استراتژی کسب و کار و هنجار های اجتماعی از اوج

Tipping is an important economic phenomenon, involving about $47 billion a year in the US food industry alone, and trillions of dollars across different occupations and countries over the years. Moreover, tipping is a major source of income for millions of workers. This article discusses the implications of tipping for business strategy in the relevant industries. For example, firms can choose to impose a compulsory service charge in lieu of tipping – what are the advantages and disadvantages of doing so? How does tipping change the profit-maximizing level of investing in screening job applicants, training workers, monitoring them, and providing performance-based incentives by the firm? Can industries such as the music industry use tips (i.e., prices being voluntary and determined by the customers) as an alternative business model?

Social norms sometimes demonstrate how psychological motivations may affect economic behavior. One of the best examples is the social norm of tipping. Tipping has been examined by researchers in many studies, but the economic and managerial aspects of it have received relatively little attention, and are important issues that call for additional research. The purpose of this article is to review the economic and practical implications of tipping for management and business strategy, with the hope of encouraging others to contribute to this growing research area. Reviews of the tipping literature that discuss additional issues that are beyond the focus of this article include Lynn and McCall, 2000a, Lynn and McCall, 2000b, Lynn, 2006a, Lynn, 2006b and Azar, 2007b. 1.1. The economic magnitude of tipping One reason for the importance of tipping in general and as a research topic in particular is its large economic magnitude. The extent of tipping should be estimated, because tips are often unreported to the tax authorities; Hemenway (1993), for example, mentions that the only income with a lower compliance rate than tipping is illegal income. Fortunately, we can estimate the extent of tipping reasonably well at least in the US restaurant industry. The 2010 Statistical Abstract of the United States suggests that in 2009 (based on a projection) sales of food and alcoholic beverages to consumers amounted to $564 billion. However, tipping is not a strong social norm in all eating places. Therefore, to be conservative, let us consider only part of this amount, as follows. Sales in full-service restaurants were $182.9 billion; in snack and nonalcoholic beverage bars – $19.9 billion; in bars and taverns – $17.1 billion; and in lodging places – $28.0 billion (US Census Bureau, 2010, Table 1247). The sum of these numbers is $247.9 billion. Now the question is what is the average tip in percentage of the bill. Research on US tipping in restaurants reports an average tip of 23.2% (Parrett, 2003, Table 14). However, it may be the case that larger bills are tipped on average a smaller percentage, so to be conservative let us consider instead the average tip amount in that study, which was $6.52, and the average bill size, which was $34.67. The ratio between the two numbers, which is 0.188 (or 18.8%), is the weighted average tip (weighted by the bill size), as opposed to the simple average tip of 23.2% mentioned above. The product of 18.8% and $247.9 billion gives us an estimate for annual tipping in the US food industry, $46.6 billion. Moreover, tipping is common in other industries as well. Lynn, Zinkhan, and Harris (1993), for example, examine 33 tipped service professions. Tipping is also common in many countries in addition to the US, to the extent that there are even books about tipping practices in different countries (e.g., Star, 1988) and travel guide books often mention the tipping practices in the destination country. Finally, tipping is not a very new phenomenon. Azar (2004b) reports that tipping in Europe started hundreds of years ago, and significant tipping exists in the US for over a century. He mentions for example that “Towards the end of the 1890s, tipping was established in the United States, involving many workers and large amounts of money. During the early 1910s it was estimated that five million workers in the United States, more than 10% of the labor force, had tip-taking occupations. Tips were estimated to total $200–$500 million each year.” Adjusting for CPI the amount of $200–$500 million gives a result of $4.4–$11.1 billion in today’s prices.1 To correctly interpret this number, remember that the US population in 1910 is estimated to be about 92 million, whereas in 2009 it is estimated at about 308 million.2 The above suggests that over the years (in today’s prices) and across different occupations and countries tips totaled to trillions of dollars. In addition, tipping has a large impact on many people. Millions of US workers, for example, derive most of their income from tips. Wessels (1997) reports that in the US, the primary occupation of more than two million workers is being servers (in addition to many others who are servers in their secondary occupation). He