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Referral Sales in Management Strategy 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

To execute a referral/word-of-mouth sales strategy as an organization, a specific customer approach, such as sales or marketing, is indispensable. What kind of sales approach could maximize satisfaction and lead to referrals? This will be explained in the following topics.

The mindset

When considering a referral sales strategy from a sales perspective, the issue that arises is that the habit of implementing a referral approach does not exist in the sales organization in the first place.

From surveys, it was found that in many cases, even though salespeople state that they have the purpose of “requesting referrals,” 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, referrals and word of mouth are not established as sales approaches.

Many salespeople harbor the sentiment that referral sales are “like receiving a share of profit from others and are undesirable” or “not a salesperson’s job.” Hence, it is crucial to explain the meaning behind the referral activity in detail and to shift the mindset towards conducting referral sales as a company or organization.

Timing

The timing of approaching the customer as an organization is also a crucial factor in referral sales activities.

Among the three timings explained in the Satisfaction topic, the “contract signing” timing is particularly important. Even though it is often assumed that customers may not evaluate the company at the time of contract signing, the reality is that the company was chosen from among many competitors and is actually highly rated. There is a definite possibility of securing a referral at this stage.

Additionally, numerous referrals often occur between the contract signing and the delivery of goods. In many instances, even when the proposal was well-received, budgetary constraints led to situations where “referrals occurred even though the contract was not completed.”

Technique 1: Content organization

From here onward, a detailed technique will be introduced. To facilitate the generation of referrals and word of mouth, the company’s characteristics should be organized from the perspectives of being the “Number One,” the “Only One,” and the “First One.”

 

By conveying the excellence of the company’s product in such a straightforward manner, it readily leads to referrals. In cases where the company or the product cannot be easily labeled with such distinctive characteristics, the emphasis should shift to highlighting the qualities of the people involved. However, simply stating “we have good people” is inherently weak in terms of differentiation and may even diminish the company’s market value.

Two crucial communication skills come into play here. The first one involves “creating a good impression” by alleviating the customer’s wariness, while the second skill is about “building a trust relationship” with the customer as a sales professional.”

It is important to make the customer think that “due to the good relationship and trustworthiness of the professional, it is a good choice to recommend further.” By strengthening “the creation of a good impression” and “the formation of a trust relationship,” sales from new customers and referrals could both be improved at the same time.

Technique 2: Understanding the network

Understanding the customer’s network is crucial for the referral sales approach.

Starting from the timing of the first contact, gathering information about related companies, affiliated groups or organizations, connections, and networks should be done as quickly as possible.

Customers with a high tendency to recommend should be approached in order of their influential power.

Understanding the network also involves considering the position within the company and the number of subordinates (Figure 1)

Technique 3: Approach (referral request/specific request)

When implementing a referral approach, it is crucial that the targeted referrer, who is the customer, understands the benefits of making a referral.

It is important to convey the company’s strong desire to engage in referral sales activities to establish “three-way satisfaction” involving the referrer, the referred, and the company.

Following this, specifying potential customers for the company’s product or service when making a referral request is crucial. One reason companies may not receive positive feedback after a referral request is that the referrer “does not know a suitable person to refer.”

Conveying the concept of “three-way satisfaction” and providing concrete scenarios or ideas while requesting a referral helps eliminate one reason why the referrer might hesitate to make a referral. This approach aligns with the fundamental principles of sales, which involve addressing and mitigating reasons for not purchasing.

Technique 4: Mediation request

Suppose the name of a potential referral target is provided by the prospective customer. In such a situation, it is crucial to establish a connection “at that moment and place.”

Even if we obtain the referral target’s telephone number or email address and contact them a few days later, there is a possibility that the referral intention was not effectively conveyed, or some information may have faded from memory.

To prevent this from happening, it is a rule that the customer be asked to make a phone call to the referral target “in the presence of” the salesperson, and the call be transferred to the salesperson in the middle of the conversation. It is only at this point that it can be confirmed that “the new customer was referred.”

The rule of referral is to establish a platform for simultaneous connection among the referrer, the referred, and the company. This effort is expected to yield impressive results.

Technique 5: Promoting repeat referral

In referral sales, it is standard practice to aim for repeat referrals from individuals with a proven track record. Customers who have referred others in the past often possess extensive networks and a strong inclination to make recommendations. By expanding the number of referrers, the outcomes of the referral process are likely to become more stable.

