through this channel.[17]

When it comes to relying on indicators to measure, what matters is not the number of followers or friends, nor the number of publications, but their acceptance by other consumers or companies. What really matters are indicators like the generated attention or the consequences produced such as a purchase or purely sharing a review.[17]


  • Conversation rate measures the number of responses or comments that the audience made for each publication. It is promoted due to relevant discussions between users, by being proactive.[17]
  • Amplification rate takes into account the number of shares of each publication. When it comes to sharing information, the audience extends from the person who published it originally to whom has shared it later. This causes a spread of information which reaches potential future readers. In this way, the limitations of your initial range breaks up. Relationships are something that money can not buy in marketing.[17]
  • Applause rate measures the amount of likes per publication and clearly illustrates the audience preferences.[17]
  • Economic value basically consists on the sum of short and long term revenue and cost savings. Despite the measures explained above, it is also necessary to estimate the value produced by the references. It is a strategy carried out by the companies - which are tools to make money - so there is a lucrative purpose in referencing behind all.[17]


There are some remarkable benefits in using referral programs as part of a company communication strategy:

  • References are cheap in terms of return on investment. Compared with the sales they produce, which are as valuable as an advertising campaign, its cost is very small. What's more, friend-to-friend referrals are actually among the most appreciated sales canals.[18]
  • Referrals build businesses; businesses build referrals. Doing a great effort for your customers, they will appreciate it in terms of repeating with a company and also referencing, thereby expanding your customer network.[18]
  • Referral marketing goes viral. If one customer is pleased, he recommends the service or product to another. Referrals have an inclination to build up on themselves.[18]
  • Referral marketing doesn't end online. Despite the effect created through social media recommendations, brand envoys develop a crucial role to reach clients networks.[19]
  • Referrals are teachable. By the simple process of soliciting your clientele to refer after the company have performed great. Because of it, when the customer listens to someone's need, he will mention you.[18]
  • Referral marketing is easy to measure and optimize. Track how successful your program is and the ways in which you can regulate to attract a higher rate of sales, is easy given the social nature of referral marketing online.[19]
  • Referral marketing builds trust. Accepting a recommendation for a friend is common and you do not even ask more about it. An example of a business based on reliance is eBay, where customer reviews are the key belief factor.[19]


  1. ^ "referral - Dictionary of English". Retrieved 2015-11-02.
  2. ^ a b c d e f "The Birth Of The Referral Economy". Forbes. Retrieved 2015-11-02.
  3. ^ a b "7 Surprising Stats about Customer Referral Programs". Referral SaaSquatch. 4 September 2013. Retrieved 2015-11-02.
  4. ^ a b c "3 of the Best SaaS Customer Referral Program Examples". Referral SaaSquatch. 28 May 2013. Retrieved 2015-11-02.
  5. ^ Uber
  6. ^ "Why Uber could be worth $70 billion". Vox. 4 December 2014. Retrieved 2015-11-03.
  7. ^ "Uber Taught Me Everything There is to Know About Referrals". Referral SaaSquatch. 12 May 2014. Retrieved 2015-11-03.
  8. ^ a b c . ProQuest 204578851. {{cite journal}}: Cite journal requires |journal= (help); Missing or empty |title= (help)
  9. ^ jkriggins. "How to Use Social Media to Build a Referral Economy". Social Media Today. Retrieved 2015-11-03.
  10. ^ a b c d masroor. "Is Social Media the Biggest Influencer of Buying Decisions?". Social Media Today. Retrieved 2015-11-03.
  11. ^ "Tweets for sale | Deloitte UK". Deloitte United Kingdom. Retrieved 2015-11-03.
  12. ^ "How Social Media Influences Purchase Decisions [INFOGRAPHIC]". Retrieved 2015-11-03.
  13. ^ TripAdvisor
  14. ^ "Travel Consumer 2015 Engaging the empowered holiday maker" (PDF). Deloitte. September 30, 2014. Retrieved 30 October 2014.
  15. ^ . ProQuest 1713842457. {{cite journal}}: Cite journal requires |journal= (help); Missing or empty |title= (help)
  16. ^ a b c "Small Businesses Missing Out On 'Referral' Economy". Retrieved 2015-11-03.
  17. ^ a b c d e f g "Best Social Media Metrics: Conversation, Amplification, Applause, Economic Value". Occam's Razor by Avinash Kaushik. 10 October 2011. Retrieved 2015-11-03.
  18. ^ a b c d "Why a Referral Economy is Good for Business". 24 July 2013. Retrieved 2015-11-03.
  19. ^ a b c "5 Reasons Referral Programs Make Economic Sense". Retrieved 2015-11-03.