Depending on the neighborhood, the fire-engine red “People Love Us on Yelp” sticker outnumbers sedate-looking “Zagat Rated” emblems or fading newspaper reviews on restaurant doors. There’s no mistaking the power--and, let’s face it, the sheer entertainment value--of candid reviews written by regular diners rather than food-industry elite.
And recently, a report written by Harvard Business School assistant professor Michael Luca showed just how powerful a Yelp rating can be: Luca found that a one-star increase in the rating of an independent restaurant leads to a 5 to 9 percent increase in revenue.
But with livelihoods hanging in the balance, the symbiotic relationship among the Yelp technology platform, reviewers, and local businesses is under stress, showing flaws in a system that must accommodate a high volume of user-generated content.
Yelp Can Help
In his report titled Reviews, Reputation, and Revenue: The Case of Yelp.com, Harvard’s Luca analyzed data from the Washington State Department of Revenue, as well as from Yelp, to show a cause-and-effect relationship between Yelp ratings and restaurant revenue.
Luca discovered that this rating-revenue relationship applies to independent restaurants, not chain restaurants. He says that his findings are also relevant to other industries (such as the hotel business) where reviewers are credible and willing to leave reviews.
Yelp Can Hurt
Luca’s findings are good news for businesses whose ratings are on the way up--but what happens when what goes up comes down? If a one-star rating increase on Yelp.com yields a 5 to 9 percent increase in revenue, does a decrease in a star rating cause a decrease in business revenue?
”Yes,” says Harvard’s Luca, “[but] I don’t know if it would be the exact same magnitude.”
Heather (last name withheld for privacy), owner of a house-cleaning business in the San Francisco Bay Area, would argue that the magnitude is greater. Earlier this year, two 1-star reviews blended with four perfect 5-star ratings to bring her business’s average rating down to 3.5 stars.
Luca’s study found that people who read Yelp reviews don’t form opinions based on all the available information but are particularly influenced by the restaurant’s overall rating, particularly when that score is derived from a high number of reviews. However, Heather discovered that her business’s overall rating was very powerful--even fatal--when applied to her small set of reviews.
“My business just died. Once they locked me into the 3.5 stars, I wasn’t getting any calls,” says Heather. “It’s so awful. It makes you feel like you’ve done something wrong.”
Heather has been in the house-cleaning business for eight years, and she has a clientele of about 60. She did not put her business on Yelp by choice. In March 2011, her business was reviewed for the first time, and the person awarded her business the dreaded 1 star, citing an underwhelming move-out cleaning. A little over a month later, another Yelp reviewer hit the business again, posting a scathing 1-star review that accused Heather of offering “a discount in exchange for a Yelp review,” a big no-no in Yelp land.
Heather says that both reviews are fabricated and personal, as she is going through a divorce in which “things got really nasty.” She suspects that at least one of the reviewers may know her ex-husband.
Subsequent comments on both reviews deny personal conflict or outside relationships as reasons for their reviews, and neither reviewer responded to requests for an interview.
According to Michael Fertik, founder and chief executive officer of Reputation.com, personal relationships are one main source of bogus reviews; the other is competitors. Reputation.com offers services for individuals and businesses wishing to manage the information that appears about them online. Reputation.com for Business launched in September to help businesses manage, monitor, and improve reviews.
Yelp Is Powerful--and Imperfect
Fertik says businesses understand that public criticism is part of the world of online reviews. “What they don’t understand is why a review that makes no sense has as much juice on these review sites as a review that is truthful.”
In Heather’s case, bogus reviews were getting more juice than the legitimate ones, owing to Yelp’s reviews filtering, a software algorithm that attempts to flag untrustworthy reviews. It moves those reviews to a filtered-reviews section, which doesn’t factor into the overall rating.
While Heather had 6 reviews that factored into her star rating, she had 33 more that did not. These largely 5-star reviews sat at the bottom of her page, accessible only when a viewer clicked the subtle gray '33 filtered' link offered there.
Yelp acknowledges that filtering removes legitimate reviews, but according to Yelp public relations manager Kristen Whisenand, “It is this high cost that we’ve chosen to accept because we know the infinitely higher cost would be to not have an algorithm in place at all.”
However, when Heather directed people to read her filtered reviews by posting multiple comments on her own page, Yelp notified her that this action was an abuse of its policy, and removed one of the comments.
“Spamming users via public comments is an abuse of our system,” says Whisenand. “If I was a current or potential consumer coming to this business page, I know I personally would view that behavior as questionable.”
With business “dropping off,” no way to point people to her filtered reviews, and no way to affect the lowered overall rating on her page, Heather asked Yelp to remove her business’s Yelp page. Yelp said no. So Heather took a drastic measure: She closed her business.
Heather disconnected her business phone number, and removed the business listing from Google Places for Business (which will eventually remove the listing from Yelp).
Having marked her business as closed on Yelp, she is looking to start a new business to make a fresh start.
Next page: Businesses can be their own worst enemy