Here’s the strongest evidence yet that online reviews have forever changed how people spend money (study)

Cory Capoccia
Customers want to be heard, not doused with digital flame retardant.

You don’t need to read stories about merging humans with AI or implanting chips under workers’ skin to see that we’re descending ever deeper into the digital vortex. On the contrary, all you have to do is type a “near me” search into the web browser on your mobile device.

Local business — the final frontier of the digital revolution — is quietly but seismically being remade by the mobile web. Local search trends and online review platforms like Yelp, Google, and TripAdvisor may not draw as many headlines as freaky future tech, but they most definitely provide a glimpse into how dramatically the internet has altered consumer behavior, especially for the small, local businesses that account for nearly half of American economic activity.

Think about it. In years past, if someone wanted to patronize a local restaurant, auto mechanic, dental office, or hair salon, they had to crack open a massive printed directory, like the Yellow Pages, hop on the telephone to get recommendations from their closest confidants, or simply drive around window shopping. Not exactly convenient.

In these examples, the consumer is trying to get a sense for what her options are and evaluate which ones are worth her hard-earned money. Today, all of this can be accomplished in a few minutes by skimming business listings and online reviews on a handful of popular sites.

What does this mean for Main Street? Recently, the data science team at Womply asked the question, “how are online reviews impacting small business revenue?” To find out, our analysts looked at online reviews and transaction data at 210,000 local businesses in all 50 states. The results are the strongest empirical evidence yet that online reviews have forever changed how consumers interact with physical businesses.

Business listings on Yelp and Google are the new “digital storefront”

Even dung beetles know, word of mouth has moved online.

For decades, local businesses used their physical storefront as their main marketing asset to attract customers. Owners of small retail shops still go to great pains to get their signage and window displays just right, and ensure that their “open” sign is highly conspicuous.

These days, most consumers don’t even make it to a business’s physical storefront unless that business has an attractive “digital storefront.” When consumers want to spend money locally, they pull out their smartphones, and what they find in local search determines who gets their dollars. So, what shows up in those searches? Increasingly, people run into Google and Yelp listings, not official business websites.

Accordingly, listings on review sites are critical for getting found and chosen. For the past 10–15 years, review platforms have populated millions of business listings, allowing owners and operators to “claim” their listings for free and take control of their online presence. These business listings are now the front lines of local commerce, yet most small businesses haven’t even claimed their pages on top sites.

This is a missed opportunity for local businesses who haven’t recognized the shift in consumer behavior. Our research shows that businesses that simply claim their listings on at least three review sites make 36% more than the average business. Conversely, businesses that claim no listings make 24% less revenue, on average.

Replying to reviews is the new customer service

There’s no substitute for authenticity. Plus, posting fake reviews may cost your everlasting soul!

Imagine walking into a business and being completely ignored by the staff. If a business didn’t acknowledge your presence or address your questions or comments, would you go back? Of course not.

Few would argue that it’s critical to be responsive to customers, so why do 75% of local businesses not respond to any of their customers’ online reviews? Even businesses that do respond to reviews only do so about 20% of the time. In the digital age, these online customer interactions are critical.

If review platforms are the front lines of local commerce, then the reviews themselves are the front lines of modern customer service. For consumers, engaging with a business online is the same as engaging with it in person. When customers post feedback or posit a question online, they expect a response — even if all they had to say was, “the service was great.”

Here again, local businesses are struggling to see the digital corollaries, and they’re suffering as a result. According to our research, businesses that don’t respond to any reviews earn 9% less than average, while those that respond to just 20% of their reviews earn 33% more. I expect we’d see similar results if we analyzed businesses who provide good in-person customer service vs. those who don’t.

Recent reviews are the new word of mouth

Recent reviews elicit all the feels.

Word of mouth is still a force of nature for local businesses, but today it mostly happens online and consumers have extended their circle of trust. In fact, according to a study by BrightLocal, nearly 4 in 5 people trust online reviews as much as personal recommendations from friends and family.

Recent reviews are a particularly potent proxy for word of mouth. “Fresh” reviews send a clear signal that a business is popular, whereas a business that hasn’t been reviewed in a long time will appear stagnant. Naturally, people are more likely to choose the popular business — that’s the essence of word of mouth.

Our study validates that “popular” businesses do better financially, on average. Looking at all 210,000 businesses in our study, those with at least nine reviews in the past three months made 52% more than average, compared to 13% less for those with no recent reviews. Digging deeper, businesses with 25 new reviews during the same period saw a whopping 108% more revenue than average.

Given these findings, it’s not hard to see that online reviews have forever changed consumer behavior. And that’s a good thing, for both consumers and businesses. These changes have made it easier than ever for consumers to find, research, and choose a wide array of businesses near them. To capitalize, all local businesses have to do is give digital interactions with customers the same weight as the face-to-face ones.

Cory Capoccia

Written by

I’m the co-founder, president, and chief business development officer at Womply, a SaaS company serving over 450,000 small businesses.

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