From glowing reviews of a favorite dish to complaints about customer service, visitors to Yelp, the online review platform, look to the site when making decisions about where to dine or do business. “Real people” reviewers share their experiences and make recommendations. Daisy Dai, assistant professor of economics at Lehigh, wanted to know more about how advertising on Yelp, which in 2015 had about 163 million unique visitors monthly, affected businesses’ bottom lines.
Dai and fellow researcher Michael Luca, associate professor of business administration at Harvard Business School, conducted an experiment consisting of about 18,000 restaurants and 24 million advertising exposures. Free search advertising packages—in which ads appear alongside search results—were randomly assigned to 7,000 of the restaurants for a three-month period.
They focused on restaurants that had not actively advertised on Yelp prior to the experiment and monitored business-level outcomes including page views of the business’s Yelp page and measures designed to monitor customer intentions to visit the restaurants: requests for directions, phone calls to the restaurants from Yelp’s mobile page or mobile app, and clicks on the restaurants’ URL on their Yelp page. They examined the effect of advertising by comparing the outcome of businesses that did or did not receive free advertising.
“We found that Yelp advertising leads to a 25 percent increase in page views and a 9 to 18 percent increase in purchase intentions, such as direction requests, visits to the restaurant’s website and calls to the restaurant,” Dai said. The number of reviews also grew by 5 percent, suggesting advertising does affect the number of restaurant-goers. All effects dropped to zero immediately after the advertising period, suggesting ads temporarily raised awareness of businesses that users otherwise would not discover.
“A back-of-the-envelope calculation suggests that advertising leads to an 8 percent increase in revenue, and would produce a positive return, on average, for restaurants in our sample,” Dai said.
Previous research has found that return on search advertising can be limited for branded advertisers since consumers already know and intend to buy from the brand when they search, which is why Dai was interested in studying the impact on small businesses whose names are less known and who may gain from an increase in visibility. “Our study finds that an average local restaurant can benefit from search advertising on Yelp,” Dai said. “Unlike previous online advertising experiments that usually focus on a few big brands, we yield insights for small businesses.” The study was the largest-scale search advertising experiment run on online platforms in terms of number of businesses involved, she said.
Internet advertising has been the fastest-growing marketing channel in recent years, accounting for roughly $60 billion of spending in the United States alone in 2015. The rise of digital advertising has been dramatic—more than doubling over the past five years alone.
Paid search composes the largest share of online advertising expenditures.
Dai conducted the experiment while she was a visiting postdoctoral researcher employed by Yelp to provide on-site research. Yelp did not provide direct funding to the study. The authors’ compensation and ability to publish were not tied to the study’s results.
Why it Matters:
Study suggests paid search advertising can be a profitable investment for small businesses and demonstrates the potential of sponsored search to drive outcomes.