Today in Digital Marketing - WEEKEND EXTRA: "Don't Tell Me How Much to Tip!"

Episode Date: June 17, 2023

Tod interviews Frank Cabano, co-author of a new marketing science research paper called “Don’t tell me how much to tip: The influence of gratuity guidelines on consumers’ favorability of the brand.”.Thanks to our sponsors!- Go to brevo.com to sign up for Brevo for free and use our code TODAY to save 50% on your first three months of Brevo’s Starter & Business plan!.✨ 𝗚𝗢 𝗣𝗥𝗘𝗠𝗜𝗨𝗠! ✨Get these exclusive benefits when you upgrade:✅ Listen ad-free✅ Weekly Meta Ad platform updates with Andrew Foxwell✅ Weekly Google Ad platform updates with Jyll Saskin Gales✅ Back catalog of 30+ marketing science interviews✅ Earlier episodes each day✅ Story links in show notes✅ “Skip to story” audio chapters✅ Member-exclusive Slack channels✅ Marketing headlines each morning in Slack✅ 30% off our Newsletter✅ Discounts on marketing tools✅...and a lot more! Check it out: todayindigital.com/premium.🔘 Follow us on social media🎙️ Subscribe free to our other podcast "Behind the Ad"🆘 Need help with your social media? Check us out: engageQ digitalIf you like Today in Digital Marketing, you’ll love Morning Brew.Get smarter in 5 minutes (and it's free!)There's a reason more than 4 million marketers and business people start their day with Morning Brew - the daily email that delivers the latest news from marketing to the ad business to social media. Business and marketing news doesn't have to be boring...make your mornings more enjoyable, for free.Check it out!.💵 Send us a tip🤝 Join our Slack: todayindigital.com/slack📰 Get the Newsletter: Click Here (daily or weekly)📰 Get The Top Story each day on LinkedIn. ✉️ Contact Us: Email or Send Voicemail⚾ Pitch Us a Story: Fill in this form🎙️ Be a Guest on Our Show: Fill in this form📈 Reach Marketers: Book Ad🗞️ Classified Ads: Book Now🙂 Share: Tweet About Us • Rate and Review.ABOUT THIS PODCASTToday in Digital Marketing is hosted by Tod Maffin and produced by engageQ digital on the traditional territories of the Snuneymuxw First Nation on Vancouver Island, Canada. Associate Producer: Steph Gunn. Ad Coordination: RedCircle. Production Coordinator: Sarah Guild. Theme Composer: Mark Blevis. Music rights: Source Audio.🎒UPGRADE YOUR SKILLS• Inside Google Ads with Jyll Saskin Gales• Google Ads for Beginners with Jyll Saskin Gales• Foxwell Slack Group and Courses .Some links in these show notes may provide affiliate revenue to us.Our Sponsors:* Check out Kinsta: https://kinsta.comPrivacy & Opt-Out: https://redcircle.com/privacy

Do you have business insurance? If not, how would you pay to recover from a cyber attack, fire damage, theft, or a lawsuit? No business or profession is risk-free. Without insurance, your assets are at risk from major financial losses, data breaches, and natural disasters. Get customized coverage today,

starting at $19 per month at zensurance.com. Be protected, be Zen. Hello friends, welcome to a special weekend edition of Today in Digital Marketing. So you're at a restaurant. The bill comes along with the credit card terminal. On the screen, there are some quick links showing common tip percentages. Often it's 15%, 20%, 25% and other. Sure seems like a surefire way to get more tips, but are we shooting ourselves in the foot? New data published in the Journal of Business Research finds this gratuity guideline might be hurting retailers more than helping.

Frank Cabano is an assistant professor of marketing at the University of Texas at El Paso. He is the co-author of a paper called Don't Tell Me How Much to Tip, the Influence of Gratuity Guidelines on Consumers' Favorability of the Brand. And he joins me now. Hello. Hi, Todd. Thanks so much for having me on. How could this hurt? This seems like a no-brainer. Right. Many people would think so. But the thing is is is that even though it's a recommendation right it's a gratuity guideline it's a tip suggestion um so you know the the restaurant or the service provider service business is not making consumers tip in that specific way but consumers perceive it's not the fact that they're not making you but it's the perception that consumers have that they're kind of forcing their hand that that this is, you know, basically inhibiting their freedom to

act as they please, to tip however much they want. And because of this perception of inhibiting their freedom, consumers react to this. It's called psychological reactance. They react to this and want to establish their freedom, you know freedom more so than before. And so when they react in such a way, they actually like the restaurant or service provider less because they're perceiving that they're trying to force their hand to tip more than maybe they want to. And you found these suggested tip percentages

