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Star Ratings Matter Just as Much as (If Not More Than) Online Reviews Research shows how even an average 3-star rating for your business can hurt your bottom line.

By Chris Campbell Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

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When it comes to swaying consumers' purchase decisions, how persuasive are online reviews? And how attractive -- or ugly -- do online ratings make a local business look? At a time when consumers can write Yelp reviews on pretty much anything they buy -- and others can then read about it -- questions on the business impact of reviews and ratings have become increasingly relevant.

Related: Feeling the Sting of Recent Rotten Reviews on Yelp?

Before choosing a restaurant, diners check out Yelp. Before booking a hotel, travelers look up TripAdvisor. Before selecting a doctor, patients take to Healthgrades or RateMDs. New research by ReviewTrackers set out to determine how reviews and ratings can directly influence purchases from local businesses -- in this case, restaurants. In a three-week survey of Internet users in the U.S. with an age range of 25 to 54 years, respondents were asked one question:

Would you eat at a restaurant with a 3-star rating?

  • More than one in three wouldn't eat below four stars.
  • 35.3 percent of survey respondents said that a 3-star rating (or below) on a 5-star scale on platforms like Yelp, TripAdvisor, and Google would dissuade them from choosing to eat at a particular restaurant. That represents approximately one in three diners in the US.
  • It's worth noting that on Yelp, 67 percent of the 71 million reviews are 4- and 5-star reviews. The latest fact sheet released by the company also indicates that the restaurant category generates the second-highest number of reviews, behind Yelp's category for shopping.

Star ratings matter.

While the remaining 64.7 percent of respondents in ReviewTrackers' survey are less picky with where to eat, it remains clear that, for consumers and businesses alike, star ratings matter -- and are of equal importance as (if not greater than) the actual review text.

  • In his study "Reviews, Reputation, and Revenue: The Case of," Harvard Business School researcher Michael Luca found that a 1-star improvement on Yelp translated to anywhere from a 5 to 9 percent swing on revenues. Furthermore, local and independent restaurants were more affected by diner reviews and ratings than chain restaurants.

  • Two Berkeley economists, meanwhile, discovered that the tiniest Yelp rating change -- a half-star improvement -- makes it 30 to 49 percent more likely that a restaurant will sell out its seats during peak hours. "Because [the review site] collects and aggregates the experiences of a large number of patrons," wrote researchers Michael Anderson and Jeremy Magruder, "Yelp provides a forum to solve asymmetric information problems about the quality of unfamiliar restaurants."

  • A Cornell University study even goes so far as to suggest that, in the eyes of consumers, the numerical ratings are seen as an objective measure of a business' quality. "Oftentimes, the online rating of a business is taken as a proxy for its objective quality rating," wrote researchers Oussama Fadil and Jake Soloff. "The underlying assumption is that by average ratings across users of varying tastes and preferences, dependencies upon said factors are eliminated."

  • Simply put: Star ratings matter because they serve as a useful and convenient source of information when consumers are researching a local business they're not familiar with. This is most evident in industries like foodservice and hospitality, where consumers increasingly depend on review and rating sites to find places to eat. As Luca summed up: "Restaurants are a classic example in economics where the consumer has to make a decision based on very little information."

Related: Consumers View 5-Star Reviews as Too Good to Be True

Who relies more on reviews -- men or women?

Gender adds another interesting dimension to any conversation about online reviews.

  • According to new research by SheSpeaks, an online engagement platform, as much as 38 percent of women said they trusted online reviews, with 57 percent willing to spend more money on businesses with positive reviews and high ratings.

  • When it comes to finding restaurants, however, differences in how men and women perceive and use reviews are less evident. In the ReviewTrackers survey, approximately 38 percent of male respondents said that they would not eat at a place with less than a 4-star rating, compared to only 33 percent of female respondents.

Build a 5-star reputation.

Online reviews and ratings undoubtedly have a major impact on a business' reputation and, therefore, performance. This makes it critical for marketers and business owners to apply best practices in review management.

  • Claim your business listings. Asserting ownership of your business listing on platforms like Yelp, Google and TripAdvisor increases your visibility and enables you to more effectively listen and respond to what customers are saying online.

  • Monitor all relevant review sites. Staying on top of reviews and ratings allows you to measure customer sentiment and provides you with valuable data that your business can use to make customer experience and service improvements.

  • Respond to your customers. Management response to reviews drives engagement and demonstrates that your business values customer feedback -- good and bad.

  • Generate more reviews. Build and strengthen your online reputation by raising awareness of your business' presence on online review sites and asking your happiest customers to review your business.

Related: Battling Brand Sabotage: The Angry Critic

Chris Campbell

CEO of ReviewTrackers

Chris Campbell is the CEO of ReviewTrackers.

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