The Tipping Point (or the Point of Tipping)

A few days ago, Esquire magazine ran a short article entitled, “Why Tipping Should Be Outlawed“. Besides the highly entertaining clip from “Reservoir Dogs”, the author makes several good points as to the downsides of tipping, as well as the history of attempts to ban – by law or social custom – tipping. Read the article for all of her points.

The primary issue I have with the article, of course, is that the author does not like the status quo – for the record, neither do I – and recognizes that it does not appear to be changing, so she wishes to use the coercive force of state through law to ban tipping. In general, we democracies pass laws to enforce behaviour that a majority of the populace finds required or offensive. Thus, all modern countries ban murder, New York City bans smoking in public establishments, Germany enforces privacy requirements. Every one of these laws has a price that the majority of the populace, usually through their elected representatives, has chosen to pay willingly.

Given the mostly free market, and the large amount of competition in the two main sectors where tipping is commonplace – hospitality and food service – it would seem to indicate that tipping remains, however irrational, desired by the majority of the population. In such a competitive market, where the custom of tipping 10-12-15% is well-known and taken into account when selecting a restaurant, it would be very easy, actually I would expect, some restaurants to pop up that bar tipping, charge a higher price (equivalent to competitive prices plus standard tips), and pay their service personnel higher but predictable wages.

Since it has not occurred, or if it has, then rarely, it would appear that society at large not only is comfortable with tipping but prefers it.

Why this is so, the sociological aspect, is hinted at in Dunn’s article. When you buy a book, if you are displeased, you can return it, and, to be fair, the quality of the customer service in the purchase is not that important to you; the book itself is. On the other hand, when you go out to eat, the experience is at least as important as the food itself. You want to feel “taken care of” or “treated” at a level appropriate to what you spend. Since the level of service is so intrinsic to the entire purchase, people find it important to maintain that sense of control over final price (even if it is an illusion, according to Dunn).

There are some parallels to companies with large incentive compensation plans (a.k.a. bonuses). You may be paying the employee $100k base, and the employee may have an expectation of $20k bonus. If s/he doesn’t get it, that employee will walk. Nonetheless, the expectation of control, the knowledge that the employer has the ability, even at a high price of negative response, to legally withhold higher payment, is important to the manager.

About Avi Deitcher

Avi Deitcher is a technology business consultant who lives to dramatically improve fast-moving and fast-growing companies. He writes regularly on this blog, and can be reached via Facebook, Twitter and avi@atomicinc.com.
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