Companies often invest in social media without knowing whether there is a measurable financial return.

A new study shows that a one-star increase on Yelp leads to a 5 percent to 9 percent increase in revenue, according to Harvard Business School Professor Michael Luca.

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He studied Yelp reviews and company revenues for every restaurant that operated in Seattle, Wash. at any point between 2003 and 2009.

But Yelp doesn’t work for all restaurants. Chain restaurants, which already spend heavily on branding, are unaffected by changes in their Yelp ratings. That suggests social media can be an effective alternative to advertising and other forms of promotion, for independent and smaller restaurants, especially.

Consumer reviews are fast becoming a substitute for traditional forms of reputation. Reviews affect revenue


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