DENIS WILSON: Yelp Can Help — Or Hurt

Posted on March 13, 2013 by

How Online Reviews Really Affect Your Business

There has been much discussion on the importance of online customer reviews. But without any hard facts on the effects of such reviews, it’s easy to cast it aside as just another distraction.

However, some solid research on the topic exists. A 2010 study by a Harvard Business School professor shows that positive evaluations on popular review site, Yelp.com, lead to increased business for restaurants. Specifically, the study found that a one-star increase in overall Yelp rating led to a 5-9% increase in revenue. Think about that math for a minute.

Sure, not all reviews are accurate, and not all reviewers have good taste. But I can attest as a long-time user of Yelp that more often than not the overall rating leads me down the right path.

(The full study, titled Reviews, Reputation and Revenue: The Case Of Yelp.com, can be read here or read the executive summary here.)

Another interesting finding is that the effect of ratings is driven by independent restaurants: that is, ratings do not affect restaurants with chain affiliation. From the user — er, diner — perspective, this is sensible. I know a burger at Applebee’s in Pittsburgh is going to taste pretty much the same as the same burger ordered at an at Applebee’s in Oklahoma City. Applebee’s has been able to create a uniform dining experience and, for better or worse, I know what I’m going to get at one of its restaurants. However, visiting a restaurant without a recognized name means more risk on the part of diners, and they tend to look for feedback from other diners on what they can expect.
 
Finally, the study found that chain restaurants have declined in market share as Yelp penetration has increased. According to the study, “This suggests that online consumer reviews substitute for more traditional forms of reputation.” It goes to show that smaller operations have more at stake when it comes to online customer reviews — and that online reviews offer a great opportunity to grow in market share through good service and online word-of-mouth.

Certainly, online restaurant reviews are in a much more mature state than online limousine reviews. In part, this is because online limo reviews are still very decentralized: you can find reviews on Yelp.com, Limos.com, Google Pages, Yellowpages.com, Weddingwire.com, Citysearch.com, and various consumer watchdog websites. But I would say these add up to less impact on consumer decisions. I would also guess that online limo reviews will trend toward a Yelp-type model.

Further, younger generations are more inclined to look to this kind of peer-to-peer feedback when making consumer choices. A quick tap on my Yelp app tells me whether the eatery I’m standing in front of is likely to offer friendly service and tasty food, or otherwise. I rarely walk through the door without at least testing the online waters. And you can bet the same goes for those seeking a chauffeured service.

If this topic interests you, stay tuned: next week I’ll look into how to promote positive reviews and limit the damage of negative ones.

— Denis Wilson, LCT East Coast editor

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