Referral sales in management strategy Sales 3/3

Referral sales in management strategy Sales 3/3

This is the last “Referral sales column”, and here, the remaining two Ss of the 4S framework for referral sales strategy will be explained.

4S: 3. Sales

In order to carry out referral/word of mouth sales strategy as an organization, specific customer approach such as sales or marketing is indispensable. What kind of sales approach could maximize the satisfaction and leads to referral? This will be explained in topics in the following.

The mindset

When considering referral sales strategy from a sales’ perspective, the issue that comes up is that the habit of implementing referral approach does not exist in the sales organization in the first place.
From survey, it was found out that in many cases, even though the salesperson state that they have the purpose of “requesting referral”, the customer “did not feel like they received a referral approach”. This could be due to the weak approach by the salesperson, or low awareness of the customer, however, it also shows that in sales organizations, referral and word of mouth is not established as a sales approach.
There are many salespeople who have a feeling that referral sales are “like receiving a share of profit from others, and is undesirable”,”not a salesperson’s job”. Hence, it is important to explain the meaning behind the referral activity itself in detail, and change the mindset towards conducting referral sales as a company or an organization.


The timing of approaching the customer as an organization is also an important factor in referral sales activity. From the three timings explained in the Satisfaction topic, the “contract signing” timing is especially important. Even though it was often thought that the customer does not have any evaluation of the company at the time of contract signing, the fact is that the company was chosen from among many competitors and is actually highly rated and there is definitely a possibility of referral.
Next, there are actually quite a number of referral which occurs between contract signing and delivery of goods. And actually many cases where the proposal was good but there was a problem with the budget and “referral occured even though the contract was not completed”.

Technique 1 : Content organization

From here onward, a detailed technique will be introduced
In order to easily generate referral/word of mouth, the company’s characteristics should be organized from the perspectives of “Number one””Only one””First one”. By conveying the goodness of the company’s product in such an easy to understand way, it easily leads to referral. When the company or the product could not be labeled with such characteristics, the focus should be put on the people. However, “we have good people” is very weak in terms of differentiation and would even decrease the company’s market value.

The important things that come into play here are two communication skills. The first one is “creating a good impression” by easing the customer’s wariness, another is “forming a trust relationship” with the customer as a “sales professional”. It is important to make the customer think that “because of the good relationship and trustworthiness as a professional, it is a good choice to recommend further”. By strengthening “the creation of good impression” and “the formation of trust relationship”, sales from new customer and referral could both be improved at the same time.

Technique 2 : Understanding the network

Understanding the network of customer in concern is important for the referral sales approach. From the timing of the first contact, hearing about related companies, affiliated groups or organizations, connections and networks should be conducted as fast as possible. And customers that have high recommendation tendency should be approached in order of influential power. Position at the company and number of subordinates are also important in understanding the network (Figure 1).

Technique 3 : Approach (referral request/specific request)

In conducting a referral approach, firstly, it is necessary that the customer who is the target referrer understand the benefit of referral. It is important to convey the compay’s strong desire to conduct referral sales activity in order to create the “three way satisfaction” consisting of the referrer, the referred and the company.
Next, it is important to specify potential customers for the company’s product or service when requesting. One reason that companies do not receive good feedback after referral request is that the referrer “does not know a good person to refer”. Conveying the “three way satisfaction” idea, and giving concrete scenarios or ideas while requesting for referral eliminates one reason that the referrer would not refer. This is actually one of the basis of sales, and is similar to the idea of eliminating reasons for not purchasing in sales.

Technique 4 : Mediation request

Suppose that the name of a potential referral target was given by the requested customer. The important thing in this situation is to create a connection “at that moment and place”. Even if we receive the referral target’s telephone number or email address, and contact him a few days later, there is a possibility that the referral intention was not conveyed, or some part of information was gone from the memory. In order to prevent this from happening, it is a rule that the customer be asked to make a phone call to the referral target “in front of” the salesperson, and the call be transferred to the salesperson in the middle of the conversation. It is only here that it can be said that “the new customer was referred”.
The rule of referral is to create a platform for simultaneous connection between the referrer, the referred, and the company. This effort will bring impressive results.

Technique 5 : Promoting repeat referral

In referral sales, it is a standard practice to aim for repeat referral from people with past record. A customer who has referred even once, frequently have a wide network and a high recommendation tendency. By increasing the number of referrers, the results of referral will begin to stabilize. In the referral sales strategy, an important question is how to rank up a “one person referrer” and cultivate a “multiple referrer”. The most important factor deciding whether a single referrer will become a multiple referrer is the salesperson’s response to the first referral. If the salesperson’s response after referring one person is unsatisfactory, the customer would not think of referring another. Therefore, it is important to convey how important the referrer is to the company through providing information on-demand, progress report and also report anything no matter even though it is a difficult subject to speak. In addition, another method is to establish referrer’s benefit such as referral fee and privileges as one system of the organization. And in this case, the key is to use these privileges to strongly appeal to the referrer.

