Something pretty interesting is going on.  You may have seen advertising for Yelp and not looked any further, but that may be about to change.  Yelp Inc., is a company that operates yelp.com, a social networking, user review andlocal search web site. Yelp.com has more than 54 million monthly unique visitors as of late 2010.  Naturally, it was started by two college students…With 54 million visitors, is it any wonder that Harvard researcher Michael Luca started looking closely at whether Yelp’s user reviews have any significant impact on business. He chose to look at restaurants, and as luck would have it, Luca was able to compare restaurant reviews on Yelp, to restaurant revenues in Seattle and publish his findings for all to see.

 

What he found was pretty dramatic,  “a one-star increase in Yelp rating leads to a 5-9 percent increase in revenue.”  Luca noted that the outcome applied to independent restaurants as opposed to chains.  If you own an independent restaurant or have friends that do, when was the last time you/they reviewed their ratings?  A 5-9 percent increase in business?  Holy smokes, makes you want to do a little reading right?

I went to Yelp Spokane and was amazed at the number of ratings that were posted and the majority seem to be negative.  Luca noted that “…online consumer reviews substitute for more traditional forms of reputation.”  He also found that consumers respond more strongly when a review contains more information.  So when you read these reviews, guess who the long winded ones are?  Did you say the negative people?  You would be right!   Luca was able to prove his conclusions used respected statistical methods.  I would go one step farther, (as I am no researcher!) and say that Google Reviews are probably just as powerful.  Yet many business owners don’t read them, including restaurant owners don’t read them because no one has ever been able to affirm their impact on business, until now.

If you like a place, do a review!  Or if your customers say they liked the food and enjoyed themselves, have them do a review!  One of our clients has done this, has lots to brag about and you can barely get in the place.  It takes almost no time for your customer to write a review, and it looks like positive reviews have the power to bring in real dollars.  The short term benefit is that if you or your manager(s) ask for a review, you will probably get some instant feedback, as in heading off a bad review before it happens, which could save you a lot of grief in the future.

The entire paper written by Michael Luca can be found at the the Harvard Business Review.

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