By: Kelly Pugh

A recent case study written by Michael Luca at the Harvard Business School, has evidence to suggest that Yelp.com may actually be helping independent restaurants. In this study, it was found that “a one-star increase in Yelp rating leads to a 5-9 percent increase in revenue… this effect is driven by independent restaurants; ratings do not affect restaurants with chain affiliation, and chain restaurants have declined in market share as Yelp.com penetration has increased.” While these are preliminary findings and causation can never be truly determined, this is still an interesting topic worth exploring.

Before Yelp.com and, in fact, before much of the internet, we relied on a small network of family and friends.  We also relied on what we saw on television or in magazines to expose us to different products and services. Restaurants, mainly those that could afford marketing campaigns, raised awareness through these advertisements as well. Advertising isn’t cheap, and so chain restaurants had the advantage of getting their brand out there.

We know that awareness is extremely important. In order for people to buy a particular product or service they need to know about it.  While awareness does not predict behavior, a product or service cannot be successful if no one knows it exists. Success in this business requires overcoming the tipping point. If no one ever experiences the product, no one will ever talk about it, and it will go absolutely no where. There is also a problem if the audience network is small. This would allow for a few new customers here and there but no major growth.

Marketing campaigns for chain restaurants allow them to expand their network. Even if they don’t gain a new customer, there is a heightened level of awareness. It is hard for independent restaurants to compete with this. Also, because these are chain restaurants there is a level of certainty that comes with the consistency of it being a chain. This allows expectations that couldn’t be imagined when considering an independent restaurant.

When it comes down to deciding what to eat, you’d rather try the new chain restaurant you’ve been seeing advertised on TV than that little restaurant you’ve heard nothing about. Independent restaurants get passed by because we are either not brave enough to try something new, or because it has had no feedback. Social learning theory states that we watch and learn from other what other people do, and how they react. While we all can learn from trial and error, it is sometimes safer to let others make the mistake first, especially when it comes to our food and money! Before discovering Yelp.com, most of the independent restaurants I ventured to had been recommended via word of mouth; never did my own bravery take me into an unfamiliar restaurant.

Yelp.com is, essentially, the new “word of mouth,” at least for restaurants. A study showed that 90% of consumers trust peer recommendations. The internet allows someone to have more recommendations than they could imagine. If your close family and friends don’t know anything about the restaurant down the street, maybe 10 people online do. With so many recommendations for so many places, places you’ve never even heard about, you don’t have to be the brave soul. Source credibility refers to the fact that people are more likely to be persuaded by credible, expert, or trustworthy sources. Everyone likes food, and, assuming that we are all on the website for the same reason, there is a level of trust. There is also comfort in numbers, seeing a restaurant with more ratings (whether good or bad) would be considered over a restaurant with few good ratings.

Finally, there is awareness of these places and it’s all for free. This means that restaurants really are being evaluated on the experience. While adverting can be faked, experience cannot. Yelp.com and any other recommendation site show what consumers really care about. Other consumers can then choose to agree and try it out, completely turn away, or say it can’t be that bad. This free awareness is probably taking away from chains because people feel like they finally have more choices. Chains don’t need ratings; for the most part, we all know what to expect. Independent restaurants, however, can be a huge risk, and Yelp.com is allowing these restaurants to thrive by removing some of the risks for the consumers. As a foodie, I can say that we are all the luckier for it.

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“Reviews, Reputation, and Revenue” (Source)