Tip Creep and Tipflation: How Digital Payment Technologies Impacted Tipping Customs

Saturday - September 9 2023, 04:36 UTC - 1 year ago

Tipping has become more complicated and awkward in North America. Digital payment technologies have changed how and when customers tip, often prompting them to tip for services that were not previously tipped. Tip requests are often not connected to salary and service norms, and customers now commonly see menus of suggested default options - often well above 20% of what they owe. To increase employee wages without raising prices, more employers are succumbing to the temptations of tip creep and tipflation, which has amplified during the COVID-19 pandemic.

Tipping has gotten more complicated – and awkward – in North America. The ever-growing list of situations in which you might be invited to tip includes buying a smoothie, paying an electrician, getting a beer from a flight attendant and making a political donation. Should you always tip when someone suggests it? If yes, how do you calculate the right amount? And if you don’t, are you being stingy? As marketing professors who specialize in customer interactions, we’re researching how digital payment technologies have changed how and when customers tip. Our research suggests that asking for tips before service and suggesting tip amounts that are too high can frustrate customers and be bad for business.

What’s new .

U.S. customers historically tipped people they assumed were earning most of their income via tips, such as restaurant servers earning less than the minimum wage. In the early 2010s, a wide range of businesses started processing purchases with iPads and other digital payment systems. These systems often prompted customers to tip for services that were not previously tipped.

Today’s tip requests are often not connected to the salary and service norms that used to determine when and how people tip. Customers in the past nearly always paid tips after receiving a service, such as at the conclusion of a restaurant meal, after getting a haircut or once a pizza was delivered. That timing could reward high-quality service and give workers an incentive to provide it.

It’s becoming more common for tips to be requested beforehand. And new tipping technology may even automatically add tips.

Tip creep and tipflation .

The prevalence of digital payment devices has made it easier to ask customers for a tip. That helps explain why tip requests are creeping into new kinds of services. Customers now routinely see menus of suggested default options – often well above 20% of what they owe. The amounts have risen from 10% or less in the 1950s to 15% around the year 2000 to 20% or higher today. This increase is sometimes called tipflation – the expectation of ever-higher tip amounts.

The COVID-19 pandemic, which hastened the adoption of digital payments and increased sympathy for service workers, amplified both tip creep and tipflation. Tipping has always been a vital source of income for workers in historically tipped services, like restaurants, where the tipped minimum wage can be as low as US$2.13 an hour. Tip creep and tipflation are now further supplementing the income of many low-wage service workers.

Notably, tipping primarily benefits some of these workers, such as waiters, but not others, such as cooks and dishwashers. To ensure that all employees were paid fair wages, some restaurants banned tipping and increased prices, but this movement toward no-tipping services has largely fizzled out.

So, to increase employee wages without raising prices, more employers are succumbing to the temptations of tip creep and tipflation. However, many customers are frustrated because they feel they are being asked for too high of a tip, too often. And, as our research emphasizes, tipping now seems to be more coercive, less rewarding of good service and less connected to the salary and service standards of the past.