What do business ratings and reviews actually mean?

Posted in Business and entrepreneurship.

Public ratings and reviews, most given online these days, are important for a growing business. They serve to provide valuable feedback that you can use to improve your business operations and they also serve as marketing for the business. Buyers that conduct research about your business will usually be met with ratings and reviews as their first impressions. Unfortunately, the mechanics of online public reviews can sometimes lead to weird results.
While only a relative minority of your buyers will ever leave a public review, their reviews can still inform the purchasing decisions of your other buyers. A larger collection of your buyers are more comfortable leaving just a public rating. This rating can hold a lot of weight, however.

A study found that 74% of buyers reported trusting a local business more when it had favourable ratings and 63% of buyers only trust businesses with an overall average of between 4 to 4.7 stars out of 5. In that same study, 87% of buyers reported that they wouldn’t buy from a business with less than 3 stars. The thing is, average ratings aren’t necessarily an indication of the kind of experience that an average buyer will have.

Ratings are subjective and biased

A rating of 3 out of 5 stars (or the equivalent) should indicate an “average” review. After all, it is neither exceptional nor downright terrible. It’s mediocre. This is not the case when people rate. On a 5-star scale, adequate service is defaulted to 4 stars. On a 10-star scale, 7 is average service. Many buyers would default to 5 stars as just an adequate service. A maximal ranking is no longer about exceptional service, but rather “service as expected”. This leads to ratings being scaled towards higher numbers. Uber is a great example of this where riders are often encouraged to rate their drivers as 5 stars and often default to 5 stars when not encouraged. The advantage of this is that really bad average ratings stand out, but are often rare.

Negative ratings are similar to positive ratings in that the distribution is pulled to the extremes. A 1-star rating is more likely than a 2-star rating. The reason is that only those who are motivated enough give their opinions. The strongest motivators are exceptionally good and exceptionally bad experiences. Only those who have a really bad experience are motivated enough to rate and that rating is more likely to be 1 star rather than 2 stars.
Due to the skewed ratings of adequate service and terrible service, you will often find a J-shaped curve when looking at the distribution of your ratings. The far-lower end of the ratings will have a sizable number of ratings while the middle ratings have the lowest. The higher ratings will have the biggest distribution of ratings. This J-shaped curve is reminiscent of the Nike logo.

Since most ratings will either be very negative or very positive, a business with a median rating can either be a business with mediocre service, a business with inconsistent service, or a business with really good service but many detractors. Ratings alone cannot tell us which one it is. Furthermore, ratings don’t allow us to separate the good from the great. Ratings can only accurately score really bad businesses.

Reviews put ratings into context

Ratings are subjective. What is an 8 out 10 for you may be a 6 out of 10 for me even if we both have the same opinion about a business. The only thing that is different is our perception of ratings. That is where reviews can be really helpful.

Reviews can put things into context. If there is a suspicious average rating, reviews can help us determine if the rating makes sense or not. If the majority of reviewers report mediocre service, we can deduce that a business is alright but not great. If there are an equal amount of positive and negative reviews, we can possibly deduce that a business may be a “hit or miss”.

At times, a detailed review can offer insightful information, but a majority of buyers that sift through short reviews will stop after reading one detailed review. A proposed reason is that a detailed review is often seen as being written by someone level-headed and thus trustworthy and unbiased.

Ratings and reviews do not have straightforward effects

Evidently, reviews and ratings can be tricky, but they do offer a great resource for buyers to determine which business to buy from. The effect of reviews are more pronounced in smaller businesses than larger ones, but this is also industry dependent. It generally depends on the industry standards. For example, restaurant ratings and reviews are interpreted differently from video game ratings and reviews.

It can be easy to think that higher ratings automatically equate to more buyers and that the inverse is true for lower ratings. However, studies have shown that reviews and ratings that are overly positive tend to draw suspicion from buyers. This is the reason why 4 to 4.7 stars out of 5 are seen as favourable. Any higher tends to draw suspicion, especially when there is a lack of negative reviews and ratings.

Of course, this is industry specific. Having “too high” of a rating isn’t really a problem for Uber drivers, for example. Nevertheless, if you are hosting your own reviews and ratings, showcasing some negative reviews and ratings are beneficial in creating a sense of authenticity.

Reviews would appear to be the most influential feedback that other buyers take note of, but oftentimes reviews are not specific. They do not individually critique each individual aspect of their experience. If delivery times were bad, but the product itself is phenomenal, most reviews will only mention that which left the biggest impression. Thus, if you would have attracted buyers that don’t care about something that others found negative, they are still deterred by the negative reviews and ratings.