The Impact of Tipping (and Alternative Approaches) on Online Ratings and the Restaurant Dining Experience

December 13, 2017

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Tipping has been one of the hottest and most widely debated issues in the last several years among executives in the U.S. restaurant and foodservice industry.

Should restaurants include gratuity in the bill? Or leave it to restaurant-goers to decide for themselves? And then there’s the issue of service. Does tipping actually improve the quality of the service?

Online reviews and ratings play a major role in shaping the brand reputation of a company. But more importantly, reviews can offer penetrating insight into the customer experience.

Recently, we here at ReviewTrackers partnered with Michael Lynn, professor of Food and Beverage Management at Cornell University, who took a deep dive into the data about tipping and customer experience. 

In an article for the Conversation, “How the War on Tipping Harms Customers,” Lynn analyzes customers’ online reviews and ratings of restaurants to determine what kind of impact tipping — or the proposed alternatives to it — has exactly on the dining experience.

Tipping: A Hot and Widely Debated Issue for Restaurateurs

While tipping is optional and at the discretion of the customer, it’s also a deeply entrenched American practice, with approximately $40 billion being spent on tips in the U.S. each year.

Recently, however, a growing number of restaurants have been moving away from the norm, doing away with the tipping model and exploring new payment structures in order to, among other things, balance the pay between staff in the dining room and staff in the kitchen.

Proponents of the tipping system argue that tips help drive customer service and satisfaction.

“Tips are supposed to be a reward for service,” Lynn writes, “so advocates of the practice argue that it helps attract more competent workers to tipped occupations and motivates them to deliver better and more personalized service.

“Another thing in tipping’s favor is that it allows restaurants to charge lower menu prices, which stingier tippers like because it reduces the costs of eating out. For these reasons, most consumers say that they prefer tipping over automatic service charges or inclusive pricing.”

On the other end of the spectrum, tipping, some argue, leads to disparate and unreliable pay among restaurant staff, and may even cause discrimination against older, less attractive servers.

“Some also believe that it leads to poorer rather than better customer service and satisfaction,” Lynn explains.

“That’s because it supposedly attracts younger, part-time and less professional workers to tipped occupations, undermines servers’ intrinsic motivations to care for their customers, discourages service enhancing teamwork among servers and encourages discrimination in service delivery against customers believed to be poor tippers. A final argument against tipping is that it puts unwanted social pressures on people to part with money they would rather keep.”

Reviews Uncover the Impact of Tipping and Alternative Approaches

To help the restaurant industry achieve a better understanding of the ways tipping and alternative approaches affect the dining experience — and also therefore the ratings of restaurants — ReviewTrackers provided review data to Lynn for a forthcoming Cornell study, “The Effects of Tipping on Consumers’ Satisfaction with Restaurants.

Here are some of his most interesting findings:

  • Sample data from Joe’s Crab Shack, a restaurant chain with 18 locations, was analyzed to determine the impact of its switch from a tipping system to higher service-inclusive menu prices. Based on Lynn’s analysis, customer ratings for Joe’s Crab Shack restaurants were higher by about a third of a point on a five-point scale when they operated under tipping than when they used service-inclusive pricing.
  • Comments by customers were more likely to mention tipping, the server, or the service and price in a service-inclusive pricing than in a traditional tipping system. These comments were generally associated with lower ratings.
  • After six months, Joe’s Crab Shack reversed course and switched back to a tipping system at 14 of its locations.

Lynn writes, “These findings suggest that displeasure with the no-tipping policy, and with service and prices under that policy, decreased customers’ overall satisfaction with their dining experiences.”

In “Tipping Policies and Customer Satisfaction,” a related study published by Lynn for the International Journal of Hospitality Management, two alternatives to tipping, implemented by 31 independent restaurants in the US, were explored: automatic service charges and service-inclusive pricing.

Based on his findings:

  • The negative impact of doing away with tipping was related to how pricey or cheap the restaurant was. Less expensive restaurants that switched to alternative systems therefore suffered a greater hit to their ratings relative to classier joints.
  • Restaurants that replaced tipping with automatic service charges were rated lower by about a quarter of a point. Those that implemented service-inclusive pricing, meanwhile, experienced a ratings drop of only about a 10th of a point.

“I suspect that it was because consumers hate being forced to tip more,” Lynn explains. “Higher prices, on their own, are less objectionable.

These findings demonstrate that, while the tipping debate rages on, it’s critical for restaurateurs to gain a deeper understanding of how their tipping and payment structures affect the dining experience and their business reputation.

Online reviews have emerged as one of the most reliable and accurate indicators of impact. By listening to what diners are saying online, execs can think, rethink, and make smarter business decisions about the ways they approach tipping.

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