BUSINESS

Study Finds Bad Yelp Review Is Death Knell For New Business

A new study theorizes that a bad Yelp review could amount to "a condemnation to death"

Aug 06, 2015 at 2:05 PM ET

study from Cornell University in New York has confirmed a small business owner’s worst fear—an early bad review on Yelp “is a condemnation to death.”

Yelp’s second-quarter losses of $1.3m and the resignation of its chairman Max Levchin last month gave naysayers fresh material to bash the start-up’s utility, but the study found that potential customers consider Yelp an objective way of making decisions about where to consume.

The study said customers use two factors to decide whether or not to try out a business: their own gut feeling, and the impression they get from other sources, called the objective factor. Authors Oussama Fadil and Jake Soloff said customers often treat a business’ overall Yelp rating as an objective factor, despite the fact that each individual review is subjective. This means that for a young business, or one which does not have many Yelp reviews, a particularly harsh review can overwhelmingly skew the overall rating and turn off other potential customers.

“A user’s action is affected by the actions of all the users who have tried the business in the past,” the authors said in their study, Cascades & Rating Games. “Thus at its early stages, a business is at the mercy of the subjectivity of its customers. In theory, some businesses could die simply because they were first approached by the wrong customers; others could be overrated by similar mechanisms.”

However, the study, which used mathematical analysis and simulations and did not survey actual businesses and their Yelp reviews, found these reviews are rarely a fair representation of the true quality of a business because some customers’ gut feelings are completely wrong. “When customers are very uncertain with regards to their preferences, they tend to purchase products or services that they do not like and leave bad reviews. On the other hand, accurate gut feelings tend to advantage medium-quality businesses.”

Fadil and Soloff concluded that no matter how bad a business or product, it could still be appreciated by a fraction of the population.