The Spillover Value of Repeat Buyers: An Empirical Investigation of “Updated Reviews” on Yelp

Repeat buyers are increasingly critical for businesses to generate profits in the long run. To cultivate and retain repeat buyers, businesses have developed a series of strategies such as loyalty programs and advertising. While previous studies focus mostly on the direct value of repeat buyers, their spillover value to businesses (i.e., how repeat buyers affect other potential consumers) is seldom investigated, mainly because repeat buyers are hardly observable by others in offline settings. Thanks to digital footprints on review platforms, this challenge can be addressed in online settings. Leveraging a unique feature on Yelp, the Updated Reviews, we design a difference-in-difference-in-difference framework to empirically study the spillover effect of repeat buyers on two aspects of online word of mouth: review volume and review valence. Our findings suggest that repeat buyers significantly attract new reviews by 5.3% in volume, but their impact on review valence is not evident. Heterogeneity analysis suggests that the leading mechanism driving the boost in review volume is that repeat buyers serve as a quality signal. Finally, we provide actionable insights for both businesses and review platforms.