Yelp reviews impact reservations
679 days ago
 

The power of reviews: a half-star difference can make or break a business

Love it or hate it, Yelp is the standard bearer for local business reviews. With 78 million uniques searching 30 million reviews in Q2 2012, a good review on Yelp is a vital marketing tool – especially for restaurants.

Two Berkeley economists have given Yelp – specifically 328 restaurants in Yelp’s most active market, San Francisco – the stastical treatment to determine how star rating impacts table availability.

The study, published in the Economic Journal, was constructed by taking 1-5 star reviews for each restaurant and merging it with availability of a table for four on Thursday, Friday, and Saturday evenings.

By combining the two data sets, the researchers found a direct correlation between star ratings and reservations: A half-star increase in rating is equivalent to a 19% reduction in available reservations.

There are various factors that might affect this number, including venue capacity and availability of external information about the restaurant.

In fact, restaurants that have little information available outside of Yelp – and therefore nowhere else for consumers to inform restaurant selection – sell out 27% more often with a half-star increase.

It’s important to note that Yelp rounds their review scores to the nearest half-star – a 3.74 average rating becomes a 3.5, while a 3.76 average rating becomes a 4. So, even though Yelp makes the actual rating available, it only shows stars in half-star increments; a small difference in average can have enormous impact on a restaurant’s bottom line.

From the report:

Figure 2 plots mean 7:00 pm reservation availability by Yelp rating. Panel A focuses on the window where restaurants have either 3 or 3.5 stars; Panel B focuses on the window where restaurants have either 3.5 or 4 stars, and Panel C focuses on the window where restaurants have 4 or 4.5 stars. Restaurant availability appears to respond primarily to the displayed rating, and not the latent average review score.

The median restaurant might see an increase of 6-8% in customer flows, which, although modest, can yield an extra $816 in weekly pre-tax profit for a median mid-to-high end restaurant seeing only a 6% increase in customer arrivals.

The analysis also includes a deep-dive into gaming the system with fake reviews – it’s a highly statistical analysis, but essentially concludes that while there are some desirable short-term benefits, the long-term impact is nil when it comes to increasing ratings via fake reviews.

The biggest flaw in the research is that the two independent data sources used do not match date-wise: the Yelp star reviews were taken as of February 2011, and the reservation data was from the period of July to October 2010. Restaurant ratings change quickly, and so the correlation of reviews-to-reservations is not as accurate given the 4-month discrepancy.

Other potential flaws include relying on online reservation systems that don’t account for walk-in traffic. Restaurants have the ability to limit or cease online reservations during peak periods, so the available information may be limited.

This academic study seemingly contradicts a recent study by retail researchers NPD Group that found the power of online recommendations and reviews to be relatively weak.

Only 6% of respondents were influenced by any form of online marketing, of which 27% were influenced by vague “general information,” and 14% by online reviews and recommendations.

Nonetheless, 6% still amounts to nearly 1 billion restaurant visits influenced by online marketing, and with a sizable boost from higher-rated reviews on Yelp, there is no reason for restaurants to not take notice. This also includes hotels that feature restaurants, and other travel-related businesses that rely heavily on word-of-mouth marketing that can be accelerated by sites like Yelp.

For the number geeks, check out the full Berkeley report here. It’s chock full of formulas and explanations that are fascinating-but-thick.

 
 
Nick Vivion

About the Writer :: Nick Vivion

Nick Vivion is a reporter for Tnooz, based in New Orleans, USA.

His passion for travel technology led him to travel around the world shooting travel videos for Current TV and Lonely Planet TV in 2006 and 2007.

He shot on Mini-DV, edited on a white MacBook, uploaded and shared online as he traveled. His moxie for travel video has resulted in over two million views on his YouTube partner channel.

In addition to travel, Nick co-founded of one of the web’s most talked about LGBT media sites, Unicorn Booty, and has gone "blog-to-brick" with a bricks-and-mortar restaurant called Booty's Street Food in New Orleans – serving street food from around the world.

