Managing online Reputation - how do negative reviews affect businesses?

I regularly deal with unhappy clients that have received negative online reviews.  Most websites will allow reviews to be flagged for a determinate period of time, while the reviewers claims are investigated.  If a resolution is made between the business and the reviewer where either the reviewer is compensated for their experience or business owner is vindicated, say, due to hellish attitudes of prior management staff, the reviewer should be invited to leave a second review.  In any case, the website should allow the business to respond to a review, good or bad.  Back and forth communication makes content 'sticky', engages visitors and shows the web community that not only businesses do care about their overall image on the Internet, they are also ready to take necessary steps to rectify misconceptions/misrepresentations as well as own-up to poor/lower-than-average levels of service.

It's important to note that bad reviews that have responses against them builds online credibility.  While there is research (i'll post as soon as i find it...) that concludes positive correlation between number of reviews and click-thru rates, there is also research done on 100% positive reviews vs. <100% positive reviews - apparently it helps to have a few negative comments because it supposedly shows business is unafraid to be candid about their shortcomings.  I'll get this research article as well and post when I can.

 My advice to panicking clients is to first calm down, take a deep breath and read and re-read the bad review.  If they feel the bad review will affect them negatively, then to mark it as inappropriate while the webmaster / moderators attempt to contact the reviewer.  If the complaints are true, then come to an agreement to resolve the matter - i.e. public apology and compensation in some form, free product/service on their next purchase, gift voucher, etc.  If client is convinced complaints are baseless, I work with them to create a professional response along the following lines:

"Thank you for your comment.  Comments, postive or negative, are very important to our business.  It is unfortunate that you have experienced [this level of service from our staff member /  this llack of functionality from our product].  We take pride on our [service / product] and believe your experience is an exception to the rule.  We would like to discuss the matter further to understand how we can re-instate your confidence in us.  My name is [don't be afraid to use your real name and direct contact number, would be better if it comes from someone in management level like a supervisor or customer relationship manager]."

Everybody hates their complaints going on deaf ears, and the beauty of online forums, directories, etc. is that comments are NOT going to be deleted just because they are negative (perhaps if they are slanderous and derogatory, but that's another story), so SMEs, you must wake up and smell the coffee and re-engage.  Webmasters, understand this desire for SMEs to re-engage with customers, and give them time to find resolution by allowing them to flag comments/reviews pending investigation - always remind them negative comments are NOT going to be deleted.  And finally, reviewers, ALLOW yourself to be re-engaged because you never know what you might be walking away with :)

Check googleblogs post on online reputation management:
http://googleblog.blogspot.com/2009/10/managing-your-reputation-through-search.html