In the referral sales strategy, an important question is how to rank up a “one person referrer” and cultivate a “multiple referrer.” The most crucial factor determining 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 the significance of the referrer to the company by providing information on demand, progress reports, and addressing any subject, even if it is challenging. Additionally, another method is to establish benefits for the referrer, such as referral fees and privileges, as part of the organization’s system. 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 set of rules for the management of an organization to implement and carry out a result output pattern on a large scale.”

To achieve and sustain a result like referral sales on a scale larger than a company or industry, a system or set of rules for organizational management is necessary. In this discussion, we will explore the process of creating such a system from the perspectives of “control indicators,” “tools (in-company/for customers),” and the “role of the management team.”

Control index for referral sales activity

To achieve reproducibility and continuity of a success pattern, it is not sufficient to focus solely on the “result” of that pattern. The inclusion of intermediate indicators, specifically “process indicators,” is essential for formulating a successful pattern.

Firstly, let us consider what the process indicator for referral sales activity is.

The important thing is to select an indicator that has a strong correlation with the final result as the leading indicator.

For example, in a business where many contracts are established through customer talk, managing the “Number of customer talks since referral” is appropriate.

Figure 2 summarizes “the relationship between repeat purchase percentage and customer satisfaction”. It can be seen that the level of loyalty rises slowly from “Extremely unsatisfied” to “Satisfied,” but rises sharply from then on to “Extremely Satisfied”. This shows the importance of the “Extremely satisfied” level in Customer Lifetime Value (CLV).

Figure 2 is an illustration representing control indicators in each step from referral to contract establishment. These indicators can be roughly categorized into three levels of the process, depicted as steps.

However, managing all of these indicators is too time-consuming. Therefore, to make the process more manageable, one indicator will be selected from each step.

Items with the mark are Key Process indicators (KPI) that have been adopted by a relatively large number of companies.

In the case of companies that have recently started referral sales activity, initially, “Number of targets,” “Number of referral requests,” and “Number of talks since referral” are managed as process indicators. Afterward, the result indicators are addressed.

Depending on the company’s size, there could be cases where there is insufficient data, making the identification of issues difficult. 

Therefore, it is highly recommended to adopt more process indicators. The number of indicators must be adjusted according to the perceived size of the company.

In-company tools

A referral sales manual should be prepared as a tool for use within the company.

Given that referral sales activities follow a fixed success pattern, it is feasible to create a dedicated manual. However, many companies already have existing sales manuals, and there is a concern that hastily adding a new manual might result in the content not being widely adopted throughout the company.

Therefore, it is advisable to combine the sales manual and the referral sales manual.

In other words, it involves redefining 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 to 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

To maintain the quality of the referral sales approach at a high level throughout the company, it is important to prepare referral tools for customers in a ready-to-use state for anyone.

Referral tools for customers could be roughly divided into two categories. The first one is the referral tool for segmentation, which, apart from the Customer Satisfaction (CS) questionnaire, also consists of a tool called the call script. This script is used to enhance the collection rate of questionnaires.

The second category comprises referral tools for sales. Examples include an approach plan for each timing to understand actions towards customers (Figure 3), a network grasping document for recording customer connections, a customer referral sales approach book that summarizes referral methods, and a referral system table that conveys the benefits and privileges for both referrers and referred target customers.

Role of the management team

There are two roles for the management team in the 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, can only be effectively done by the management team. However, there is a usual tendency for referral sales to be acknowledged as important but not urgent. In a mature society where the priority is shifting from CLV to Customer Referral Value (CRV), the importance of referral sales activity can 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 beneficial to establishing confidence in the employees. The idea that “expanding the business through referral and word of mouth is favorable is the new standard mindset” must be conveyed.

To be established as a company policy, the management team needs to communicate this message regularly. A clear message or systemization from the management team is crucial, such as giving talks to employees regularly or providing a high evaluation for customer acquisition through referral sales compared to normal sales.

The effect of continuing referral sales

When referral sales are carried out continuously as an organization, there is no 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.”

Not only the managerial team but also the employees will feel the benefits of carrying on the referral sales strategy as the referral sales performance improves.

As the number of contract customers from referrals increases, the company’s customer structure also gradually changes into one that favors the referral of the next customer. There might not be any result in the first 6 months or 1 year.

However, if the company can continue carrying on and get over this tough period, a virtuous cycle will be created.

In a mature market such as Japan, a quality that is required for companies is 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 that does not put referral and word of mouth into perspective.

In addition, by continuing referral sales, a benefit that goes beyond new customer acquisition is also produced. The awareness about referral sales in the company changes, and new transformations occur in the organization. The referral sales strategy is not simply a sales strategy but goes beyond that, representing one significant step toward organizational reform.