Industry Research

Are The Days Of Predetermined Tipping Ending?

(Creative Commons image)
(Creative Commons image)

By far, California is the most unfriendly state to operate a business. From January 2015 to January 2018, San Francisco increased minimum wage from $12.25 to $15.00 per hour – that’s a $2.75 or 22% increase within three years. Likewise, Los Angeles – the nation’s second largest city – also approved a minimum wage increase of 67% phased in through 2020 to $15 per hour.

Unlike other states, California state law prohibits tipped employees from receiving lower than the minimum wage. The restaurant industry argued vehemently this would drastically cut their staffing, resulting in a concession to allow them to add a service charge to bills to meet the increased costs.

According to our 2017 Fact Book study, the medium rate increase for sedan work last year was 5%. Increased attrition by an estimated 10% due to competitive pricing pressures brought on by the TNCs has not made things any better. Needless to say, the numbers don’t add up. Something’s gotta give.

Back in the day, the argument for including the gratuity or service charge into the overall corporate billing program made sense. It made it easier on employee expense management. Fast forward to now — I would argue that with technology like Dubsado, globalVCard, and Square at our finger tips, gratuity management is easy. The notion of pre-determined tipping is outdated and should go away.

In my opinion, a gratuity should be a service incentive — not an entitlement. I have often wondered why a trip isn’t met with an electronic trip evaluation (“how was your experience?”) along with a gratuity solicitation. Or, why we just don’t add a tip option on the final invoice.

We have to remain competitive. Holding, or better yet, increasing price in a saturated and seemingly commoditized sedan market might seem daunting. However, there are two opportunities here for us: One, service levels thanks to the proliferation of TNCs across the “black car” segment are at an all-time low. So, a keen focus on customer satisfaction is your golden ticket.

From your customers’ stand point, there are specific services that are valued and worth paying for. You must know what those are, so ask your clients; don’t assume you know. Then, you must train your team to perform. And two, unbundling tips is a way forward in lowering your expenses (yes, there is a hard expense to negotiating, collecting, and administering tips) while motivating your chauffeurs to work harder.

In case some of you are reading this and pushing back, consider that the TNC market does not assume a tip. Further, you may even find many of your chauffeurs will earn MORE when the gratuity is not fixed (proper training required).

Here is a case study excerpt done with restaurant wait staff on tips I’m passing along to you – food for thought (pardon the pun).

The Power of...Mints?
In a study published in the Journal of Applied Social Psychology, researchers tested the effects mints had against a control group, where no mints were given, in order to measure their effectiveness in increasing tips. The results were surprising to say the least.

• The first group studied had waiters giving mints along with the check, making no mention of the mints themselves. This increased tips by around 3% against the control group.
• The second group had waiters bring out two mints by hand and mention them to the table (“Would anyone like some mints before they leave?”). Tips increased by 14% against the control group.
• The last group had waiters bring out the check first along with a few mints. A short time afterward, the waiter came back with another set of mints, and let customers know they had brought out more mints, in case they wanted another.

This last test was where waiters saw a 21% increase in tips versus the control group.

In the last test, the only difference was the waiter brought out the second set of mints after some time had passed, and mentioned they had done so in case the table would like some more. Researchers concluded this “personalization” aspect was what triggered the increased tips.

Related Topics: chauffeur gratuities, chauffeur tipping, customer service, LCT Publisher, Sara Eastwood-Richardson

Comments ( 5 )
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  • Brandon

     | about 8 months ago

    Simple math, by forcing companies to raise their costs to produce a service they must in turn raise their prices to stay in business. The problem is the uber factor, which makes it very easy for customers to jump ship immediately because they can keep their price down as they don't have to play by the same set of hourly (employee) rules. When the other options out there for just about the same service but such a huge price point difference, customers will start jumping ship as soon as prices increase. The end of car service as we know it is near, due to government making it really hard one on set of companies (car services w/employees) vs Uber's (Independent contractors who don't have the same set of rules). California leading the country in unemployment percentage in five years would be a good prediction by their own making. The companies will probably endure, because they'll have to find ways to, and at the end of the day many of the employee's will be looking for a new job, like our bank tellers, fast food folks, waiters, drivers, etc...due to automation and new ways of doing business. Won't happen overnight, but it's coming.

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