Tuesday, October 11, 2011
Who benefits the most from Yelp?
HBS professor Michael Luca has conducted some terrific new research on the impact of Yelp. He examined the effect of reviews. He found that a one-star increase in the quality of a review led to a 5-9% increase in sales for a typical restaurant. However, he found that positive Yelp reviews had much more impact for non-chain restaurants than for chain restaurants. That makes sense, of course. Smaller, independent restaurants have less means of reaching potential consumers. The large chains have national advertising to build brand equity, and they develop a reputation over time. I know that I rely on Yelp when I'm traveling to identify independent restaurants of high quality. This research suggests that smaller restaurants should focus on encouraging their loyal and satisfied customers to review on sites such as Yelp. However, the restaurants need to be careful. Many review sites screen for obvious "planted" ratings or other efforts to manipulate ratings. Customers too are quite discerning. They often can determine the authenticity of a review.