How Yelp Affects Restaurants
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.