Have you been asked to tip in new situations? How do you handle it? I couldn’t believe it when the fast food restaurant asked for a tip. These two all Street Journal articles and video have even crazier asks–but also some explanation. Tipping is a form of price.
The first article, “Why Businesses Can’t Stop Asking for Tips,” explains a bit of how we (in the U.S. as tipping is not so common abroad) became a tipping culture. The practice of tipping, traditionally associated with restaurants and bars, has now expanded to other service sectors such as juice shops and appliance-repair firms. This shift is attributed to businesses trying to balance retaining employees in a fiercely competitive job market with the need to keep prices low. By encouraging tipping, these companies can supplement worker income without officially raising wages. However, this increased reliance on tips has raised concerns. While some view tipping as providing wage flexibility in uncertain economic times, critics argue that it results in volatile incomes for employees and unfairly shifts the burden of proper compensation onto consumers.
The pandemic played a significant role in this trend, with many customers tipping frontline workers as a gesture of appreciation for their services during such challenging times. But as the tipping culture continues to grow, it’s met with mixed feelings. A recent survey found that 41% of respondents believe businesses should directly pay employees better rather than depend on tips. This sentiment emphasizes the broader debate on whether the responsibility for employee wages should rest with employers or be shared with customers.
The second article, “Demands for Tips Are Up. Actual Tipping, Not So Much.” describes how prompts encouraging customers to tip are becoming increasingly prevalent, subtly raising costs across a range of services. However, the trend of requesting tips might be more about visibility than actual revenue. Data suggests that despite these prompts, most customers aren’t tipping any more than they used to. According to a YouGov survey, the majority of Americans tip only at restaurants and when visiting hairdressers or barbers. The scarcity of reliable data on tipping patterns adds to the ambiguity, as governmental categorizations place tips in a nebulous space between compensation and charity. In trying to understand the motives behind tipping, studies suggest that gratitude and social pressures are key drivers. This dynamic can lead to “tipping wars” in certain sectors, where norms can shift rapidly, either embracing or abolishing tipping practices altogether.
These ideas are also covered in this WSJ video.
How these articles and video can be used in your marketing class
Once again, ChatGPT offered some good (and bad, but I edit those out) ideas for using these articles and this video in your class.
- Consumer Behavior & Expectations: (Chapter 5)
- Discuss how tipping has become a part of the American consumer’s expectation and how it influences purchasing decisions.
- Explore the psychological aspects of tipping: Do customers feel obligated? Does the opportunity or expectation to tip affect their overall service experience?
- Pricing Strategies: (Chapters 17 and 18)
- Analyze how the indirect addition of tips might affect a company’s pricing strategy.
- Discuss the potential long-term implications for businesses that rely on tips to supplement wages, especially when competitors might adopt different strategies.
- Branding and Image: (Chapter 8)
- How does a company’s reliance on tips reflect on its brand image? Does it give an impression of being customer-centric, employee-friendly, or perhaps the opposite?
- What messages are businesses sending when they emphasize tipping?
- Service Quality and Employee Motivation: (Chapter 9)
- Explore the relationship between tipping and service quality. How does the prospect of earning tips motivate employees?
- Discuss other potential methods businesses could use to motivate employees and ensure high service quality without relying on tips.
- Discussion & Debate:
- Organize debates on topics like “Should businesses include service charges instead of tips?” or “Are tips a genuine reflection of service quality or just a societal obligation?”
Many of our students work in places where tipping is common. By integrating these articles into classroom activities, you can provide your students with a real-world understanding of the intricacies of marketing strategies and the multifaceted challenges businesses face.