Lead Generation v/s Referral Marketing

There are two important kinds of marketing that any marketer uses to gain more customers – Lead generation and Referral Marketing.  Lead generation marketing is quite obvious as the name suggests is also known as cold lead generation. Cold lead marketing involves marketing through TV, internet, radio, bill boards, telemarketing and direct marketing. Referral marketing involves marketing through client testimonials/Reviews and through known acquaintances like friends, family, colleagues etc. If you have to put it in a simple way, cold lead marketing involves people who are complete strangers and referral marketing includes known people.

When compared between lead generation and referral marketing, the latter is the preferred choice amongst companies.  Referral Marketing makes more ROI (Return on Investment) by generating higher closing ratios at lower cost acquisition (18-22% against 2-3% in case of lead generation ). Review marketing programmehas a better reach on customers by touching them closely. Now let’s take a closer look on why review marketing programme is better than lead generation or any other programme.

Lead generation typically happens when there is an enquiry or interest shown during a sales pitch. This enquiry is passed on to the sales team who process and then follow up with the customer. However in Review marketing, referrals come from known sources like family, friends, well wishes even ex-employees. Chances are that they would have taken the service and then recommended it. This might attract prospective customers and view the company / service in a different light.

Let’s talk about how referral marketing works. There is a 3 step principle to follow –


  • Strangers
  • Prospective leads
  • Leads
  • Customers


  • Customers
  • Promoters

This principle explains referral marketing to the T. The first step is to entice strangers to the product /service and turn them into prospective customers. The next step is to convert these prospective leads into sure shot customers and the last step is to seal the deal. These customers will then promote the company amongst their acquaintances and the cycle goes on.

Let’s talk about the advantages of referral marketing

Trust - Most of the customers from referral marketing choose the product or company because their acquaintances have done so. They already have an inherent trust factor playing; hence there is no need to spend any additional money on advertising. This largely reduces the marketing budget.

Sales increase –Before any sale, companies spend a lot in generating leads by cold calling. However with referral marketing, generating leads happens automatically. Most of the leads do not need much pushing before turning into customers. This has a direct effect on sales when opposed to cold calling which takes a lot of time and persuasion.

Retaining customer base – This is a tricky one but if played right, referral marketing helps in maintaining a loyal base of customers. Once a customer is happy and satisfied, chances are that he will think of switching over to any company and will promote equally. However this can backfire if the services are not up to the mark. Then the promotion can snow ball into negative publicity for the company. Hence it is not only important to maintain service levels but also to meet customer’s expectations.

In today’s digital age, old marketing techniques do not hit the mark. It’s time to resort to new age marketing mantra and referral marketing is here to stay.