impact of online restaurant reviewsWhen I was younger—so much younger than today—I never needed anybody’s Yelp in any way.
-John Lennon, “Yelp!” (1965)

I’ve made no secret of my distaste for Yelp, mainly because of the access it gives to deranged lunatics. There are people who literally want to shut places down because a staff member didn’t treat them like royalty. And then there are the folks who describe their meals as “unbelievable,” and “awe-inspiring,” which I think is either a little extreme or representative of someone living a very sad life. But then there’s this fact: I use Yelp all the time. It’s so incredibly useful to know what restaurants are nearby and whether people like it. If a place has enough reviews the more fringe reviewers tend to be statistically irrelevant. If it weren’t for Yelp, I would never have found that great shawarma joint just down the road from the dog park in Calabasas, California. It’s that kind of duality that defines Yelp and other social media reviews in general. Any review on its own is ultimately worthless, but as the numbers go up they get more reliable in the aggregate. Whether these reviews have any kind of impact on a business has been the question surrounding Yelp, and a couple of economists just conducted some research to answer that question. And the answer is? Yes, it does. Maybe. Like, it most likely does, but we can’t definitely say there’s any relationship beyond a correlation between Yelp reviews and restaurant performance. But if you think about, it really does look like there’s a causal relationship. So, yes. Yelp can make a difference.

Perhaps I should explain.

Photo by Michael Ursino (Flickr)

Photo by Michael Ursino (Flickr)

Professors Michael Anderson and Jeremy Magruder—both economists at the University of California, Berkeley—examined all sorts of data about more than 300 restaurants in the San Francisco area to see the impacts, if any existed, of positive Yelp reviews. They found that restaurants were much more likely to be full during peak times than competitors whose ratings were lower by a mere half star. If you’re like me, you read that and say, Duh. Of course the restaurant that people like better is going to be full. People like it better. Further, another statistic showed that a half-star increase in ratings for a restaurant translated to a full house 30 – 49% of the time they were open. Anderson and Magruder contend that these increases were not the result of a change in prices, the quality of the food, or service. This is leading some to draw the conclusion that it must be the Yelp reviews, as there are simply no other external factors that could affect a restaurant’s performance. And that is why Yelp is so crucial to your business and you absolutely have to take it seriously.


Except maybe you don’t.

yelpRather, don’t take it so seriously that you stress over your online reputation, because the conclusions reached above are pretty far reaching for the limited amount of data available. The sample size is big enough that we can safely say the correlation seems legit. But even Anderson and Magruder acknowledge that establishing a causal relationship is a bit murky at this point. They wrote “restaurants that get good reviews are those that appeal to consumers and they would probably do well even in the absence of any reviews,” which is another way of saying that Yelp is just reflecting consumer trends that already exist. So don’t think that getting your Yelp numbers up is going to change your fortune.

Except that maybe it is.

See, the way Yelp displays overall star ratings, as you might well know, is on a scale of 1 to 5, rounded to the nearest half star. But this means that, as an example, one restaurant could have an average rating of 3.74 stars and get rounded down to 3.5. Another restaurant could score 3.76—two one-hundredths of a point better—and get rounded up to 4. The research bore out situations like this, where restaurants that were effectively equal in quality and popularity would be separated by a half-star—and the four-star restaurant enjoyed fuller dining rooms for longer periods of time. It’s fair to conclude from this that the Yelp reviews are, in fact, influencing customer choice.

Except that maybe it has less to do with the reviews and more to do with just being on Yelp.

Michael Luca, an Assistant Professor at Harvard Business School, recently authored a paper called Reviews, Reputation, and Revenue: The Case of Yelp.com. He found similar correlations between good online reviews and revenue, supporting the central thesis of Anderson and Magruder’s work at Berkeley. But he also found something of interest to smaller, independent businesses. Small business owners are not only more affected by online reviews than chains, but they stand to benefit from them more as well.

Large chain restaurants with huge advertising budgets  come with consumer awareness built right into every location. You can walk into a Starbucks anywhere in the world and know what you’re going to get. You don’t need Yelp, and Starbucks certainly doesn’t need Yelp. But an independent business like, say, a small shawarma joint just down the road from the dog park in Calabasas, gained two customers yesterday because they were on Yelp and the menu looked great. The added knowledge that other people liked it helped, but if there were no reviews I still would’ve ended up there, because shawarma.

Ben Edelman at your restaurant is worse than a bad Yelp review.

Ben Edelman at your restaurant is worse than a bad Yelp review.

As a funny side note, Luca will continue his research on the topic along with Harvard Professor Ben Edelman, a guy who got a bad internet reputation after it became clear he overreacted to petty personal grievances with a couple of restaurants.

In any event, the conclusion seems clear (inasmuch as an unclear conclusion can be): if you’re a small business owner you can’t afford to ignore Yelp and other online venues like it. If you’re good at what you do, and people generally seem to like you, you don’t have to feel at the mercy of the whiny few who might go too far. And whether or not good reviews cause more revenue, or are a reflection of it, is irrelevant. You want people to leave you good reviews, right? Give them a reason to, and you’ll probably be rewarded with something better than the kind words: repeat business.