Tipping is a social pressure masquerading as a voluntary contribution. The services industry has a bizarre model of operation compared to any other industry. It has become a custom for customers to tip their servers (waiters, bartenders…) for the service they have provided. However, this custom must be examined closer.
Most of us have an innate feeling that tipping is alien to our way of consuming goods. In the services industry apart from any other we are given the opportunity to show our appreciation or displeasure with the service we have had; in direct monetary terms. This is unlike any other way of consuming. Imagine what that would be like in the health care industry.
Tipping is alien to our way of consumption.
Tipping is fundamentally a form of partitioned pricing that increases demand by affecting consumers’ perceptions of expensiveness, fairness, and quality. We pay a predetermined “fixed” rate for the good but then choose to pay another cost above that. When doing this we do not think of tipping “as part of the meal”; it is a meta-price. We have a common perception that drinks in bars where a tip system is in place are “superior” to others where it is not.
Service industries tend to have a tipping system in place as a business strategy because of the common idea consumers have of value. This perception of course is psychological. This is a common axiom in economics termed utility. Take for example; if you purchase a beer from a rum shop in Oistins you would expect the cost to be lower than if you purchase a beer from the bar at the Crane Resort. In traditional economic theory this occurrence would be deemed irrational: gleefully paying more for the same product when you can get it for less elsewhere; but this seems pretty normal to us.
For this reason Behavioural Economics establishes two types of utility: transaction utility and acquisition utility. Tipping is a form of transaction utility, which is a mental accounting matter. As such, it must be realised that tipping is more of a mask of value than a way to test value. Thus, it does not serve a great purpose in this regard.
Tipping is more of a mask of value than a way to test value.
Many have hailed tipping as the correction of a market failure: motivation for workers in the service industry. Working as a bartender or waiter is not usually very interesting (certainly not consistently interesting). The perfect answer to stimulate this market is to have tipping: serve us better or else! People believe that tipping is a motivator for better service; if you give better service you will get a good tip. This is far from the truth. Studies have shown (with full data on display) that the level of tip a person receives is more related to their gender; attractiveness; race, and so on.
In a quantitative review of 14 studies involving 2,645 dinning parties from 21 different restaurants, researchers found that the average correlation between tip percentages and service rating was only 0.11. In other words, service rating on average was of less than 2% of the variation in the restaurant’s tip percentage. Tipping does not increase service levels. If it did, we should be tipping our lecturers.
Tipping however is an interesting business strategy of pricing. It should be clear that pricing affects consumer behaviour through its effects on perceived cost and quality. The consumer then has a different mind-set of what the fair value of their good is.
There is no moral obligation to tip. We do not tip because we think “this is something we should do.” We tip because it is in the social fabric and we are forced into it. When service industry workers are shocked at the number of “bad tippers” they come across in their jobs I am worried that they (the servers) believe people have a moral obligation to tip them. There is no such obligation.
A further cry from the service industry workers is this: “we work hard but receive low wages nevertheless, so you should tip us for our services.” No. Though tipping for that reason may be laudable it is futile. How about we have a serious discussion about wage laws in the country and stop trying to push trivial “corrections”.