 

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  1. Hotel Managers Group

    We at HMG Hotels take Yelp very seriously and although we have always put the client first historically, the fact that Yelp is a relatively new player on the hotel marketing horizon makes us pay special attention to making sure our clients have all they need when they stay at any of our properties. Thank you for sharing this study!

     
    • Nick Vivion

      Nick Vivion

      It’s important to monitor all tools that your consumers are using – and Yelp is definitely emerging as a player in the hotel space. Traditionally, restaurants were the primary use case for Yelp, so it will be interesting to see how Yelp and TripAdvisor evolve.

      N

       
  2. Aaron Zwas

    This study does have certain flaws, but we found similar results when comparing the TripAdvisor score of a client’s limited hotel chain. For every half-star improvement in rating, a hotel saw an additional 240 visits from TA per month to its web page. The conversion rate varies per hotel, but that can result in an additional 12 reservations per month, for example. This study was based on about 700 hotels — reviews matter!

     
  3. Peter

    I agree with Geert-Jan – this only really indicates a correlation without proving any causation.

    Other conclusions you could draw-

    * restaurants that are hard to get into result in higher ratings.
    * more popular restaurants generally have less tables

    A better approach would be to show different ratings of the same restaurant (with same reviews) to random samples and see if it affects their decision to book.

     
    • Nick Vivion

      Nick Vivion

      That’s a good idea – also, say a restaurant is smaller and has fewer tables, perhaps they provide better service thus garnering better reviews and less table availability.

       
  4. Geert-Jan Brits

    Interesting, although I’m not reading anything that proofs causality, i.e. : higher Yelp ratings IMPLIES reduction in available reservations.

    Perhaps it’s just as likely (or even more so?) that these facts were both the effect of some common cause? The most logical being that the restaurant is popular imo.

    i.e:
    popular restaurant IMPLIES higher yelp ratings
    popular restaurant IMPLIES reduction in available reservations

    Now, the question whether the restaurant has become popular because of having good food, excellent atmosphere, location, price/quality and/or some Help from Yelp is another one :-)

     
    • Nick Vivion

      Nick Vivion

      Exactly right, especially on things like location. If there’s more foot traffic, there could be more customers which could lead to more Yelp reviews. This is an interesting starting point, or at least something to consider for those reluctant to dive into Yelp.

       
  5. Jose M Barreiro

    This kind of analysis really freaks me out! While I totally get the importance of UGC and how consumers are using this content, we’ve been seeing trends where circumstances completely unrelated to the vendor/quality of services are including users to write negative reviews or give poor ratings. Last week the pizza restaurant owner in Palm Beach, Florida who gave President Obama a bear hug was slammed with hundreds/thousands of negative reviews on Yelp from people who have never been to his establishment! Regardless of your political views what does this have to do w/the quality of food & service? This is not an isolated event. I’ve been in the travel industry for years and have traveled extensively and when I look at negative reviews on sites like Trip Advisor of hotel properties that are clearing setting the standard for the industry, I am completely baffled. Call me old-fashioned but give me professionally written reviews with guidelines set by someone OTHER than the reviewer.

     
    • Nick Vivion

      Nick Vivion

      Jose, you bring up a valid point – providing a place for both amateur and professional reviews to be showcased is vital. In an age when everyone’s a critic, people tend to forget that critics have one giant distinguishing factor: their extensive experience in their field allows them to provide cogent, considered and exhaustive perspectives on the places they visit.

      However, UGC is never going to go away – people will always be sharing every moment of every experience, for better or worse. So the question for hospitality professionals is: How can I ensure happiness at every touchpoint for all guests? Yes, it’s a lot more work, but training staff to treat everyone like a VIP is the first step to avoiding terrible online reviews or negative social media sentiment.

      N

       
 
 

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