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Berkeley research reveals importance of online reviews to restaurant bookings
When two economists at the University of California, Berkeley, analyzed the relationship between online reviews and purchasing decisions, they found just how important online star ratings are to a restaurant's popularity and takings.
Online reviews supplement expert opinion and social media in informing consumers how good, or bad, a restaurant is. However, Professors Michael Anderson and Jeremy Magruder wanted to put some empirical oomph behind the link between reviews and consumer purchasing decisions.
To do this they implemented "a regression discontinuity design to estimate the effect of positive Yelp.com ratings on restaurant reservations".
They found (.pdf) that an extra half-star rating, on a scale of 1 to 5, causes restaurants to sell out 19 percentage points (49%) more frequently, with larger impacts when alternate information is more scarce. That extra half-star rating also caused restaurant bookings for 7pm, a peak dining time, to sell out on from 30% to 49% of the evenings it was open.
Furthermore, the increases in trade were found to be a direct result of the reviews and not attributed to any changes in the quality of food and service or a change in pricing.
But, I hear you say, wouldn't the five-star restaurants be full because they're good, not just because they have five stars? As TechCrunch's Gregory Ferenstein points out, "Careful readers may note that a higher-quality rating may simply denote a better restaurant, and the study is therefore only capturing patrons who prefer a better experience, who choose where to dine independent of Yelp's rating. The researchers answer this critique by looking at restaurants whose Yelp rating differs by only a little bit, but whose official rating is at least one-half star different."
Research carried out last year by Michael Luca, Assistant Professor at Harvard Business School, found (.pdf) that a one-star increase in Yelp rating leads to a 5% to 9% increase in revenue.
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