“A one star increase in Yelp rating leads to a 5-9 percent increase in revenue” was a primary finding of a study conducted by Michael Luca and published in the Harvard Business Review. The study, “Reviews, Reputation and Revenue; the case of Yelp.com” published in November 2011 is a landmark study that has been often cited since. While the study focused on the impact of Yelp.com on restaurants, the findings clearly indicate the impact of online reputation it is also applicable in to other industries such as local retailers and home service businesses. With dozens of websites collecting reviews of Home Improvement service companies, the industry is sure to experience a similar fate as the online marketplace matures.
Since November 2011 the economy has continue its torrid pace of moving online. As an example, Amazon’s ecommerce experienced 25% year over year growth for the past two years. That means for every $100 in 2011 sales, they will earn $156.25 only two years later. What then is the impact of more online sales on the study? Well, if we assume a similar 1.56x factor on the 5 – 9% revenue impact then we might expect if the study were redone we could see 8 – 14% increase in revenue.
We have quickly entered an era in which the power shifts to customers to find their voice and claim their power on the internet. This voice, in the form of online reviews, leaves a digital footprint about your business. While their reviews may be posted on Yelp, Google or other mainstream locations, sometimes, their reviews show up on Twitter, Facebook or on their own websites. Staying in tune with this is an ever increasing challenge.
If customer’s comments can lead to an swings of 10% revenue, are you prepared to forgo processes to improve your reputation, customer satisfaction and your brand in general? Moreover, this internet as a feedback channel is no “fad” and the direction of the trend is clear. Where will it be in 1, 2 or 5 years? Is is possible managing your online reputation and those 1 star swings could be the single biggest factor affecting the number of leads, deals and your overall revenue?
To read more about the study, Reviews, Reputation, and Revenue: The Case of Yelp.com, visit http://erhanerdogan.com/wp-content/blogs.dir/1695/files/2011/10/12-016.pdf