Why does Five Guys have higher Yelp ratings than McDonald’s? Why do boutique hotels seem to outshine major chains? The answer might not be product quality but rather company size.
Our Journal of Marketing study finds that larger companies tend to receive lower online ratings, even when their offerings are just as good. Our research team analyzed word-of-mouth (WOM) data from Yelp, Amazon, Twitter, and Instagram across thousands of companies. We discovered a clear pattern: As company size increases, WOM valence decreases.
But why does this happen? Our research reveals that individual consumers are less likely to share positive experiences about large companies and more likely to share negatives. The key driver? Empathy. Consumers feel a stronger emotional connection with smaller businesses, leading them to support them through positive reviews. Conversely, they are less inclined to help large corporations in the same way, resulting in a lower volume of positive WOM for big brands.
Take the restaurant industry as an example. Our dataset shows that In-N-Out Burger (a smaller chain) has a 4.03-star rating, while Chick-fil-A (a larger chain) has a 3.36 rating. However, when we statistically adjust for size, Chick-fil-A’s predicted rating would be 4.06—indicating that its lower star rating is largely due to its size, not its product quality.
Why This Matters for Businesses
Many companies rely on WOM as a key performance indicator—tracking review scores, social media sentiment, and customer feedback. However, our research suggests that failing to account for company size can lead to misinterpretations. A larger company comparing itself to a smaller competitor might falsely conclude that it’s underperforming, when in reality the difference is driven by consumer empathy biases.
How Brands Can Overcome This Effect
Fortunately, companies can take strategic steps to combat the negative size effect on WOM. Our research finds that empathetic engagement—such as responding to reviews in a warm, personalized manner—can help counteract the bias.
Specifically:
- More emotional, personalized responses tend to generate higher WOM valence.
- Proactive engagement with customers creates a stronger emotional connection, increasing empathy.
- Acknowledging and addressing customer feedback openly helps reshape perceptions.
Large companies that adopt these strategies can significantly improve their online reputation and build deeper relationships with their customer base.
The Empathy Trap for Small Companies
If empathy benefits small businesses, do they risk losing their WOM advantage? We explore this by examining firms facing negative ESG (Environmental, Social, and Governance) issues, such as environmental harm or unfair labor practices. Our results show that when a company engages in behaviors that damage consumer trust, it loses its WOM advantage—regardless of size. This suggests that small brands can’t rely on their size alone; maintaining consumer empathy requires ethical and customer-focused business practices.
Lessons for Small and Large Firms
If you’re a large company, understand that lower WOM valence is not necessarily a reflection of inferior quality—it’s a function of consumer psychology. Adjust your expectations accordingly, and use personalized, empathetic responses to improve your reputation. For small businesses, recognize that positive WOM isn’t automatic. Consumer empathy can be lost if your brand’s actions erode trust.
Read the Full Study for Complete Details
Source: Jan Klostermann, Anne Mareike Flaswinkel, Chris Hydock, and Reinhold Decker, “The Effect of Company Size on Aggregate Word of Mouth Valence,” Journal of Marketing, 89 (5), 130–51.
Go to the Journal of Marketing
Jan Klostermann is Assistant Professor of Marketing, University of Cologne, Germany.
Anne Mareike Flaswinkel is a doctoral student, Bielefeld University, Germany.
Chris Hydock is Assistant Professor of Marketing, Tulane University, USA.
Reinhold Decker is Professor of Marketing, Bielefeld University, Germany.