eXampleCG Enabling Excellence Forum

When You Shouldn't Listen to Your Critics

by Duncan Simester

Six years ago two partners and I opened a small grab-and-go food business. The store was their idea, and it was a smart one: Nobody nearby was offering high-quality prepared meals. The business (which I won't name because my partners prefer to stay out of the spotlight) has done well. Many customers adore our food. But if you go online, you might think otherwise.

That's because of another business that took root around the same time: Yelp, a website that allows users to rate and review all kinds of service businesses, from restaurants to moving companies to churches. Yelp's business model, like those of TripAdvisor and IMDb, relies on user-generated reviews. And, as online retailers have learned, comments can have a big impact on customers' decisions. Think about it: How often do you check reviews before buying on Amazon?

For managers, this creates both an opportunity and a dilemma. In theory, customer feedback, whether positive or negative, is a good thing, because it allows a business to improve. In reality, it can be hard to figure out what kind of feedback is legitimate-and how responsive to be. In both my consulting work and my executive teaching, I'm asked about this issue frequently.

When we were getting started, my partners and I obsessed over Yelp reviews. It hurt when someone wrote, "If you have money to spare, I suppose you could do worse." We were tempted to rethink our model when one critic complained, "The prices are seriously whacked-$6 for...basically schmancy gas station food." We have plenty of good reviews, too, but even today our Yelp rating is just three out of five stars.

It's hard to ignore feedback, especially when it is so frank. But because the reviewers in social media are usually anonymous, it's hard to know whether they are representative. In 2009 we had a rare opportunity to meet some of them. That fall we attended an event where Yelp hosted several hundred "elite users"-the volunteers who write many of its reviews. As we handed out (free) food, I realized that these people looked nothing like our customers, who tend to be over 30 and professional. The Yelpers were mostly in their twenties. From my conversations that evening, I learned that most of them don't want to pay premium prices for premium food. Economically, that makes sense. They are apparently less affluent than our customers. They may have many motivations for writing free reviews, but they are likely to have ample spare time and to be highly price sensitive-factors that undoubtedly color their postings.

Of course, anonymity is not always the case. One catalog retailer I have worked with matches its online reviewers with their order histories. It, too, has found that they aren't representative of its customer base: They tend to make smaller purchases and to buy a higher proportion of sale and clearance items. The retailer still monitors online reviews and is quite responsive to complaints about product defects-but it doesn't worry much about price complaints.

If businesses all try to please the same segment of reviewers, they risk forgoing the differentiation that comes from targeting specific markets. As we've learned this lesson in our business, we've increased our investment in traditional focus groups to ensure that we respond to the needs of our core market. That doesn't mean we ignore online feedback-indeed, we even welcome it from one-shot customers, who may someday come to appreciate our premium niche. But when a reviewer says that the price of a $6 sandwich is "seriously whacked," I have a better understanding of what-and who-is behind it.

Duncan Simester is the NTU Professor of Management Science at MIT's Sloan School of Management.