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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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