How Yelp Affects Restaurants

Love it or hate it, plays a significant role in influencing consumer behavior - and when it comes to the restaurant business, this is especially true. Founded in 2004, Yelp has achieved a cumulative amount of 177 million crowd-sourced reviews since inception, with restaurants representing the leading category, at 19% of the total.
Yelp attracts users of all ages, and its demographic use pattern by percentage is remarkably evenly distributed, with 33.9% of users falling between the ages of 18-34, 35.5% of users falling between the ages of 35-55, and 30.6% coming in at age 55 and older.  
There's little disputing that Yelp is a highly utilized resource for determining whether a restaurant (or any small business) is worthy of an initial visit. However, the wide influence of Yelp on consumers and businesses invites several questions - What affect do Yelp reviews have on restaurants?
Is Yelp good or bad for restaurants in general? Is the Yelp "star" rating system inherently flawed? What are the Pros and Cons of Yelp restaurant reviews? Let's take a closer look.

The Yelp Five Star Rating Review System

Most Yelp users are already familiar with the five star rating system, which invites individual reviewers to rate in half-star increments ranging from one to five stars. The aggregate consensus of all reviews for a restaurant are posted at the top of that restaurant's Yelp listing, and are also easily accessible through Google search.

This reality, coupled with the fact that consumers often seek the quickest, most visible path to an opinion (without often actually reading many - or any - of the actual written reviews) make the Yelp consensus star rating of a restaurant the most important information on the page.

It makes sense that restaurants with more stars should be more popular and generate more revenue. However, there may be more to this story than initially appears. Are consumers choosing some restaurants over others because they're truly better - or does the rating system sometimes make us think they're better - when in actuality, they might be of nearly identical quality?


Academic Studies on Yelp Reviews

A 2011 Harvard Business School study revealed that each incremental Yelp star translates to a 5-9% increase in revenue.

The study indicated that Yelp has a far greater effect on independent restaurants (as opposed to chain restaurants, which are generally frequented for their consistent, predictable experience) and that chain restaurants have declined in market share as Yelp reviews of independent restaurants have increased and helped close the information divide between the two types.

Whereas in the past, an independent restaurant might receive an occasional newspaper review from a local or city restaurant critic, Yelisp independent restaurant reviews trickle in on an ongoing basis throughout the year.

The long-term effect of this on chain restaurants has been to force chains to raise the quality of the dining experience in response to a loss in market share to independent restaurants.   


Are Yelp Ratings Fair?

A subsequent study conducted by Berkeley economists revealed that each Yelp half-star increment translates to a 30-49% increase in likelihood that a restaurant will fill its tables during the peak dinner hours of 6-8pm.

Importantly, the same study shed light on an inequity of the five star rating system. Because the consensus star rating of a restaurant is simply the average of all reviews and it rounds up or down to the nearest half-star, it follows that two virtually identically rated restaurants - one with an average of 3.74 and the other with an average of 3.76 - will wind up with consensus ratings on their Yelp pages of 3 1/2 stars and 4 stars, respectively.

These two restaurants will then be perceived by Yelp users as differing in terms of their food and overall dining experience - with attendant negative impact caused to the unjustly penalized restaurant with the 3.74 average and 3 1/2 star rating.

Yelp has responded by taking the position that a decimal reporting system would not be as easy to understand and relatable to its users as is the five star rating system. 


The Pros and Cons of Yelp Reviews

On the one hand, prior to Yelp, it could take many years for a new restaurant to get the word out, and Yelp provides the opportunity for rapid exposure.
When a new restaurant generates a high quantity of high-star ratings, it can really take off in a hurry. Just the same - are these Yelp reviewers "qualified?" The short answer is - some are, some aren't. Strong ratings from "elite" Yelp reviewers have an especially positive impact on a restaurant, as described in the Harvard Business School study.
However, if a reviewer is someone who eats a lot of processed food and has a relatively unrefined palate, it would be understandable for a restaurant owner to become frustrated by that reviewer's lukewarm rating on an elegant meal that the reviewer simply couldn't appreciate properly.
Or a customer can leave inaccurate, unfounded information within a low-rated review - and this can have a harmful effect on a small, independent restaurant. Similarly, low-star ratings are sometimes given for very little relevant reason - it could be that parking wasn't available, the neighborhood didn't feel right, or a coffee shop lacked a microwave to reheat a cup gone cold. In other words, an overreaction to a seemingly minor event. 
However, restaurant owners are also glad to receive immediate feedback from a flurry of reviewers who can comment positively upon adjustments that have been made in the restaurant.
When something about the dining experience has improved - whether through a change in menu offerings, decor, or even service - positive reviews flow in to validate the change to the public. The other side of that coin is that angry patrons can use Yelp as a form of revenge - rather than to write a constructive, critical review.
Bartenders who rightfully cut off an intoxicated patron can inspire a low-star rating, as can a server having a bad day. Whatever the case, a customer can use Yelp to "get even" with a restaurant - and this isn't always fair to the business.
Most restaurant owners would simply prefer that when a customer has an issue at the restaurant, to simply bring it up while there (rather than on Yelp), so that the restaurant can make improvements on the spot and the customer not leave disappointed. 
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