TIPPING TIPS: The impact of incentives on customer experience


The King James Version of the Good Book says “a man’s gift maketh room for him and bringeth him before great men”. In my studies of that particular verse, I found that the Hebrew word translated as gifts is the word “mat·tān”. That word appears only three times in the Hebrew Bible, all in the Book of Proverbs. In none of these three instances is the word translated as “talent” or “a natural ability”. In all three instances, the word means something closer to “a present” or “an offering”. Since the Holy Bible cannot be promoting anything negative, it is safe to surmise that there are positive implications for giving of gifts.

Gifts are given under several circumstances. In the home, family members give gifts to each other, especially on special occasions such as birthdays and other such anniversaries. In the community, members can give gifts to each other for one achievement or another. Sometimes, these gifts are given just as a sign of good neighbourliness.  In the workplace, Management can also offer gifts to staff as a show of appreciation for something achieved. These gifts can come in the form of bonuses and other rewards. There is nothing wrong with any of these gifts and as a matter of fact, they are important in building cohesion among individuals in the society.

However, there is one exchange of gifts that is always fraught with challenges. This is gift giving from a customer to a service giver. These gifts can range in kind and size but the most common is what we normally refer to as “tips”. There are several views on giving of tips by customers to those who handled them during an interaction. Some organisations frown on it, strictly forbidding any form of tipping from customers. Many businesses in the financial services industry do not take lightly to customers giving such gifts to employees.

There are also some organisations who do not actively promote the acceptance of gifts but they do not prohibit the practice also. In some businesses, it is expected of front line employees to declare any gift that they receive from customers. There are other organisations that are a bit more liberal when it comes to the receiving of gifts. In others, all tips received are placed into a pool and after the day is over, the tips are shared equally among all the customer-handling employees.

There are even those who argue that since a lot of front line employees, especially those working in restaurants, cafes and bars, earn below the minimum wage, any kind of tipping should be considered as a legitimate payment for the service these employees provide. In some places, waiters and waitresses are even treated as independent contractors and are only paid based on the tips they receive. All of these notions and standpoints are backed by strong and valid reasons. As in any ethical situation, there are no right or wrong answers.

I believe when it comes to gift giving, there are three very important considerations that make the gift a good thing or a bad thing. These are the size of the gift, the timing of the gift and the motive behind the gift. Considering the last concern, gifts can either be given as a show of appreciation for a job well done. In that instance, there is absolutely nothing wrong with the gift. Both the giver and the receiver can walk away with clear conscience.

However, when the gift is given with the sole purpose of inducing the receiver to do something for the giver, then that is where the problem arises. This is especially true when the giver intends the gift to cloud the judgment of the receiver so that the giver receives some undue advantage. There is a name for that kind of a gift—Bribery! The negative consequence of bribery—and its close relative, corruption—is common knowledge.

The size of the gift vis-à-vis the economic status of the receiver can also add a different dimension to the discussion. There are times when the size of the gift has been so small in comparison to what the receiver earns that the receiver would even be reluctant to collect the gift. A small token cannot be seriously considered as an attempt to gain undue advantage.

The situation becomes even more challenging when the customer in question is of such grand means that what others might consider a big deal might actually be pocket change for the customer. Hollywood megastar Johnny Depp of Pirates of the Caribbean fame is said to have once tipped a server US$4,000.

With regards to the time a gift is given, we can talk about pre-service and post-service gifts. In the world of business, especially with regards to front line customer engagement, it is commonplace for the customer to give the gift after receiving the service. Those who wait on patrons at eateries know that the tip will come after the customer has enjoyed the service and even paid for it.

In many jurisdictions the tip is even a percentage of the total amount spent by the customer for that service. The percentage can range from 10% all through to 30%, although it is really up to the customer. Many customers say that they tip based on the quality of the service—the better the service, the higher the percentage.

It is interesting however that there are instances when customers tip ahead of the service. Some have even argued that tips must actually be given before the service because TIPS is an acronym for “To Insure Prompt Service”. I believe that is just meant to be humorous interpretation of the word. The potential of pre-service tips to cause havoc is however nothing to laugh about. This is a potential slippery ground when it comes to ethics of business.

It is one thing to show appreciation to front line employees for a great job done and it is a totally different thing to tip ahead of the service. What could be the motive behind pre-service incentives? Is it not an attempt to unduly influence the one serving? Some might ask. Others might also counter that if the intention is to influence, what is really wrong with that. Don’t people have the right to use their money to get what they want? Is there a law against pre-service tipping? These are just a few of the questions that arise when the issue of pre-service tipping comes up.

The giving of pre-service has become so widespread that there are even academic studies that have been undertaken on the trend. In one of such studies, published in the September 2020 edition of the Journal of Service Research, researchers sought to gauge the reactions of employees to two kinds of pre-service “gifts” or incentives—a financial incentive (a tip) and a non-financial incentive (a verbal compliment). It came to light that both incentives helped customers obtain better services. However, the context of the service situation determined which of the two incentives was more effective in helping customers obtain better service.

In terms of context, the researchers described two different service contexts—open and closed. An open service context is one in which the relationship extends over a long period of time and involves multiple interactions. This is the kind of relationship that exists between banks and their customers or between life insurance companies and their customers. According to the study, in such a context, compliments are more effective to obtain better service than tips.

A closed service context, on the other hand, is one that is short in tenure and involves a continuous but relatively short interaction. This is what happens when you visit a bar to have a drink or you take a vehicle to the car wash. According to the study, in such a context, tips are more effective in helping customers obtain better service.

By tipping ahead of time, a customer might get a table when all others are struggling to get an entrance. A tip given ahead of time would cause the customer to receive her order earlier than usual. A pre-service tip might get the customer a wider smile and more attention. Evidently, pre-service tips have their advantages for the customer’s experience.

If pre-service tips are part of the “gifts” the Bible was referring to, then a pre-service gift truly opens doors for the giver. Customers who know the power of the pre-service tip can put it to good use and be treated to an experience of a lifetime. In our part of the world, we refer to it as “knowing how to wash your hands well.” It is however clear that the line between what is acceptable pre-service tipping and a bribe is really very thin.

Every business that intends to stay in business for a long time would always want to give its customers a great experience—the kind that keeps the customer coming back for more and more. If pre-service tips can give customers that, then there might be nothing wrong with encouraging customers to go for it. However, the challenge would be to communicate this to customers without it sounding like an attempt at promoting bribery.

This is where creative communication comes to play. Customers must be made aware that those who serve them are human beings with feelings and emotions. Therefore if customers want to get the best out of them, they must tip or pay compliments ahead of the service. Those businesses who are into closed service contexts must find a way of telling the customers to give their tips ahead of time. Those businesses that are more of the open service contexts must also get their customers to pay customer-handling employees compliments during all interactions. When well communicated in all honesty, customers will appreciate the importance of such incentives in enhancing the customer’s experience.

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