Restaurants should encourage patrons to rate them online even if they seemed only mildly impressed with their experience, according to a new study from UBC’s Sauder School of Business that puts a dollar value to customer feedback.
“Online reviews generate value as they reduce uncertainty – customers know what to expect, and at what price,” says Assistant Professor Chunhua Wu, the study’s lead author. “No reviews equals fewer customers, so it’s worth the risk.”
For the study, Wu and his co-authors tracked visits by over 5,000 people to Dianping.com, China’s largest independent consumer review site, to see what reviews they looked at and where they eventually spent their money. They monitored what restaurant the visitor chose and how much they spent based on their use of a Dianping discount card.
Restaurants in the study gain 8.6 yuan ($1.78 Cdn) per person who reads their online reviews, which adds up to an average of 3,600 yuan per month for the business – a boost of more than 10 per cent of typical profits for a Chinese restaurant. The more reviews, the more likely people were to have their interest piqued.
While the study finds that restaurants with consistent glowing reviews saw the biggest benefits, Wu says the positive effect of middle-of-the-road reviews is stronger than the negative effect of a few negative reviews.
Furthermore, the study found the written content of the reviews was generally more important than the numerical rating, as specific comments help customers gauge how well the reviewer’s tastes line up with their own. Consistency is also key so that customers don’t feel they’re taking a gamble with their restaurant choice.
“Sometimes having a lot of average reviews can provide the best results. If everyone has wildly different impressions of the restaurant, potential customers will be wary as they just don’t know what to expect.”
The study, “The Economic Value of Online Reviews,” by Wu along with Hai Che, Tat Y. Chan and Xianghua Lu, is published in the current edition of Marketing Science.
Top image source: InterContinental Hong Kong on Flickr.