Referral marketing is a method of promoting products or services to new customers through referrals, usually word of mouth. Such referrals often happen spontaneously but businesses can influence this through appropriate strategies.

Referral Marketing is other name of Affiliate Marketing. As the name itself express that this marketing strategy is done through referrals. In which referrals of company refer & promote product to others and some of them also join as referrals to earn commissions.

Referral marketing is an age-old marketing technique made new again. Basically, it is the promotion of products or services through referrals and word-of-mouth. How to get those referrals is where the modern world takes over. It used to be that Sally would tell Beth about the great new product she found, but referral marketing now involves social media, Web browser technology and other high- and low-tech methods.

source : http://www.ehow.com/info_7746710_referral-marketing.html#ixzz2S294aoP2

Benefits of referral marketing are that someone else is doing the selling for the company and referrals know what to expect when coming to the company and are more likely to convert into paying customers. Referral marketing is based on having others spread the word about the company to their friends, family or acquaintances. Those being referred trust the information they are hearing, so they approach the business more relaxed and with confidence. Referrals are more likely to convert to paying customers when someone they know has had a good experience with a particular service or product. This way, the business does not have to spend as much time convincing the consumer to make a purchase.