If you work in a bricks-and-mortar store, and are managing the point-of-sale system, you might be making decisions like, “Do I add a default tip screen to the payment flow? If so, what options should I give the buyer, 10%, 20%, and 30%? Or 0%, 15%, and 20%?”

To answer that we tap into the world of science!

Dr. Nathan Warren is an assistant professor at marketing at BI, the Norwegian Business School. He recently co-authored a scientific study of just that. His team released their results in a paper called, Who’s in Control? How Default Tip Levels Influence Customer Response.

He recently spoke with our podcast host, Tod Maffin.

Table of Contents

• The Basics: What Should You Pick?
• Getting the Balance Right
• How Consumers in Different Countries Respond
• Why “No Tip” and “0% Tip” Are Not the Same Thing
• The Best Three Tips to Suggest

Tod Maffin: Why did you call your study ‘Who’s in control?’?

The Basics: What Should You Pick?

Warren: What we looked at in this paper is default sets that are either higher or lower. A lower default set might be 5, 10, 15%, higher might– we see GrubHub has default sets starting at 20 or 22% sometimes. We wanted to find out how that would affect customers and what we find is that when people are presented one of these high default sets, they feel like they’re being forced or if they don’t have the control to pick what they want. They’re being forced to pick higher defaults than they would otherwise feel comfortable with picking.

Tod Maffin: What does that result in? Them just not tipping at all?

Dr. Warren: It does result in a small uptick in that. That has been shown before by other researchers. If you give someone a big high number, a bunch of other research has shown that you’ll make more money in tips. It seems like a good idea. You’re going to make more money. Your employees will be happy. We’ve always known that there’s this small uptick in customers that will also pick 0% but we haven’t really figured out what’s going on with the rest of the customers. What we looked at was these other responses besides tip amounts.

What we found is that when you give customers these high default sets starting at 20%, for example, they feel like they’re being forced to tip more than they want to. That makes them feel pretty bad about the whole interactions. We just have a wide range of emotional measures. We were trying to see if there was one particular emotion that really popped out and there wasn’t. It was just negative. People feel more negative and less positive.

Tod Maffin: [chuckles] Because people just generally felt shitty about the whole process.

Warren: Right. I wasn’t sure if cussing was allowed but, yes, that the basic gist of it. What that leads to is that people are going to leave lower ratings of the business. They’re not going to want to come back to the business. They’re not going to want to tell their friends good things about the business. You get this weird scenario where people are tipping higher amounts but actually less satisfied with the service. That goes against a lot of our lay understandings of what tipping is. We think a tip is a reflection of good service. If I get good service I’ll tip more and here what we’re finding is people are tipping more and actually thinking the service is worse.

Getting the Balance Right

Tod Maffin: Is there a default level where you have met the perfect medium where it’s not too high, it’s still high enough to be somewhat profitable or good and doesn’t negatively impact the user experience?

Warren: That’s something we’ve been trying to figure out and we’re looking at this idea of customer familiarity with tipping norms. The more familiar that we’re finding customers are with these different default sets, the more they are familiar they are with norms in a given context because if you think of this some people are asking now for tips when they’re making a political donation, or you might be asked for a tip when you’re ordering from an online retailer. That’s very unfamiliar to people. There you are going to see a pretty strong backlash against high defaults but in more familiar situations those effects are a lot less pronounced.

I won’t say that they’re gone but they’re certainly less pronounced and I think that it’s a lot safer to use higher defaults. You just really want to be sure that you provide customers with options that are both lower than normal and normal.

How Consumers in Different Countries Respond

Tod Maffin: Lower than normal and normal. It almost sounds like traditional pricing protocol. Instead of marketing one-two-three where you give people the price point you want them to buy at then one slightly below and then one slightly higher is one model. I mean, there’s a bunch of them that way. Did you think about any effects on different regions? I’m in Canada and I know that Canadians as a general rule are not as tippy, I shouldn’t say Canadians, but the culture in Canada is not as tippy as the United States which is highly tippy. I don’t think that’s the word, but you know what I mean. Do you have any thoughts around how the different regions are affected?

Warren: We haven’t dug into that explicitly. We’ve run all of our research-based out of the United States because there is such a deep-tipping culture there. It’s just the easiest place to look for it. That being said, we did a number of experiments where we actually asked people what you normally tip and then set the defaults based on that. Again, we find that you really want to make sure you have an option that is lower than what they normally tip and what they normally tip. If you have those two things you’re not going to get anywhere near as much backlash.

If you take that and you bring it to another nation, Canada, the UK, then you can still just adjust to the norms within that nation and certainly the norms within that service context where there’s going to be big differences, of course, between a delivery driver and, again, the online political platform.

Why “No Tip” and “0% Tip” Are Not the Same Thing

Tod Maffin: Should 0% be included as mandatory in all cases?

Warren: There’s someone else doing the research on that exact thing right now and I can’t exactly recall what she said but there was some good benefit, I think, to include both a 0% and No Tip option.

Tod Maffin: What? They’re the same thing.

Warren: They should be but they’re not. I can point you to her afterwards, but the bigger idea here is that, yes, you need to give people these No Tip and these custom tip options but those still aren’t anywhere near enough because even when you include those options people still have to push the button. What you’re still making people do is you’re making them feel like they’re being forced into picking something higher than they want. Nobody likes picking the custom option. No one likes picking the No Tip option. What you’re doing is you’re forcing customers to do something that makes them feel bad at the point of purchase.

Tod Maffin: Oh, I see. No Tip is more of an emotional impact of like, “No, I’m deliberately screwing this business out of money.” As opposed to 0% which is more just a number in my head, is that right?

Warren: I believe that is what the other paper said that is, again, we are going away from my research here and going on to someone else’s. For mine, I can say definitely include the No Tip, definitely include the custom tip, but don’t think that that’s going to solve all the problems.

The Best Three Tips to Suggest

Tod Maffin: If you had to recommend three specific, in addition to No Tip, three specific percentages what would your research suggests those be?

Warren: I mean, it’s so dependent on country, service context. If you’re thinking something like, I usually encounter this at a cafe, a quick-service cafe, I go there, I get a cup of coffee maybe a sandwich, right? I would think that the high end of that would be something like at a full-service restaurant. Think of what a full-service restaurant is like in your country. The United States depending on where you are that might be 20% but a quick-service restaurant shouldn’t be setting 20% as their minimum if that’s what we’re thinking of as a full-service norm.

What you want to do is work down from there. If I was doing quick service, I might do 10, 15, 20 or 10, 15, 18. You also need to think about how much your employees are reliant on tips. We’ve got this massive movement where people are just quitting work. You really need to think about how to compensate your employees and keep them motivated without leading to some backlash against customers. That’s going to be a tricky balance depending on the laws of supply and demand as they relate to employment.