Incentives and service quality in the restaurant industry: the tipping–service puzzle

Abstract

Tipping is a significant economic activity (tips in the US food industry alone amount to about $42 billion annually) that was claimed to improve service quality and increase economic efficiency, because it gives incentives to provide excellent service, and therefore allows to avoid costly monitoring of workers. The article suggests that this common wisdom might be wrong. A simple model shows formally that tips can improve service only if they are sensitive enough to service quality. Empirical evidence suggests that tips are hardly affected by service quality. Nevertheless, rankings of service quality by customers are very high; the co-existence of these two findings is denoted "the tipping -service puzzle," and several possible explanations for it are offered. Keywords: tipping, service quality, social norms, waiters, restaurants, the hospitality industry.

Factors Affecting Restaurant Consumers' Tipping Behavior

“…That is to say, that better service should increase tip amounts. Past studies have shown that it does (Azar, 2009). Our study was able to replicate the service-tipping relationship.…”

“…In many cultures around the world, customers voluntarily leave tips for the workers that have served them. In the United States and Canada alone, tips in the restaurant industry amount to almost 40 billion dollars every year (Azar, 2009). Furthermore, tips affect millions of server's pay level and can often account for a large majority of servers' paycheck (Wessels, 1997).…”

Individual differences in self-attributed motives for tipping: Antecedents, consequences, and implications

“…Among those workers commonly tipped are bartenders, casino croupiers, concierges, delivery drivers, doormen, exotic dancers, hair cutters, musicians, parking valets, porters, taxicab drivers, tour guides, and waiters/waitresses (Star, 1988). Although the amounts given by a single customer to any one worker are typically modest, the total amount tipped to all workers is substantial with one estimate placing annual tips in the United States and Canada alone at over $40 billion (Azar, 2008). Tipping is a worthwhile topic of study because it is both theoretically interesting and practically important.…”

Business strategy and the social norm of tipping

“…More specifically, tips can create an incentive for tipped workers to exert more effort and improve service quality only if tips are sensitive to service quality (Azar, 2009). Whether service quality affects tips depends on why the customer tips and whether he is a repeating customer or not.…”