How critical reviews online impact your business
Consumer-review websites like Yelp are the first stop for many shoppers.
Consumer-review websites such as Yelp, TripAdvisor and HomeStars are becoming shoppers' first stop for product and service recommendations. But to what extent can a review directly affect a company's revenue? A recent working paper from Michael Luca of Harvard Business School suggests an answer. Luca compared Seattle-based restaurants' Yelp ratings over time with the restaurants' revenue data to gauge how reviews impacted their sales-and his findings are of special interest to small-business owners. Luca found that large, chain restaurants, which spend heavily on marketing and branding, were unaffected by their Yelp reviews. But for independent restaurants, a one-star increase on Yelp led to a 5% to 9% sales jump. The paper contains other interesting insights; for example, consumers rely on simple metrics such as the average rating and the number of reviews, and are more trusting of reviews that are written by elite, "certified" reviewers (as identified by Yelp). Luca also found evidence to suggest that chain restaurants' market share actually has declined as Yelp penetration has increased.
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