4S: System

The system here is defined as “a system(rule) for the management of an organization in order to implement, carry on a result output pattern in a large scale”.
In order to realize, and carry on a result called referral sales on a scale larger than a company or an industry, a system(rule) for organizational management is necessary. In this topic, we will take a look at the process of creating a system through the perspectives of “control indicator”, “tool (in-company/for customer)”, and the “Role of the management team”.
Control index for referral sales activity
In order to achieve reproducibility and continuity of a success pattern, there is not much meaning to focus only on the “result” of a success pattern. The intermediate indicator, “process indicator” is necessary for the formulation of a success pattern.
Firstly, let us think about what is the process indicator for referral sales activity?
The important thing is to select an indicator which has strong correlation with the final result as the leading indicator. For example, in a business where many contracts are established through customer talk, managing “Numbers of customer talks since referral” is appropriate.
Figure 2 summarizes “the relation between repeat purchase percentage and customer satisfaction”. It can be seen the level of loyalty rises slowly from “Extremely unsatisfied” to “Satisfied” but rises sharply from then onto “Extremely Satisfied”. This shows the importance of the “Extremely satisfied” level in CLV.

Figure 2 is a figure which represents control indicators in each step from referral to contract establishment. They could be divided into roughly three levels of process, portrayed as steps.
However, managing all of these indicators is too time-consuming. Therefore, in order to make the amount manageable, one indicator will be selected from each step.

Items with the ★ mark are KPI indicators which have been adopted by a relatively large number of companies. In the case of companies which have recently started referral sales activity, firstly, “Number of targets”, “Number of referral requests”, “Number of talks since referral” are managed as process indicators, after which, result indicators are dealt with. Depending on company size, there could be cases where there is insufficient data and identification of issue became difficult. Therefore, it is definitely recommended to adopt more process indicators. The number of indicators must be changed according to perceived company size.

In-company tools

A referral sales manual should be prepared as a tool for usage in the company. As referral sales activities have fixed success pattern, it is possible to create a manual. However, there are many companies which already have sales manual, and there is a concern that adding a new manual hastily could lead to the content not being widespread in the company. Therefore, the sales manual and referral sales manual should be combined.
In another word is to redefine a sales’ job as “Creating satisfaction for contracted customers through providing good service or product to the extent that the customer refers the next customer for the company”. By doing this, a clear goal is realized and everyone could be moving in the same direction towards it. It is important to create a new normal through the manual by instilling the value of “You’re a qualified salesperson when you could create referrals”.

Customer tools

In order to maintain the quality of referral sales approach at a high level throughout the company, it is important to prepare referral tools for customer in a state ready to use by anyone. Referral tools for customers could be roughly divided into two tools. The first one is the referral tool for segmentation which, apart from CS questionnaire, also consists of a tool called calls script, which is used to increase the collection rate of questionnaires. The second is referral tools for sales. Examples are an approach plan of each timing to get a grasp on the actions towards customers (Figure 3), network grasping document for recording the customer’s connections, customer referral sales approach book which summarizes referral methods, and a referral system table which could convey the referral benefits and privileges for both referrers and referred target customers.

Role of the management team

There are two roles of the management team is referral sales strategy.
The first is, showing the level of commitment to referral sales implementation to employees. Communicating “why referral sales is necessary” for the company, along with the company’s vision clearly could only be done by the management team. However, there is a usual tendency that referral sales is acknowledged as important but not urgent. But actually, in a mature society where the priority is shifting from CLV to CRV, the importance of referral sales activity could be conveyed by using the keyword “sense of crisis”.
Another role of the management team is to communicate the belief that referral sales activity is good to establish confidence in the employees. The fact that “expanding the business through referral and word of mouth is favourable is the new standard mindset” must be conveyed. In order to be established as a policy of the company, it is important for the management team to convey the message on a regular basis. A clear message or systemization from the management team is important, such as, giving talks to employees regularly, or giving a high evaluation towards customer acquisition from referral sales in contrast to normal sales.

The effect of continuing referral sales

When referral sales is carried out continuously as an organization, it is without doubt that the referral sales performance will keep on improving. Even though the number is small in the beginning, as the ratio of referral sales begins to increase little by little, the management team will start to recognize that “referral sales is the main method”. And not only the managerial team but also the employees, as the referral sales performance improves, they will also feel the benefit of carrying on the referral sales strategy.

As the number of contract customers from referral increases, the company’s customer structure also gradually changes into one which favours the referral of the next customer. There might not be any result in the first 6 months or 1 year. However, if only the company could continue carrying on and get over this tough period, a virtuous cycle will be created in order.
In a mature market such as Japan, a quality that is required for companies are indeed shifting from CLV to CRV. From now on, when a company is aiming for new expansions, no matter in what industry, it would be difficult to create a sales strategy which does not put referral, word of mouth into perspective. In addition, by continuing referral sales, a benefit which goes over new customer acquisition is also produced, the awareness about referral sales in the company changes, and new changes would occur in the organization. Referral sales strategy is not simply a sales strategy, but goes beyond that and is one big step towards organization reform.

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