adds that servers in full-course restaurants earn 58% of their income from tips and those in counters earn 61% of their earnings in tips, and these figures are underestimations because tip income is often underreported. Many others, such as taxi drivers, also obtain much of their income from tips. Post (1997, p. 538), for example, suggests that “In general, a tip to a taxi driver is about 20 percent of the fare.” If the price of a ride is P (before the tip) and the costs of the driver (fuel, depreciation, payment to the taxi company, etc.) are equal to C, then a 20% tip represents 0.2P/(1.2P − C) of the net income of the driver before tax, which is a number between 16.7% and 100% for 0 ⩽ C ⩽ P. If the driver does not report tip income for tax purposes, then with respect to his net income after tax, the tip income will constitute even more than 0.2P/(1.2P − C) of the total net income. 1.2. Implications of tipping for other behaviors Tipping is also interesting because it is puzzling from the perspective of traditional economic models. The usual assumption in economics is that people are selfish and they maximize utility subject to a budget constraint by consuming the goods and services that give them the highest utility. This assumption implies that consumers should not give up money unless they receive goods or services in return. When people tip, however, the service has already been provided and therefore the tip can no longer affect service quality. The consumer may still tip if he believes that this can improve the service he will receive in the future. Many people, however, tip also when they travel and do not intend to return to the same establishment again, and therefore future service considerations cannot be the reason for their tipping. It follows that tipping is a voluntary payment that is not motivated solely by future service considerations, so why do people tip? This is the question that several articles in the tipping literature try to answer (e.g., Azar, 2010 and Lynn and Grassman, 1990). Azar (2010) suggests that the two main reasons for tipping in restaurants in the US and Israel are that tipping is a social norm and that customers can use tipping to show their gratitude for the service they received. Additional important motivations for tipping that Azar mentions are that people know that waiters receive low wages and depend on tips, and that people report feeling guilty and embarrassed if they do not tip. Thus, tipping is motivated by several psychological and social considerations. Research on tipping may allow us to better understand the role of such psychological and social motivations not only in tipping behavior but also in other contexts. For example, giving donations and gift giving result at least partially from psychological and social motivations such as generosity, altruism, reciprocity, inequality aversion, and a desire to follow social norms. Similar motivations encourage people to tip, and hence research on the reasons for tipping might also shed some more light on the behaviors of donating and gift giving. Indeed, some models can be applied to understand both gift giving and tipping (Ruffle, 1999). Moreover, certain characteristics of charitable giving have equivalents in tipping. For example, Gneezy, Gneezy, Nelson, and Brown (2010) conducted a field experiment in which subjects either paid a fixed price, or paid what they wanted, for souvenir photos. Half the customers encountered a treatment in which half the revenue went to charity. At the fixed price the charitable giving only slightly increased demand, whereas in the pay-what-you-want treatment, the impact of the charity giving treatment on demand was much higher. This suggests that people have a stronger desire to give to charitable giving when they have more control over that giving. This is similar to the finding from research on tipping that shows that people prefer tipping over compulsory service charges, even when the service charge percentage is lower than what they voluntarily tip (Azar, 2010). Another connection of tipping to other psychologically motivated behaviors is offered by Ruffle (1998), who finds a behavior that resembles tipping in dictator and ultimatum games. Tipping is also related to the gift-exchange behavior that was documented in many studies (e.g., Akerlof, 1982 and Fehr et al., 1998), because in tipping, similar to the gift-exchange context, one side gives a benefit to the other side (the waiter providing good service) and is rewarded for that (with a tip). Obviously, psychological and social motivations have a large role also in explaining the behavior of workers, managers, consumers, etc., and thus certain aspects in tipping behavior are related to behaviors in various situations that are relevant for management (in addition to the direct implications of tipping on management in tipped industries). Donations, for example, are an important issue for various non-for-profit organizations and institutions (e.g., universities), and gift-exchange behavior is an important issue in labor markets (Akerlof, 1982 and Fehr et al., 1998) and therefore