Posted: March 4, 2014
We're used to rounding up the total on our taxi ride or dropping a buck or two in a jar at the coffee shop. Now, new high-tech ways to pay are nudging us to tip more generously and more often.
You're probably used to rounding up the total on your taxi ride or dropping a buck in a jar at the coffee shop. Now, new high-tech ways to pay nudge you to tip more generously and more often.
Molly Moon Neitzel has seen this firsthand at her Seattle shop, Molly Moon Homemade Ice Cream. Last year, she installed a type of iPad-based cash register made by Square at one of her six shops. When customers pay with a credit card for their scoops, the cashier flips the iPad around so they can swipe their cards. Before they can sign their names, they're presented with a screen that suggests tip amounts. The options at Molly Moon are $1, $2, $3 or no tip.
You physically have to hit "no tip" — and feel like a jerk — if you want to be stingy. The system is smart. If you buy only one cone, it will give you whole dollar tip suggestions. However, if you buy scoops for, say, an entire little league team, Square suggests percentage tips. This might sound insignificant, but Neitzel says her staff noticed they were quickly making up to 50 percent more in tips.
"People were wanting to trade their shifts in other neighborhoods and come work in this shop only," Neitzel says.
Then, one day, Square updated its software. With the change, the tip options were on the same screen as the signature. It was easier to ignore. No longer did you have to choose a tip to get to the next screen. Neitzel said her employees started to "freak out." That small tweak meant they were making a lot less money.
A couple of days later, Square restored the old design and avoided a riot.
Over in Chicago, similar tipping technology is being used in cabs.
Kareem Haggag, a doctorate student at the University of Chicago's Booth School of Business, recently took a taxi to a coffee shop. When he went to pay, the screen gave him a few tip options: $2, $3 or $4.
Haggag was intrigued by these suggestions. He analyzed 13 million cab rides in New York City. The researchers noticed that New York's taxis used credit card machines that suggest tips far higher than what most riders were used to paying — as much as 30 percent.
"If taxis can just increase their revenues by making this small change, why don't they just keep raising their percentages through the roof?" Haggag asks.
It turns out that taxis that suggested higher tips did take in more money. However, a 30 percent tip suggestion also annoyed some taxi riders, which Haggag calls the backlash effect.
"What we found is that the proportion of customers that leave no credit card tip also jumps. More than a 50 percent increase," Haggag says.
When Haggag's taxi pulled to a stop, he gave the driver a nice tip on the screen and headed to Bridgewater Coffee Co., where he ordered a coffee to go.
Here too, he got tip suggestions on an iPad cash register: 15, 18 and 20 percent. Most of us know that in restaurants, we're expected to tip between 15 and 20 percent, but coffee shops and taxis have always been a bit more ambiguous. Offer to keep the change? Give a percentage? Is tipping even required?
Haggag says these electronic tip suggestions have the power to establish or change norms. If it used to be OK to round up to the nearest dollar, maybe now a 20 percent tip will become standard.
"Customers might have seen these buttons and inferred that 20 percent is what everyone else does so I'm going to try and do that," Haggag says.
And, with that, he left the coffee shop, got back in a cab and tipped the driver a generous $4.
He probably gave more than he would have if technology hadn't nudged him to be generous.
All Tech Considered
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