Why Local Businesses Lag in Benefitting from Online Feedback?

Last week, I came across an interesting post on Greg Sterling's Screenwerk blog about how online feedback is influencing consumer purchasing decisions. The survey and analysis conducted by Opinion Research Corporation concluded that  84 percent of Americans used online customer evaluations in making decision to purchase a product or service. Here's the breakdown on the types of products and services that were surveyed and reported.

While it is clear that travel and consumer electronic goods have reached some level of saturation, the most interesting aspect is that all "local services"  continue to trend up and still lag behind. Contrast this with the fact that, in the pre-online reviews era, local services were the most influenced category through word-of-mouth. I have often believed that information about local services are significantly skewed since they are hard to track. I also believe that numbers would be significantly lower if all the local categories were tallied. However, the following 3 aspects could explain the growth and adoption pattern in local services:

Fragmented Recommendations - There are more than 20 million small businesses and only a small percentage of them have online reviews. It is likely that people would look for different level of trust and authority on recommendations depending on the type of service. One may want a recommendation from a close friend/confidant for a wedding planner while they could easily take a recommendation from an anonymous online reviewer for a dining occasion. Also, if you are traveling for business/leisure and need a good local business recommendation there, you may not get a recommendation from a trusted source. Twitter, Facebook and LinkedIn are definitely helping in eliminating the geography-based limitations but coverage-gap still remains a huge issue. The following picture illustrates the coverage vs. trust conflict in fragmented local business domain.

Review sites such as Yelp, Citysearch have played a huge role in generating reviews that could expand coverage but still their content generation prowess has been limited to major metropolitan areas and is very time & resource consuming. The slow but increasing growth in Opinion Research Corporation's survey may be directly a result of the penetration of such review sources. Review & recommendation aggregators may also be contributing the growth.

Convergence of Opinion (or lack thereof) - Reviews about consumer electronics tend to converge very quickly. For many gadgets, it comes down to product specs and price/performance comparison with others in the category. The early reviewers influence other buyers and ratings quickly reach a settling state. On the other hand, local products & services are very "touchy/feely" and experience tends to differ from person to person. Even a business with 50 reviews may not offer sufficient insight and trust for a prospective buyer to make a decision. This adds to the inability to make a purchasing decision about a local product/service.

Buried Reviews (sort of) - Despite being highly fragmented, local products are services are still the most discussed category amongst consumers. Whether in newsgroups, informal conversations, tweets or blogs, they still dominate the discussion in our daily lives. Many small businesses are rarely online. They may have a website, but between their operational challenges and limited budget, they find it extremely hard to build their real online presence.  The online reputation of a small business is essential to influencing and attracting new customers.  Small businesses need to work on moving the informal discussions in newsgroups, tweets, blogs and other online forums to formal review mechanisms, so they can be tracked and used as influencers in a consumer decision process.

Comments

[Mark Johnson]

Great post (and thanks for the link to Greg Sterling's piece). When I originally read the title, I thought you were talking about why local businesses lag in *using* the feedback from online reviews, instead of just complaining. That's a post for another day. . . wrt to this post, I think that's why BooRah and companies like Uptake will be successful: it's just impossible to sift through the varied opinions for a restaurant with 100+ reviews and get anything reasonable.

I find it fascinating that travel has such immense coverage. Surely more people eat out than go to hotels. What is it that makes so many people review on TripAdvisor vs. on Yelp? Demographics? Price vs. value? Hmmm.

[Nagaraju Bandaru]

Mark - thanks. Yeah, I spent a bit of time on the title - found it pretty hard to hit the bulls eye. I think demographics, longevity and brand are factors in review writing and adoption - not sure about the ratio though! Re: value, I think it starts out pretty high when companies cater personal attention but I'm myself curious what happens when that "infatuation" dies down