A study by Harvard Professor Michael Luca reveals how much a negative online review can impact a business. In his working paper “Reviews, Reputation, and Revenue: The Case of Yelp.com” Professor Luca presents two key findings about the impact of consumer reviews on independent restaurants:
- A one-star increase in Yelp rating leads to a 5% to 9% increase in revenue.
- This effect is strongest for independently-owned restaurants.
The takeaway here is that for independently-owned restaurants, the need for managing one’s online presence is becoming an increasingly vital part of running a business. For the typical independent business, every review has an impact on one’s reputation, and it only takes a few low/high reviews to alter one’s overall online rating. Taking Professor Luca’s findings into account, these few reviews can translate directly into a significant impact on your bottom line.
Not only is paying attention to customer feedback a good business practice, it is also the right thing to do. Customers expect and appreciate good service and quality products. Every time they choose to spend hard earned money, businesses should be grateful. They deserve the best service possible. By listening to customers, owners can proactively provide great service.
Business owners should take a proactive approach to resolving issues immediately and preventing negative reviews before they happen. Using OwnerListens to do this not only helps owners address issues immediately and keep negative reviews offline, but also leads to key insights into how to improve customer service leading to more positive reviews. Over time, this will inevitably lead towards a higher online ratings and, based on Professor Luca’s findings, increased revenue.
Update:
New data further illustrates the importance of online reviews. A recent article on mashable indicates that before entering a food service location, “45% of consumers have already chosen where to eat with the help of an online dining guide … 57% of patrons rely on [online reviews]”.
Furthermore, an infographic by market research firm Lab42 indicates that 23% of respondents “use their smartphone every time or almost every time they dine out” and 49% “consider their smartphone somewhat or extremely important in their dining experience”. (View the infographic for more interesting statistics)
This means that in addition to relying on online reviews to make dining location decisions, almost half of restaurant goers may use their smartphone while dining. Owners/Managers should take advantage of the approachability of these patrons via smartphone and use OwnerListens to communicate directly. Addressing issues in real-time is the best way to prevent negative reviews, improve online ratings, and ultimately increase revenue.
Makes perfect sense! With so many dining options out there, I don’t even bother with places that don’t have 4 or 5 stars.
I’m always eager to try new places and rarely make a dining out decision without consulting yelp; would make sense for independent restaurants to focus on remedying negative reviews!