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Referral Marketing : A New Arsenal for Marketing

Referral Marketing : A New Arsenal for Marketing

“Referral marketing is the science of converting a customer’s social capital into a brand’s economic capital. “Harvard Business Review

It took Airbnb no more than five years to disrupt the hospitality industry. An online marketplace, it connects guests looking for short-term vacation rentals to homeowners wishing to rent their spaces. The company’s earnings come through 12 percent reservation fees to guests and 3 percent service fees to hosts.

By 2015, Airbnb had connected more than 20 million guests with more than 800,000 hosts worldwide, and its business model even appeared to have influenced that of a major competitor. How could it keep ahead of similar companies? It had found success helping hosts learn how to best showcase their homes; perhaps it could help guests better find what they were looking for.

Airbnb is a classical example of how to build a successful referral program to grow a business and adopt ‘Blue Ocean’ strategy. The model build is around the concept of Customer Referral Value (CRV). CRV comes from customers who promote products and may be financially rewarded for doing so. They might be YouTube stars, bloggers, Instagram tastemakers and others. The referral program deploys some of the following levers to stay relevant in the hospitality space:

  • Monthly Active Users Sending Invites
  • Invitees per Inviter
  • Conversion Rate to New User
  • Conversion Rate to New Guest
  • Conversion Rate to New Host
  • Revenue Impact Potential

An illustration of soliciting invites:

Referral marketing strategies uses the well-established principles of Customer Lifetime Value that encourages consumer advocacy to drive revenue growth.

About the Author

DR. Timira Shukla

Dr. Timira Shukla is an associate professor in Jaipuria School of Business, Indirapuram, Ghaziabad.