Referral marketing vs affiliate marketing

Digital marketing comes in many forms. Sometimes it’s hard to keep up with new trends, let alone apply them to your marketing strategy. However, before you throw yourself into a whirlwind of the latest virals and trends on social media, it’s worth going back to basics. 

Referral marketing and affiliate marketing. These two types are often confused and their names are often used interchangeably. Big mistake! There are some similarities, but also quite a few differences. Once you understand them, you will be able to implement either type into your strategy more effectively. Does that sound interesting to you?

In this article, you will find out the characteristics of both these types of marketing and the significant differences between them. We will also suggest what to do in order to make both referral marketing and affiliate marketing as effective as possible. So without any further ado, let’s dive in!

What is referral marketing? 

Relationships are the foundation of referral marketing. Starting from those between your brand and its current customers, to those between them and their friends or family, i.e., your potential customers. After all, referral marketing is often known as word of mouth marketing. In this case, much depends on the buyers of your products, because they are the ones promoting your brand. Did you know that the average U.S. citizen names different brands about 60 times per week? Let them speak about you and benefit from this type of marketing.

But how to encourage customers and keep them motivated to recommend your brand? It is for this purpose that referral programs were created. They work a bit like loyalty programs, but customers get rewards for recommendations rather than purchases. When creating such a program, you must consider what rewards will most motivate your clients to share positive opinions about you with others.

Referral marketing with EarlyParrot

To make it work, you need to offer a referral marketing program. If you are wondering how to manage such a program, there are tools to help you with doing so. One of the best available on the market is EarlyParrot. Don’t worry, you don’t need an IT specialist to implement this tool on your website. The installation process is a quick and straightforward, step by step self-guide. You can customize the program and choose all criteria according to your own preferences. How does EarlyParrot work in practice? Your customers share their recommendations about your brand using referral links and receive rewards when they meet the criteria set by you. Moreover, this service also works for those clients who are already in your database. You can simply import these clients and invite them to join your program. No worries if you operate globally – EarlyParrot can provide campaigns in English, French, German, Spanish, Greek, and Italian.

How does referral marketing work?

In general, this type of marketing works as follows. Each member of the referral program will receive, for example, a referral link or code that they can share with others. Each new member who uses this link/code when creating an account will get, e.g., a 5% discount on their first order. Meanwhile the referral provider moves one step closer to or achieves earning their reward. By sharing such a code or link, your current clients might feel like famous influencers for a moment! This can be a significant added value for some people.

Enabling clients to act as ambassadors of your brand is really not so difficult and can be very profitable. After all, their good opinions are social proof. Consumers need to hear about a brand up to five times before they become convinced. So the more social proof, the better. And it is definitely worth the effort – referral marketing can generate as much as five times more conversion than other marketing channels.

How to make the most of it?

When implementing a referral program, remember about targeting. You should provide various types of reward for each segment. After all, teens generally enjoy different things to young women, for instance. Content is also essential. Take care over the style of your communication with the participants of your program. Everything needs to be understandable and presented in a nice, aesthetic form. After a while, you can perform A/B tests to see which types of reward work best.

Now let’s take a closer look at affiliate marketing.  

What is affiliate marketing?

Long story short, it’s all about collaborating with your affiliates. These are people who promote your brand on their marketing channels; bloggers, vloggers, or YouTubers, etc. You can choose whoever you want, but there should be a relation to your industry in order to reach your target audience. You could hire multiple affiliates and run various campaigns for specific product categories, or rather focus on one affiliate program. 

According to Business Insider, about 15% of revenue in the digital media sector comes from affiliate marketing. So as you can see, it is quite a popular solution. But enough of the theory, how does it work in practice?

How does affiliate marketing work?

We have decided to identify the three pillars of affiliate marketing. Let’s start from the very beginning – who will be promoting what. 

First, you have to decide which products will be promoted by your partners. The next step is to find the right affiliates. As we have already mentioned, it’s best to look for those who have a relationship with your industry. If your business operates locally, there’s no point in spending money on national or even global celebrities. Local ones have power too, and it’s worth using in that case.

The next aspect of establishing an affiliate program is setting its terms. That is, how affiliates will promote your products – whether it will be a blog entry or a series of posts on Instagram, etc. Another issue is payment, as there are many models to choose from. For example, you could choose to pay affiliates either after gaining some leads or after each successful sale. Choose the method that suits you best and suggest it to your affiliates.

Now the final issue, which is choosing the best affiliates. There are dozens of such programs, so affiliates can participate in many in a short time and you need to remember to choose wisely. Suppose a given affiliate promoted a competitor’s products a few months ago, and now they’re about to publish your new blog post. In that case, it wouldn’t be trustworthy content and consumers wouldn’t believe such a person. As a result of this, you probably wouldn’t meet the expected goals. 

How to make the most of affiliate marketing?

Think about your target first, then start looking for partners. You can ask people in the industry about recommendable affiliates. Then analyze their audience and see if it matches yours. If it does, then now you know what to do. Also, find out what rates are offered by other companies of a similar size in your field. You must have a starting point when negotiating affiliate payments. 

Efficient communication is also crucial when working with affiliates, so choose the best channel to facilitate this aspect. Also, remember to inform partners about any upcoming news with sufficient advance notice. They need sufficient warning for promotional content to be of high quality and prepared on time.

Referral marketing vs affiliate marketing – what’s the difference?

So now you know what the drill is about referral marketing and affiliate marketing, let’s cover a few important points for the success of marketing strategies in both dimensions.

Both types work in a similar fashion. They rely on people to promote your brand and offer a reward for their work. Also, for both types, trust is an important factor of success. What else?

Reward type

Referral marketing is all about incentives. The reward could be discounts, free products, or even cashback if both you and your customer prefer. It’s up to you to choose how to encourage clients to participate in a referral marketing program. 

Affiliate marketing has a few payment methods to choose from. You need to make an agreement with affiliates, but the reward here is primarily money. Sometimes it could also be bartered, i.e. they get to own products they promote.

Relationship with the target audience

In referral marketing relationships are significant. Your customers know the people they recommend your products to. Trust levels are therefore high, and word-of-mouth marketing is quite effective. In this case, it’s more likely that new customers will stay with you longer.

Affiliate marketing relies on relationships with the audience. Affiliates do not know their followers personally. Nevertheless, since people are following them, they had to build some kind of bond and inspire confidence. But without a doubt, the level of trust is lower here compared to  referral marketing.

Costs 

Referral marketing is a low-cost solution. You don’t need to invest much money into creating programs or rewards. Looking at other types of digital marketing, this one costs pennies in relative terms.

Affiliate marketing is called a low-cost and low-risk type of marketing, and it’s true. Compared to other popular solutions, providing affiliate programs won’t burn a hole in your pocket.

Medium

In the case of referral marketing, one person shares a referral link via (mostly) social media platforms and others can use it to, e.g., register on your site and shop with a discount.

An affiliate shares their opinion about your products via a dedicated platform. It could be a blog, YouTube channel, or a social media platform. 

Which one to choose?

It all depends on your goals, product offer, company size, and the market it operates in. Sometimes it might be hard to find a reliable affiliate partner with many followers in each industry. Moreover, you need to provide in-depth research about your future partners; their trustworthiness, if cooperation and communication with them will be seamless, their quality and speed of their work, etc. Plus, in order to get things done nice and quick, you should also provide some promotional materials for your affiliates to use.

When it comes to referral marketing, all you need to do is to encourage your customers to participate in your referral program. So the main effort is to create good incentives and rewards. Once that’s been taken care of, you can start the program and automate the process with EarlyParrot. Easy-peasy!