of interest to managers. The advantage of tipping as a research topic is that it is a relatively simple context and therefore it allows for interventions that may be difficult to do in complex settings such as the workplace. For example, a tipping experiment can involve asking the waiter to touch the customer (Crusco and Wetzel, 1984, Hornik, 1992, Lynn et al., 1998 and Stephen and Zweigenhaft, 1986), introduce himself by name (Garrity & Degelman, 1990), or draw on the bill a happy face (Rind & Bordia, 1996) or a sun (Gueguen & Legoherel, 2000), and examine how these behaviors affect tipping. The results can teach us something about how one’s mood or closeness to another person affect generosity or reciprocity, and some conclusions may be more general and apply also to non-tipping contexts. It is much harder to design similar interventions in the workplace, for example, where one knows his co-workers for years. Similarly, we can examine how the gender of the customer and of the server affect tipping, or how the physical appearance and attractiveness of the server affect tipping (Lynn, 2009), and some of the insights are likely to be relevant also in other contexts. By examining the differences in tipping behavior between repeating and non-repeating customers (Azar, 2007a and Azar, 2008) we can tell if people act strategically (tip today in a manner that will give the server incentives to provide better service in the future), which may teach us something about behavior more generally. Comparing tipping behavior in tables of one diner, two diners and six diners may provide insights about diffusion of responsibility or the desire to impress others, both of which clearly have implications for other situations. Comparing characteristics of occupations where tipping became a social norm to those of other occupations (Azar, 2005) can inform us whether social norms tend to be created where they increase social welfare the most. Comparing tipping practices across different countries (Lynn, 1997 and Lynn et al., 1993) may show us how characteristics of a country affect its social norms. Examining how a bad experience that does not result from the waiter (e.g., the kitchen was very busy and therefore it took a long time to get the food) affects tipping can tell us whether angry people may punish a person regardless of whether the anger is the latter person’s fault. 1.3. Strategy making in tipped service industries Tipped service industries involve several interesting strategic decisions. There is almost no research that addresses these issues, providing many opportunities for interesting and important future research. Are firms better off replacing tipping with compulsory service charges, for example? Does the answer depend on whether the firm has to pay the tipped workers a minimum wage in addition to their income from tips? If yes, what does this mean for the optimal minimum wage policy? In Europe many restaurants changed from a regime of tipping to service charges (sometimes together with a small rounding up of the bill), while in the US and Canada the vast majority of restaurants use tipping. Who is right and who is wrong in their decisions? Is it possible that the characteristics of the industry, workers and customers are so different in the two continents that the optimal regime is indeed different? And if yes, were these European firms wrong in the past when they did use tipping, or have the relevant conditions in Europe changed over time in a manner that justified a change? Many US restaurants take an intermediary approach and use tipping in most cases but compulsory service charges (often called “gratuity”) for large parties (e.g., for tables of six or more diners) – is this an optimal policy, and if so, why? Can tipping suffice as a screening device for job applicants, because bad workers will receive small tips and then quit their jobs? Should the firm invest in monitoring tipped employees, or is tipping going to do the job without further investment by the firm? Is it beneficial for the firm to impose tip-out arrangements (in which tipped workers share their tips with non-tipped workers)? What about tip pooling arrangements, where workers in the same occupation (e.g., different waiters) share their tips? These are a few examples for the impact of tipping on managerial decisions. Below I address some of these issues in more detail.

Tipping is an important phenomenon that involves billions of dollars and entails many implications for business strategy in some industries. One important decision the firm has to make is the choice between tipping and a compulsory service charge. Another implication of tipping is that it may affect the optimal levels of monitoring and performance-based incentives that the firm should provide. This article discusses the implications of tipping for business strategy in tipped industries. Many of these implications require further study. The hope here is that this article will encourage other researchers to contribute further to the literature on tipping in general and in particular on the business implications of tipping.