Do Bad Reviews Online Matter?
Written by Adam Block, Principal of Charm Economics
Brands matter. Traditionally, economists think about a brand as a way to communicate information about a product, to express the quality of a good or a service to the public.
Brand reputation matters, which is why companies spend billions on marketing and advertising to improve it. Before the internet, restaurant, hotel and other reviews were mostly available from newspapers, or word of mouth. A bad review, warranted or not, from the right source could break a business. However, with the rise of the internet including public online review aggregators such as Yelp any customer can write a review that can impact your business. But how much does that really matter?
In short the available research is in general agreement that
a bad review, or the loss of a star (on average) for a business results in
lower revenues of approximately 2% to 10%.
One Harvard Business School study used Washington State sales tax
receipts to look at restaurant revenue and found that a one star increase in
average rating led to a 5%-9% increase in restaurant revenue.[1]
Another study found that consumers preferred to view extreme reviews and
bypassed average ones.
My own research using a million patient appointments and 11,000 reviews found that a single one star rating led to a reduction of about 2% of new patient appointments in the 3-4 months subsequent to the review. In short, whether it is a restaurant, hotel, or a physician, bad reviews = lost revenue.
What Can You Do?
- Know Your Reviews: A company named Reviewtrackers is able to compile all of your reviews that are online. Even the ones you don’t know about. The first step to improving your online reputation is knowing the full scope of it.
- Find the Themes and Address Them: For every negative review out published, there are many others who have experienced the same issue, but will not post a review. As a result, they won’t return. So recognize the themes in the posts and use the comments as feedback to improve your business.
- Interact with Reviewers: Some will respond to an opportunity to improve and amend (or remove) a damaging posting.
[1] Luca, Michael, “Reviews, Reputation and Revenue: The Case of Yelp.com” Harvard Business School Working Paper 12-016, 2011. https://www.hbs.edu/faculty/Publication%20Files/12-016_a7e4a5a2-03f9-490d-b093-8f951238dba2.pdf
Adam E. Block is Principal of Charm Economics, a translational and health economics consulting firm based in New York where he performs Return on Investment calculations for small and mid-sized health care companies looking to scale their businesses. He is also an Assistant Professor of Health Policy and Management at New York Medical College lecturing all over the world on health economics and cost effectiveness.
