Harvard Study Says Yelp Increases Revenue for Independent Restaurants

Yelp reviews drive customers to independent restaurants over chains, according to a study conducted by a Harvard Business School professor.

"There is a shift in revenue share toward independent restaurants and away from chains as Yelp penetrates a market," Michael Luca, assistant professor at the Harvard Business School, writes in the study.

The study, "Reviews, Reputation, and Revenue: The Case of Yelp.com", analyzed information collected by the Washington State Department of Revenue for all restaurants in Seattle between 2003 and 2009. There are also more than 600K Yelp reviews in Seattle.

"The Harvard study is exciting because it offers empirical weight to something we already knew: Yelp is a transactional website," Yelp writes on its blog. "The 63 million people who visited Yelp last month were using the site for a very specific reason: to conduct research online before spending money offline."

Michael tells LAUNCH that the reason he chose to do his study on the restaurant industry in Seattle was the ease in accessing that data.

In the study, Michael says chains become less popular after the introduction of Yelp because of the increased amount of information about independent restaurants. Smaller restaurants saw rises in revenue, while chains saw a decline after the introduction of Yelp.

Like other studies conducted on Yelp, Michael found that a one-star rating increase on Yelp led to a five to nine percent increase in revenue for that restaurant.

Daily deal sites like Groupon operate with the notion that specials and deals on prices increase customer patronage, which will in turn create more repeat customers. However, a study conducted by computer scientists from Boston University and Harvard University earlier this year indicated that companies that ran Groupon deals saw a 10% decrease in their ratings on Yelp [ see our story ]. Reviews specifically mentioning the words "Groupon" or "coupon" were 20% lower.


Website: http://www.yelp.com
Blog: http://officialblog.yelp.com
Twitter: @Yelp  

Michael Luca
Email: MLuca at hbs dot edu