Recent interest in replacing tipping with service charges or higher service-inclusive menu pricing prompted this review of empirical evidence on the advantages and disadvantages to restaurants of these different compensation systems.
The evidence indicates that these different pricing systems affect the attraction and retention of service workers, the satisfaction of customers with service, the actual and perceived costs of eating out, and the costs of hiring employees and doing business.
However, the author comes away from the data believing that the biggest reason for restaurateurs to replace tipping is that the practice takes revenue away from them in the form of lower prices and gives it to servers in the form of excessively high tip income.
The biggest reason for restaurateurs to keep tipping is that it allows them to reduce menu prices, which increases demand.
Thus, restaurateurs’ decisions to keep voluntary tipping or not should ultimately depend on the relative strengths of these benefits.
The more that a restaurant’s servers are overpaid relative to the back of house and the wealthier and less price-sensitive a restaurant’s customers are, the more the owner of that restaurant should consider abandoning tipping.
By this reasoning, many upscale, expensive restaurants (especially those in states with no or small tip credits) probably should replace tipping with one of its alternatives.
Read the full article here.
Michael Lynn, Ph.D., the Burton M. Sack ’61 Professor in Food and Beverage Management and editor of the Cornell Hospitality Quarterly, is a professor of consumer behavior and marketing at the Cornell University School of Hotel Administration. He received his PhD in social psychology from the Ohio State University in 1987, and has taught in the marketing departments of business and hospitality schools since 1988.
Lynn paid his way through school by waiting tables and bartending. This experience sparked his interest in service gratuities (tipping), a topic on which he has over 50 published academic papers. His other research focuses on consumer status and uniqueness seeking.
