Two economists at the University of California, Berkeley have published a study in the Economic Journal showing how online reviews can affect a restaurant’s business. The study focused on 300 San Francisco restaurants and used the popular crowd-sourced ratings site Yelp.com.
Professors Michael Anderson and Jeremy Magruder found that when a restaurant’s rating improved by just half a star (scaled 1 to 5), that restaurant was much more likely to have a full house at peak dining times. A restaurant with a half-star higher rating would sell out in 7pm bookings from 30 to 49 percent of evenings it was open.
To qualify this and control for other factors, the professors threw out data from any restaurant who’s publicity (marketing, discounts, etc.) coincided with the change in consumer interest. This helped confirm that it was the reviews bringing in more clientele rather than other factors.
“The findings of this study demonstrate that – although social media sites and forums may not generate the financial returns for which investors yearn – they play an increasingly important role in how consumers judge the quality of goods and services.”
The Berkeley economics go on to caution that the number of stars in the review also mattered a great deal. Higher reviews meant more business, which made establishing cause and effect for the study more difficult.
So although restaurants that provide good food and service will nearly always have customers, the study does show that when people have positive views of a restaurant and share that view online, other people notice and the eatery’s business rises.