Online business review site Yelp upsets many small-business owners for how it filters reviews—sometimes propelling the worst reviews to the top of a business’s Yelp page while hiding the most flattering ones.
Despite all the many criticisms of Yelp, there’s one reason small-business owners should be very thankful for its existence: It makes consumers more comfortable choosing small businesses over major brands.
Take McDonald’s. The fast-food chain has long relied on its iconic yellow arches—and the consistency of its hamburgers and Chicken McNuggets—to win the business of travelers who aren’t sure whether to trust the food at a local small restaurant in Anytown, USA. Any person can pull off the highway and feel rather assured of what they’ll get when they eat at a McDonald’s.
But thanks to the rise of Yelp, travelers are compelled to check online customer reviews and try out local small restaurants rather than Mickey D's. When someone sees that a local eatery has four or five stars on Yelp, they’re more likely to bypass McDonald’s and go there instead, according to Forbes columnist and economics professor Panos Mourdoukoutas.
Research confirms this. In their recent book Absolute Value: What Really Influences Customers in the Age of (Nearly) Perfect Information, authors Itamar Simonson and Emanuel Rosen look at research by Harvard business professor Michael Luca of the revenues of Seattle restaurants between 2003 (pre-Yelp) and 2009 (post Yelp’s introduction), which found that a one-star increase in Yelp rating raised a restaurant’s revenues by 5 to 9 percent. Luca also found that consumers gravitated away from large chains like McDonald’s and Applebee's as Yelp usage grew in Seattle. “I find that there is a shift in revenue share toward independent restaurants and away from chains as Yelp penetrates a market,” Luca wrote.
While much of the research has been limited to restaurants, there’s good reason to believe Yelp—and Angie’s List, Google Local reviews and all the other online customer review sites—can boost consumer confidence in small companies.
“In the past, ‘having a good idea of what to expect’ was one of the important advantages over small restaurants,” Simonson and Rosen wrote in their book, according to Mourdoukoutas. “You always know what to expect at Subway or McDonald’s. But when you know what to expect at small restaurants through Yelp or Zagat, brand names are becoming relatively less important.”
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