often don't influence what consumers tip. Did that surprise you, given that the whole purpose of that screen is to influence tipping behavior? I say is consumers know the tip norms, right? They know the general tip amounts, and so they tip accordingly. And so I think that's why really there's no effect. But really what we were interested in looking at was the downstream consequence for the service business itself. And as we talked about earlier, that's where we see that negative effect on how much consumers like that restaurant, for example, how much they're willing to recommend it to others, how much how much how likely they are to go back to it, etc. And let's talk about those downstream numbers, because the ultimate downstream number is sales. I know you didn't study that specifically. You studied how the impact of this screen, this tipping suggestion screen impacts brands

favorability. But do you have a gut feel on how this might affect sales? Is there a direct correlation between brand favorability and sales? Yes, there should be. It's certainly not going to be a perfect correlation. But there's a high correlation between intentions and behavior. Again, it's not perfect, but it's very high. So when consumers, you know, they're indicating they intend to not go back as much anymore. They intend to recommend it negatively to other people. You know, they like it less, etc. These types of, you know, these types of measures, it should correlate.

It should, you know, reflect in their actual behavior, making them less likely to go back, uh, to that restaurant, to that bar, um, to that, you know, other type of service business. You found this negative effect to be more pronounced for consumers with low patronage behavior or low income level. Can you talk more about that and why you think these specific groups are affected? Right. So, um, so we So we saw those significant moderating effects. So this, you know, this manifested for consumers low in income. And, you know, consumers who are, you know, who have lower income levels, they are especially

to, you know, especially likely to be affected by this, right, to be kind of turned off by this, to react more to this, because they don't have as much disposable income to be able to tip maybe these higher amounts. So when there are these gratuity guidelines, their perceived freedom is being threatened more because they don't have as much money to maybe tip these amounts, and so they react more negatively. And consumers' low and patronage behavior, they also, this effect also manifests for them because, you know, they don't have, you know, loyalty, right? They don't have this as their low and patronage behavior.

They don't go to this, for example, restaurant much. So they don't have this strong loyalty. And so when they get this type, these types of tip suggestions where, again, they're being, they're perceiving it as this restaurant making them tip a certain way, they're turned off by that, less likely to go back. However, for consumers high in patronage behavior, the brand, consumers who go to that restaurant, maybe once a week, for example, they're not as affected, because, you know, they've already built that loyalty, they really like that restaurant. They like the waitstaff. They like the food.

They like the atmospherics. They're used to maybe seeing those gratuity guidelines, right, if they're going often. And so it doesn't lead to a negative effect for them. And it's also important to note that we found this in an actual restaurant setting, right? So we looked at it in surveys, but we also conducted one behavioral study where I went to a restaurant here in our city, and I was there for multiple days, and I saw these effects. We collected data from actual customers in this actual restaurant, and we found that consumers who were low in patronage behavior, they said they were less likely to go back, among other things. Just because of the presence of that suggestion screen? Yes, yes, just because of that. That was the only difference between the conditions, right? Half the customers received their bill without the gratuity guidelines, half received

it with it. And those who were low in patronage behavior, who had the gratuity guidelines, they were less likely to say they were going to go back. They liked it less. They were less likely to recommend it to other people. But this effect didn't manifest for people who were high in patronage behavior because they liked the restaurant. It didn't affect them.

Your research found, I thought this is interesting, that having an explanation about the benefits of these tip levels can help reduce the negative effect. Can you give us an example of what that would look like? Yes. So it actually eliminates the negative effect, right? So it completely wipes it out. Now, it doesn't make it a positive effect. It doesn't make these, you know, increase consumers favorability of the brand, but it doesn't decrease it either. And really, this is a simple explanation of why, why those gratuity guidelines are on

there, making it clear that this is for your benefit, right? This is for your convenience. Just putting a message, which by the way, you'll, you'll see at different restaurants or bars or what, uh, what have you that use these gratuity guidelines. Sometimes they'll make it clear. These are for your convenience only or something to that effect. By putting that simple message, which we did in our experiment and completely eliminated the effect, you're just putting that. This is for your convenience only, right?

This is to help you. These are just recommendations that are meant to just make it easier to calculate. That's why we're putting it on there. If consumers see that clearly, understand that's the motive behind it, then it doesn't lead to a negative effect for them. But without that, we consistently find there's a negative effect because, again, consumers feel like it's making me tip more than maybe I want to. Do you have business insurance?

