Yelp’s Growing Pains

Increasingly, the face of local advertising is blurring among the various media types and channels. For example, is mobile local? Is social local? The answer is “yes” to both questions. While the Internet has shaped how consumers research purchase options, the vast majority of purchases are made offline locally. So, local is baked into just about any media type.

Bridging the gap between online research and online purchase is increasingly the challenge that local and national marketers must overcome to prosper in today’s world. As promised in last month’s column, let’s continue the discussion on how social media can help local marketers.

First off, “social media” is a bit of a misnomer. Social goes way beyond a discussion of media. In fact, most media/advertising is intrusive to social communications. Social, at its heart, is about community and a dialogue involving friends, family, topics of common interest, and in its business form, colleagues. It’s not about advertising. How would you like your Easter dinner host to play a :15 spot on Hormel hams just before you dig into the meal? Instead, what ensues in social communication is trading information on good and bad experiences that form the basis of every marketer’s dreams – a positive referral.

According to research by Nielsen, peer recommendations are the number one trusted channel. In local communications, ratings and reviews are the digital form of peer referrals. Social takes this to a new level. Today, I can see where my friends and associates eat via Foursquare, or go see a movie that has been recommended via Facebook, etc., etc.

Yelp is one of the best examples of how local and social are merging. Interestingly, Yelp has come under scrutiny as angry merchants accuse the company of engaging in disingenuous business practices. In February, Yelp found itself saddled with a lawsuit, which claims that Yelp extorts businesses by offering to remove negative reviews in exchange for advertising dollars – an accusation that Yelp contends is untrue. In March, ClickZ reported some of the ongoing legal turmoil. And just this past week, Yelp announced it’s changing the way it posts reviews.

Instead of delving into the legal issues surrounding the lawsuits, I thought it would be interesting to use social tools to see if the recent turmoil is having an impact on Yelp’s user reputation/sentiment and usage.

Here are some results from two free sentiment analysis tools:

RankSpeed (beta) (April 2, 2010: 8 a.m. CST)

Social Mention (April 2, 2010, 8:02 a.m. CST)

You can see that sentiment isn’t overwhelmingly positive or overtly negative. In general, the marketplace appears to be indifferent to the current controversy – only 4.5 percent of total mentions in the last 30 days have even mentioned Yelp’s lawsuit.

None of this should be surprising. Yelp’s on-site experience is designed to foster trust in content among Yelp users, not businesses. If you ask local merchants whether they like ratings and reviews, the answer will probably be “No.” Why? Because they can’t control what consumers are saying about them.

Importance of Ratings and Reviews

Consumer usage of ratings and reviews continues to increase. It’s interesting that 27 percent of those surveyed said they used ratings and reviews and 57 percent said they were important when selecting businesses, according to the 2009 TMP Directional marketing/comScore Local Search Study. In my estimation, this signals that usage will increase dramatically to close this gap, as more sources of user-generated content – in the form of ratings and reviews – become available.

This means the fate of Yelp’s brand is in the hands of users. This is proven by Yelp usage numbers. As you can see below, if anything, Yelp has shown user growth during this period.

Web 2.0’s function is meant to facilitate information sharing, user-generated content, and collaboration between users, among other things. This fundamentally shifts who controls messages. The Yelp platform reinforces this paradigm.

So, what’s the moral of the story? User-generated content in the form of ratings and reviews is here to stay. Consumers seek and desire unbiased recommendations to help them sort out local purchase decisions. The prudent idea for marketers is to look at your reviews – both positive and negative – as an opportunity to build relationships. Use some of the social monitoring tools displayed above to understand what is being “said” and then begin a process of communicating with your customers to encourage more positive information and address customer service issues by rectifying the negative comments. If you are looking for additional tactics to engage in the social dialogue locally, here are some ideas.

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