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Kristen Tepper

Kristen Tepper Account Executive

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Why Your Dealership NEEDS a Referral Program

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According to the New York Times, 65% of new business comes from referrals.

Wow, right? But what does that really mean? It means that all of your marketing efforts - radio, billboards, SEO, social media, emails, websites, ads, newspapers, and all your other campaigns COMBINED - are still not as powerful as a customer recommendation.

Your referring customers are your most effective sales force and advertisers. Yet majority of dealerships FAIL to put together a comprehensive marketing plan or utilize ANY type of system and tools that are focused on optimizing and driving more referral business.

Still not convinced your dealership needs a referral program? Here are a 6 more reasons for you.

1.) Word of Mouth is KING

McKinsey & Company explains, “As consumers overwhelmed by product choices tune out the ever-growing barrage of traditional marketing, word of mouth cuts through the noise quickly and effectively.” We see an average of 5,000 ads per day, and we successfully become unfazed by these types of traditional marketing attempts.

It's time to understand, optimize, and embrace our customers word of mouth, which is happening everywhere - in person, social media, and review sites. 

Word of mouth is still the most powerful purchasing influencer with an astounding 92% of people saying they trust a recommendation over any other form of advertising and it is still the leading factor in auto purchases. 

2.) Referral Programs are More Cost Effective than Almost Every Other Form of Advertising

The average advertising expenses per dealership? (NADA 2014, PG. 17)

  • $73,771 on newspaper ads
  • $78,125 on radio ads
  • $114,145 on TV
  • $53,040 on Direct Mail
  • $130,324 on Internet

Yet no defined budget for a referral program? Referral Programs are proven to generate more new business with lower customer acquisition costs and higher closing rates than any other form of advertising. So, why are we so unwilling to budget for a referral program? The most common answer? Referrals will happen no matter what. “What do we need to pay for a program for, I get a few referrals a month!” Valid & Awesome… but since when is generating more business, bad business? What that person is saying is... "A few people a month make it to my store and utilize our services due to recommendations!" but could this person call his/her current customers, brand advocates and spokespeople for his dealership/brand? Probably not. Why? Without the tools, incentives, and analytics that a referral program provides for a business, keeping track and optimizing your businesses referrals will be more of a hassle than the return is worth and we all know what a customer who fails to receive their deserving reward is like. 

3.) Referral Marketing is Hailed as the Dark Horse of the Marketing World

Dark Horse Definition: noun - a candidate or competitor about whom little is known but who unexpectedly wins or succeeds. 

Have you been trying to get a leg up on your competition, your own custom referral program is the place to start... according to GIGAOM - majority of marketers are NOT utilizing referral marketing and a whopping 35% haven’t even bothered to try it. 

4.) Incentivizing Puts You At the Top of Your Customer's Mind.

Sometimes people question if incentivizing for referrals really works? The answer, yes but of course you can't expect incentivizing to work if you have a terrible product, poor customer service, etc.  Quality products, quality employees, and quality customer care must come first but once you have that, an incentivize offer will work wonders. Just ask Dropbox, Airbnb, & PayPal

Peter Thiel, co-founder of PayPal had this to say in his book, Zero to One: Notes on Startups, or How to Build the Future, “At PayPal, our initial user base was 24 people, all of whom worked at PayPal. Acquiring customers through banner advertising proved too expensive. However, by directly paying people to sign up and then paying them more to refer friends, we achieved extraordinary growth. This strategy cost us $20 per customer, but it also led to 7% daily growth, which meant that our user base nearly doubled every 10 days. After four or five months, we had hundreds of thousands of users and a viable opportunity to build a great company by servicing money transfers for small fees that ended up greatly exceeding our customer acquisition cost.”

So, that's that - incentivizing can and does work.

5.) Your Sales Team can say Goodbye to Feeling Awkward.

A Texas Tech Study found that “83% of people are willing to refer if they receive quality service yet only 29% do… why? Maybe it has to do with the fact that only 15% of salespeople are asking for referrals.

Creating a referral program means creating user-friendly tools for referral submission as well as promotional reminders and incentive offers. This allows your employee to feel confident in explaining the processes, tools, and the offer which alleviates the awkwardness most employees usually feel when asking for a referral.

Focusing on the benefit for the customer makes the referral program explanation easy and painless for your salespeople; it can be as simple as... “Would you be interested in joining our advocacy referral program? Here are the benefits:

  1. You’ll earn money for every qualifying/successful referral
  2. Your referral will receive they quality care and service they deserve as well as XXX offer!”

And referrals make closing a sale even easier for your salespeople; a referral lead is 4x more likely to end in a purchase than a fresh-up.

Salespeople should be chomping at the bit to ask for referrals, not shying away because they feel awkward. A referral program gives them to tools and incentives to start chomping. A handy tool that your referral program should have is the analytics to tell you which salespeople are utilizing the program best, a great way to create some healthy competition! And speaking of analytics…

6.) Analytics Exist!

Not too long ago and for some businesses still today… it was and is, extremely difficult to keep track of and tabs on all your referring customers, whom exactly they referred, and what kind of profit you made off of your referred customer. Thankfully, those days are long gone. Referrals are a form of socialization, which nowadays (if you haven't noticed) is everywhere thanks to the internet and it’s trackablity + optimization capabilities. Your referral program should allow you track your top employees, top referring customers, and more. You should be able discover if your referral focused Facebook post or your referral focused tweet created more buzz aka referral submissions and shares. You should be able to easily promote your program across all of your platforms. Your referral program should also come with a dedicated team that can train you and your employees on the best in-person referral promotional tactics as well as how to utilize your tools and understand your analytics.

What does everyone think, are you current customer referrals impressive enough, as is? or is there value in implementing a program focused purely on driving more referral business by utilizing your currrent customer base, employee network base, and business network?

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