If not, how would you pay to recover from a cyber attack, fire damage, theft, or a lawsuit? No business or profession is risk-free. Without insurance, your assets are at risk from major financial losses, data breaches, and natural disasters. Get customized coverage today starting at $19 per month at zensurance.com. Be protected. Be Zen. And I guess what we're talking about here is instead of the credit card terminals, because I don't think I've ever seen an interstitial screen that has an explanation, but I guess we're talking about a paper receipt at this point. Yes, exactly. Paper receipt. Now, it could be on that type of, you know, like that type of, you know, technology, mobile technology, an iPad or what have you, that, you know, oftentimes

you'll pay at those kiosks. You can include and you should include those type of messages if you're going to use the gratuity guidelines. There should be no difference between whether it's on paper or like an iPad like that. We should see the elimination of the effect. But yeah, often you'll see it on or maybe not often, but sometimes you'll see I've seen it multiple times on the receipt that, again, this is for your convenience. That type of message needs to be there if you're going to use gratuity guidelines. That's our recommendation. So it eliminates the negative effect on the brand perception, but how does it affect tipping? Like, do people see that and kind of go, oh, well, I guess I don't need to tip them.

Right. So again, generally, it doesn't have an effect still, but at least it eliminates that negative effect on brand favorability, right? And so that's the key. That was the real ultimate focus of our paper because in the literature we saw that was overlooked, that no one was focused on how does this, if at all, affect the brand, affect that restaurant, that bar,

that nail salon, that hair salon, whatever. How does it affect them? And so that was the focus. And we clearly saw it had a negative effect, surprisingly, for many people. What made you want to study this? Great question, Todd. You know, interesting, interesting, you know, backstory on how I started to research this. It was, it was, so I, I, uh, I did graduate school at the university of Kansas and Lawrence, Kansas.

And I was at, um, you know, a bar, uh, with a friend one day in Lawrence and, and, uh, and, and an older gentleman, uh, received his tip or received his bill, excuse me, received the bill. And he saw the gratuity guidelines and he said, why do you guys, something to the effect of why do you put these on here? Do you think i'm stupid and so i was like aha that was kind of my you know my uh inception point of of okay i need to study this i need to look at this if they're if he's just a unique uh consumer uh you know a data point of an n you know just an n of one you know he, he's, he's unique in this way, or is this a more general phenomenon? And we saw it was, it was a general effect there, um, that, that people, you know, may be surprised by, but it's consistent and they're clear practical implications that come

from it. All right. What are those practical implications? Like bottom line, in light of your findings, what should marketers change or do differently from this day forward? If brands, if restaurants, bars, hair salons, whatever, if they want to keep these gratuity guidelines, then just include that explanatory message. Because they may want to keep those because it appears that they care about their service staff, right? In terms of recruitment and retainment of service staff, right? Because by the way, when I was at that restaurant conducting the field study, waiters and waitresses, I could tell that they were a little skeptical of this, that it could hurt them, right? So we ran the experiment and because I had a connection with the owner and he said, yeah, this is great, let's do it.

But the service staff, I could see that they were a little hesitant. Would this affect my bottom line, right? Would this affect how much tips I get? And I think most service staff would think like that, right? So maybe brands want to, uh, even though there's no effect or there's, there's no, uh, generally no effect of, of gratuity guidelines and tip amounts, um, you know, uh, in general terms, uh, then, you know,

but still they may want to include them to please service staff, right. To recruit them, to retain them, because there's a perception that maybe that this will increase tips, that this is, they're looking out for them. So I understand that. And so if you want to include them, include the, you know, the few, you know, the one sentence, few words that this is for your benefit, your convenience, right, ease of calculation, etc. That's why we're putting it on there. If you do that, there's no negative effect, no positive effect either, but at least it doesn't hurt the brand. But if you do not put that, if you do not want to put that little sentence for whatever reason, then you should not include them at all. So if you want to include them, just include that message with it.

Couple them together at all times. You had a co-author on the paper. Who was that? Yes. My co-author was amin atari um and he uh at the time of um you know at the time of the start of this paper he he was at neoma business school in france um right now he's an independent researcher um but yes he's a great co-author and great friend we've worked on many many types of projects including one that we just started on another, you know, on another kind

of angle of tipping, looking at something else in the tipping domain. So we're excited about that. So it's a growing body of research, and I'm happy to, you know, be, you know, a small part of it. Well, certainly is fascinating. I'm delighted to be able to share it with us. Thank you for your time. Absolutely, Todd.

Thank you so much. Frank Cabano is an assistant professor of marketing at the University of Texas. His paper is published in the Journal of Business Research. It's called Don't Tell Me How Much to Tip, The Influence of Gratuity Guidelines on Consumers' Favorability of the Brand.