How Groupon's Ripple Effect on Yelp and Facebook Can Hurt Your Reputation
Groupon (GRPN) can lower a business's reputation on Yelp despite generating an increase in Facebook Likes, according to a study by researchers at Boston and Harvard universities. A second study, by Harvard Business School, suggests that if a business increases its rating on Yelp by one star that can translate into a revenue increase of up to 9 percent.
The two studies are unrelated so it's unfair to smush them together to create a joint conclusion. Nonetheless, it's tempting to suggest that running a Groupon can hurt your reputation on Yelp, and that a lowered Yelp rating could hurt your revenues in the future.
The first study shows that there is a correlation between the size of a Groupon deal and the number of Likes it generates on Facebook (click to enlarge):
So far, so good. Generating a mass thumbs up on the social network can only be a good thing, right? But then something really odd happens. The Groupon causes a spike in users who review those businesses on Yelp, and their ratings are on average 10.2 percent lower, or half a Yelp star lower, than the ratings the business got previously:
It's not a small number of reviewers dragging down the Yelp rating either, the study says:
We found that the average percentage increase in reviews across all merchants who had received at least one review in the three months prior to the Groupon offer is 44%. Meanwhile, the average month-over-month growth in number of reviews for deals prior to their Groupon offers is about 5%. Similarly, the average percentage increase in reviews the month after the Groupon offer is 84%.The second study suggests Yelp stars and restaurant revenues are correlated:
... a one-star increase in Yelp rating leads to a 5-9 percent increase in revenue.Author Michael Lucas says that the Yelp effect on revenues is restricted to independent eateries. Chain restaurants are apparently unaffected by Yelp reviews because their food is so standardized that their customer base doesn't care what other reviewers think. It is independent restaurants, who do not have TV ad campaigns to help them, that are Groupon's sweet spot.
Worryingly for Groupon, these data dovetail with earlier, more anecdotal information that running a Groupon can harm a merchant more than it helps because it attracts one-off penny pinchers more than it creates regulars.
These are average numbers, of course, and all Groupons are different. But it all goes to suggest that merchants should think very carefully about how their Groupons are constructed before signing up to run one.