HBS Study Finds Positive Yelp Reviews Boost Business

A new study [3] by Harvard Business School assistant professor Michael Luca [4] finds that a positive evaluation on the popular review site Yelp.com [5] does, in fact, appear to lead to increased business for restaurants. “Reviews, Reputation and Revenue: The Case Of Yelp.com,” analyzes review data from both Yelp and all Seattle restaurants from 2003 to 2009, and draws three conclusions about the Yelp effect on restaurants, reports the Washington Post [6]:

1. a one-star increase in Yelp rating leads to a 5-9 percent increase in revenue,
2. this effect is driven by independent restaurants; ratings do not affect restaurants with chain affiliation, and
3. chain restaurants have declined in market share as Yelp penetration has increased.

The study, which set out to determine whether “online consumer reviews affect restaurant demand,” showed that Yelp has effectively formed a social network where people are encouraged to identify themselves and post descriptive reviews rather than vent, according to the Wall Street Journal’s SmartMoney blog [7]. “You can get some fake reviewers,” Luca says, “but at least you can say, ‘This other guy thought this particular dish was good.’”

According to Business Insider [8], the study also found that Yelp reviewers preferred independent restaurants to chains like Applebee’s or McDonald’s, and that Yelp reviewed 60,000 restaurants—70 percent of Seattle restaurants—whereas the Seattle Times reviewed only about 5 percent.

“The introduction of Yelp then begins to shift revenue away from chains and toward independent restaurants,” Luca wrote in the study, adding that this “suggests that online consumer reviews substitute for more traditional forms of reputation.”