Tuesday, October 4, 2011

The Yelp Effect

Article first published as The Yelp Effect: Leveling the Playing Field for Independent Restaurants on Technorati.

 A new study by the Harvard Business School seems to show that Yelp.com is helping to level the playing field for independent restaurants. The unique study shows that for every one-star rating increase in a restaurant review on the site, a restaurant achieved a 5-9% sales increase. This was not the case for chain or multi-unit establishments. Thus we are seeing a clear independent bias in consumer activation from Yelp. The study, available at http://www.hbs.edu/research/pdf/12-016.pdf uses Seattle as their study area.

When you dig into the numbers, it becomes apparent that Yelp has certainly allowed independent restaurants with limited marketing budgets to gain a presence in the marketplace more broad than they would have had otherwise. Prior to the proliferation of Yelp and other self-review sites, more traditional media was limited in the number of restaurants they reviewed. This allowed a few to gain wide exposure, while most went unnoticed to the masses. Chain restaurants did not benefit from Yelp primarily because they are already in the paid media channels establishing their message. Thus, you cannot benefit from an "organic" reputation while also controlling your reputation via paid media.

This success cannot be all attributed to Yelp however. The market they used for their study is a very strong independent restaurant city. It also is a tech savvy city with higher internet and social media penetration than the National average. During the study period we have also witnessed a strong growth in the "locavore" movement. The media coverage of this trend certainly has benefited independent restaurateurs. Finally, while Yelp is a popular site (nearly 500,000 daily unique users) when you break the searches down to local metro areas it is hardly a majority of patrons using their service. So what can we learn from this?

No one channel can make a restaurant a success. A clear brand message is still key. Establish that message via social media and utilize Yelp as a validation source. Reward loyal customers and turn them into brand advocates, extolling the qualities of the experience not just in an online review, but via social media and offline social circles. In short, Yelp is a tool and a reflection of the overall experience.


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