The Effects of Tipping on Consumers' Satisfaction with Restaurants

Abstract

This paper contributes to the policy debate about whether or not tipping should be outlawed by identifying the potential pros and cons of tipping from a consumer perspective and assessing their net effects in a field study that compares restaurant customer satisfaction under tipping and no‐tipping systems. Recent changes in the restaurant chain Joe's Crab Shack's policies regarding tipping provided an opportunity to assess the effects of those changes on customer satisfaction. Analyses indicate that online ratings of the dining experience were reliably higher when the rated restaurants operated under a tipping system than when they operated under a no‐tipping, service‐inclusive pricing system. These findings provide an important counter‐argument to those calling for the abolition of restaurant tipping.

Restaurant tipping in Europe: a comparative assessment

“…Depending on national norm, there are three basic pricing systems in restaurants: (a) the tipping model, in which customers pay for the food itself, plus a gratuity of their choice that to a large degree makes up the server's income; (b) service charges or administrative fees charged in addition to the menu price, which may be highlighted in the menu, or be implicitly understood by customers; and (c) service-inclusive pricing, in which the cost of food and service are indicated in the menu, sometimes with a note that the service charge is already covered. The most common model in North America is the tipping model (Lynn, 2018), whilst in Europe, restaurants use service-inclusive pricing models, as minimum wages are legislated.…”

“…Tipping is a custom in many countries (Star, 1988;Lynn et al, 1993), and has, predominantly in Northern America, considerable importance for individual income levels as well as for sector-wide economic performance (Azar, 2011). A long-standing debate is whether tipping is preferable to service charges; this is an ongoing discussion in the USA, for example (Lynn, 2018). It has been argued that where minimum wages are low, this is likely to increase the propensity to tip, as customers will be aware of the relative importance of tips as an income source (Azar, 2007;Lynn, 2006).…”

“…Customer knowledge of poor labour conditions, it has been argued, will lead to more generous tips, as income inequality is considered a factor increasing gratuities (Azar, 2010). The size of tips is also influenced by food prices: Where the perceived cost of eating out is reduced as service charges are not included in menu prices, this is likely to increase the overall interest in restaurant visits, and hence the overall amount of money spent on food services (Lynn, 2018, Lynn & Wang, 2013). Yet, as service workers are unlikely to tax all of their gratuities, as originally postulated by Hemenway (1993), social welfare effects have to be measured in considering their complexity, such as the additional (untaxed) income effects vis-à-vis the cost of health or unemployment insurance losses, or foregone payments to pension funds.…”

“…Lynn, 2006). Authors have affirmed tipping's economic value and importance as additional income source (Azar, 2011), and as a means to increase service quality (Lynn, 2001), server loyalty to a specific restaurant (Lynn, 2002), or customer satisfaction (Lynn, 2018). The literature also discusses tipping's downsides in terms of reduced wages (Shy, 2015), tax evasion (Anderson & Bodvarsson, 2005;Schmidgall & Tarras, 1995), and as a source of inequality and harassment (e.g.…”

“…The estimate is that servers in US restaurants earn 58-61% of their earnings in tips (Wessels, 1997), and sometimes up to 100% of their discretionary income (Mansfield, 2016). This situation is fundamentally different in other parts of the world, where tipping is unknown, even frowned upon, or discouraged for reasons of income stability, to avoid inequality and harassment, tax evasion, or because the practice interferes with cultural norms or minimum wage considerations (Azar, 2011;Lynn, 2018).…”