Home > Marketing > Differentiation: Tipping, gratuity and the new age of corporate tax

Differentiation: Tipping, gratuity and the new age of corporate tax

by Frank Strong

“Tipping is not just a city in China,” many in the hospitality industry, like bartenders, are quick to proclaim.  But a recent vacation demonstrated it’s no longer a gratuity either.

At resort I signed up for a deep tissue massage on day one – what better way to begin unwinding?   I met the concierge, scheduled a spa time and she promptly asked me for a credit card, ran up the bill and presented it to me:   a $29 “gratuity” was “conveniently” placed on the bill for me; there was no option to remove it.  First world problem?  Maybe.

“Seems a little out of order to include a gratuity before the service is provided,” I said with a half-statement and half-question surprise.

“That’s just the way we have always done it,” replied the concierge.

“Well, I just think that’s dirty,” I was thinking to myself.  But I didn’t argue; after all I came here to decompress, not get all riled up. 

Hyatt surprised me again later at the end of my stay with a $20 “service fee” for the “facilities” for every day I spent at the resort – in addition to tourism taxes, and of course, the cost of the room.  While not a “gratuity” per se, it’s amazingly similar to the baggage fees the airlines charge and it’s a hidden cost, much like a gratuity inconveniently added to a bill before a service is provided.   Over the course of this vacation that this practices wasn’t unusual – it was the norm.

Restaurants were adding “gratuity” to bills for just one or two people, where I’ve seen it common place for large parties, but not for single patrons.  For example, a bar in Miami’s airport presented me with a bill for a single glass of wine, which I took the liberty of sipping while American Airlines continued to annoyingly drip, drip, drip out delays in increments of 10 and 20 minutes (the plane wound up with a 5 hour delay; definitely not the “on-time machine”).

The “gratuity” was $1.44, which with taxes, brought the bill to $10.08.  That’s 18% more than the menu price right off the bat and since it’s not optional, I think the restaurant should have to account for this as revenue – and raise the wage they pay to workers.  If any serious consideration were given to this idea, rest assured, the bean counters would pause and mull over their pricing strategies alongside their tax advice.

Seems to me we are entering new era of what I’m calling “corporate taxation” – only it’s not the government taking a larger and larger slice of profits from businesses, its businesses padding their income streams.   What seems to fit a budget, really doesn’t when bill comes around.

What bothers me the most about this is the surreptitious manner in which these corporations levy their self-styled taxes:  there’s no mention of these charges when they are making the initial sale (or it’s in ridiculously tiny print, like those user agreements we all click “I agree” to), but rather the consumer is only made aware at the end of the stay, visit, or in some cases, the drink.

What’s the customer to do?  We drank the wine; we can’t exactly give it back, although this post might make a few want to try.

In a digital age where social media praises companies for transparency, and chides them for disingenuous behavior, businesses are getting slicker and slimier in how they make money.  I’m a capitalist for sure – a student of Adam Smith – but I like my deals to be fair and square:  you don’t win hearts, minds or loyalty by sneaking in hidden charges.  You don’t add value with hidden charges, you just turn people off.  Moreover, in this day and age, of user generated content, good service is good marketing.  It represents an opportunity for any given company to differentiate itself.  Think:  bags fly free at Southwest.

This is a rare case where I’d actually support government regulation:  a consumer bill of rights.  It should set forth fundamental principles with simple elegancy and binds all companies to be transparent with their pricing.

For the service industry, tipping has long been a way to pass along the cost of human resources to the consumer.  If the system were left alone, it might work:  good service equates to a good tip, at least in theory.  Having held many a service positions as a teenager growing up, I remember full well that the theory doesn’t always pan out – but that’s not an excuse for businesses to coerce gratuities – because it tends to come out the other way too:  sometimes a happy customer overcompensates.

All said, maybe Tipping is just a city in China.  More and more, it’s certainly nothing even close to representing transparency.  But for those companies that aim for transparency, it’s a clear marketing opportunity.

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8 Responses

  1. MZazeela

    Frank – I find practices like this to be counter productive. Traditionally, tipping has been in return for exemplary service. If the service provider, and the establishment, collect their tips up front what is the incentive to do a good job?
    More and more businesses are taking advantage of their most precious resource…their customers. The only thing that will get them to behave more responsibly would be a revolt by the customers. Same as in the airline industry. Carry on baggage fees? $7 to use a crummy blanket? Really!

  2. marlena1383

    I have worked in the industry and have been burned SEVERAL times. Foreigners who claim “they don’t know, that’s not how it’s done in their country,” business men and women who clearly make triple what I make and people ordering drinks that aren’t in their means and take it out on tipping (me).
    It’s been the standard that you leave 25-20% for exemplary service, 18-15% if you were satisfied, 10% and below if your server sucked our you a cheap ass-hole. I’ve noticed tips declining since the recession, if you don’t have money to tip, eat a frozen pizza on your couch.
    Hidden fees I’m not down with, 18% gratuity, absolutely. Serving people isn’t always a picnic and it’s even more degrading when you’re treated poorly and tipped in the same fashion. I feel everybody should work in the service industry for at least six months and then maybe we wouldn’t have to add gratuity because everyone would learn some fucking humility. I’m out (microphone drop). #tipyourserver

    1. MZazeela

       @marlena1383 Marlena, I can certainly see your point. However, how is it fair for me to be forced to leave a tip and then receive crummy service? While I sympathize with you, I have also been to plenty of places where the server did a horrible job.
      When you think about it, why doesn’t the establishment pay the servers more and raise their prices to cover the cost. After all, if the item on the menu says $10 and I leave a 20% tip, what’s the difference? Just charge me $12 and be done with it.

        1. marlena1383

           @Frank_Strong   Yes Frank, I get that. I also read in the article how he felt slighted because they had to shell out 1.44 tip on a glass of wine. This money goes to the server, NOT the airport Chilis or wherever the hell he was. The poor server works at the airport, c’mon man
           @MZazeela I get where your coming from. I bartend part-time and promote indie films via social media marketing. I’m very busy and when I get a day off and I get a shitty server I am not empathetic. I’m not afraid to leave a poor tip for poor service. An establishment paying there servers more…HA! I don’t think this will ever happen. Auto-grat before service is kinda bullshit, but like I said, servers are the underdog here. More often than not, they are on the losing end. When you bust your ass working a double, tip out the bartender (I used to serve as well), tip out the hostess and the busboys you count what’s left and it’s demoralizing.

        2.  @marlena1383 It’s not the $1.44 I’m fired up about or tipping for good service.  I’m pretty darn generous when it comes to tips because I’ve been there and done that. The issue is that the company automatically added it to the bill without giving me a *choice.*  That’s not a tip — it’s a service charge!  I should have the option to tip or not, or as you say in your last point to Marc, to leave a lousy tip if the service was bad.  @MZazeela 

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