Snippets: the impact of online reviews

Many of my clients have asked me, 'What is the impact of online customer reviews on sales?'.

This week's snippet presents the findings from a study by Michael Luca, a Harvard Business School associate professor, that answers this question. A couple of years ago he examined whether and how much customer reviews on Yelp.com impact restaurant revenues. They do, and significantly at that, especially for independent restaurants.

Here is the full list of findings, as outlined by the author:

• [A] one-star increase in Yelp rating leads to a 5-9 percent increase in revenue.

• [T]his effect is driven by independent restaurants; ratings do not affect restaurants with chain affiliation.

• [C]hain restaurants have declined in market share as Yelp penetration has increased. This suggests that online consumer reviews substitute for more traditional forms of reputation.

• [C]onsumers do not use all available information and are more responsive to quality changes that are more visible.

• [C]onsumers respond more strongly when a rating contains more information. Consumer response to a restaurant’s average rating is affected by the number of reviews and whether the reviewers are certified as “elite” by Yelp, but is unaffected by the size of the reviewers’ Yelp friends network.

In a word, online ratings and reviews work for customers are an important source of information when they make a choice. Interestingly, they are also a great source of customer feedback that many companies still underutilize. My advice - deliver the experience customers desire and make sure that you follow what they say about you online.

My best wishes for a great day ahead!