Affiliate marketing and referral marketing are both strategies used by businesses to acquire new customers or clients through the help of individuals or other businesses. However, they differ in their approach and the parties involved. Both strategies involve leveraging relationships, utilizing technology and automation to achieve a desired result – usually to acquire more new clients at scale at a lower cost per client than forms of “stranger marketing”. This should answer the top questions we hear:
- What is affiliate marketing?
- What is referral marketing?
- What are the differences between affiliate marketing and referral marketing
Here’s a breakdown of the key differences between the two:
Parties Involved
Affiliate Marketing
- In affiliate marketing, there are typically three parties involved: the merchant or business, the affiliate marketer, and the customer.
- The merchant or business provides the product or service.
- The affiliate marketer promotes the merchant’s products or services through various marketing channels.
- The customer makes a purchase based on the affiliate marketer’s recommendation, and the affiliate marketer earns a commission on the sale.
Referral Marketing
- Referral marketing involves two primary parties: the existing customer (referrer) and potential new customers.
- The existing customer (referrer) refers friends, family, or acquaintances to the business.
- The potential new customers make a purchase based on the referral, and the referrer may receive rewards, discounts, or incentives for successful referrals.
Relationship
Affiliate Marketing
- Affiliates in affiliate marketing are often independent marketers or businesses that partner with the merchant on a contractual basis.
- The relationship between the merchant and affiliate is typically formalized through an affiliate program agreement.
Referral Marketing
- Referral marketing typically involves existing customers who refer people they know to the business.
- Automation can make this much easier for all parties involved.
- The relationship between the referrer and the business is based on the referrer’s existing experience with the product or service.
Incentives
Affiliate Marketing
- Affiliates are motivated by earning commissions on sales or other predefined actions (e.g., leads, clicks) generated through their marketing efforts.
- Commissions are usually monetary, and they are often a percentage of the sale.
Referral Marketing
- Referrers are motivated by incentives offered by the business, which can vary widely. Incentives might include discounts, free products or services, or other rewards.
- While some referral programs offer monetary incentives, others rely on non-monetary rewards to encourage referrals.
Target Audience
Affiliate Marketing
- Affiliate marketers often target a broader audience or niche relevant to the merchant’s products or services.
- The focus is on reaching potential customers who may not have any prior connection to the affiliate marketer.
Referral Marketing
- Referral marketing relies on existing customers to refer people within their social circles.
- The target audience is usually friends, family, colleagues, or acquaintances of the referrer.
Trust and Relationship
Affiliate Marketing
- Affiliate marketers may or may not have personal experience with the products or services they promote, so trust is primarily built through marketing efforts and content quality.
- Today, there is a growing distrust in all forms of “stranger outreach” so finding the right affiliate partner with a track record of attracting your target audience is critical.
Referral Marketing
- Referral marketing leverages the trust and personal relationships that existing customers have with their network, which can lead to higher conversion rates.
- Make sure your referral marketing program leverages personal and authentic messaging, format, and content to add value and build trust.
In summary, affiliate marketing involves partnerships between independent marketers and businesses to promote products or services to a broader audience, often using monetary commissions. Referral marketing relies on existing customers and networks to refer people they know, leveraging trust and personal connections, and offering various incentives. Both can be effective strategies for customer acquisition, but they target different audiences and operate on different principles. Ultimately, both approaches can be used separately or in combination depending on your unique needs, budget, and specific target market(s). To talk it through with a specialist to see which approach would work best for you, grab a slot on our calendar.
ReferMe IQ™ is passionate about helping organizations build high growth referral-based businesses with their ”state of the art” automated referral platform. Peter S. Velardi is an accomplished senior executive and entrepreneur who has impacted thousands of individuals and organizations to build a fast growing referral based business.
If you’d like to learn more about any of the topics discussed, please click here.
