Oren Reshef, Washington University in St. Louis; Abhay Aneja, University of California, Berkeley, and Michael Luca, Johns Hopkins University

Labeling businesses as Black-owned can significantly boost their sales, we found in a recent study.

In June 2020, the business-review website Yelp introduced a feature allowing consumers to search for Black-owned restaurants. As professors who study digitization, inequality and the economics of technology, we were interested in understanding its effect. So we analyzed more than two years of data from Yelp.

We found that restaurants labeled as Black-owned saw a 65% increase in online traffic, more searches and calls, and higher sales through food orders and in-person visits. These results suggest that for many Black-owned businesses, a simple change in their visibility can create new opportunities for growth.

However, the impact varied by location. The gains were strongest in politically liberal areas and places with lower levels of implicit racial bias, as measured by regional variation in implicit-association test scores. This suggests that platforms are in part channeling, as opposed to creating, customer demand. Interestingly, white customers drove most of the increase, suggesting the label helped raise awareness of businesses they might not have considered before.

This wasn’t just a 2020 trend – in follow-up analyses, we found similar results among businesses that opted into the feature later. We also collaborated with the online furniture company Wayfair, which launched a “Black Maker” label on its site in 2023, and found that it led to a 57% increase in web traffic. Finally, Yelp rolled out a Latino-owned label on the platform late that year, which led to a similar increase in consumer engagement.

Why it matters

This research has implications for business owners, digital platforms and policymakers. Growing awareness of racial inequality – partially driven by the Black Lives Matter movement, especially after the murder of George Floyd in 2020 — has led to increased corporate and customer interest in supporting minority-owned businesses. It also led many companies to make commitments to promote racial equity.

However, more recently, many companies have dismantled these efforts. For instance, Target recently announced that it was eliminating its program to spotlight Black-owned businesses. Our findings suggest that increasing the visibility of minority ownership – a relatively low-cost change – can substantially improve economic outcomes for Black-owned businesses.

Our results also show that diversity initiatives aren’t just about warm and fuzzy feelings. Businesses should measure and evaluate their impact to ensure their programs are effective. A well-designed program can benefit the bottom line, while a poorly designed one risks being ineffective or even counterproductive.

So it’s important to acknowledge the potential risks. Past research, including some of our own, indicates that revealing racial identity sometimes can lead to discrimination or backlash. While our findings suggest that labeling can have positive effects, a poorly implemented policy can backfire. Yelp’s initiative design empowered users looking to support Black-owned businesses while allowing other users to continue searching in alternative ways.

That means policy design is crucial. What matters isn’t just what information is revealed, but also how it’s communicated. Our analysis shows that customer demand and preferences vary considerably across locations and demographics, meaning that context also matters.

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What still isn’t known

While our research suggests that businesses experienced economic benefits from adopting the label, it’s crucial to understand which policy designs work best in the long run. For instance, Yelp’s program used an opt-in feature, which may have contributed to its success.

However, open questions remain. How are platforms affected by labeling businesses? What other types of labels might be impactful, and for which types of businesses? Could some interventions backfire?

Another key question is, which customers respond to racial identity disclosures? Recent advances in data analytics can help companies refine their strategies, making it easier to target the right consumer groups for more effective initiatives.

Ultimately, our study is a step toward understanding how transparency and visibility can shape economic outcomes. It highlights a diversity initiative that has benefited both customers and businesses, and provides a road map for companies that want to design initiatives that matter. And, more broadly, it speaks to a question facing all companies: How can companies better understand and shape their societal footprint?

The Research Brief is a short take about interesting academic work.

Oren Reshef, Assistant Professor of Strategy and Entrepreneurship, Washington University in St. Louis; Abhay Aneja, Assistant Professor of Law, University of California, Berkeley, and Michael Luca, Director, Technology and Society Initiative, Carey Business School, Johns Hopkins University

This article is republished from The Conversation under a Creative Commons license. Read the original article.