All Tech Considered
1:07 am
Wed March 5, 2014

Technology May Turn You Into A Bigger Tipper

Originally published on Wed March 5, 2014 12:24 pm

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.

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

Transcript

DAVID GREENE, HOST:

So we can now add tipping to the list of things technology is changing in our lives. You might be used to rounding up on your taxi ride or dropping a buck or two in a jar at the coffee shop.

But reporter Dan Bobkoff finds that smart software is nudging us to tip more and more often.

DAN BOBKOFF, BYLINE: This is a story about how small changes in the way we pay for things can make a big difference in how much we tip.

First, take Molly Moon Homemade Ice Cream in Seattle.

MOLLY MOON NEITZEL: I have six ice cream shops.

BOBKOFF: This is Molly Moon Neitzel herself. And, at one of her shops last year, she installed a kind of iPad cash register.

The company that makes it is called Square. And, it works like this. You order a scoop of ice cream, decide you want to use a credit card, the scooper behind the counter flips the iPad around where you swipe your card, and before you can do anything, you see tip options on the screen.

NEITZEL: So buttons say one dollar, two dollars, three dollars or no tip.

BOBKOFF: You physically have to hit no tip - and feel like a jerk - if you want to be stingy. And, the system is smart. Buy just one cone, and it will give you whole dollar tip suggestions. Buy scoops for an entire little league team, and square suggests percentage tips.

These might sound like small things, but Neitzel says her staff at the store using square noticed they were quickly making 50 percent more in tips.

NEITZEL: People were wanting to trade their shifts in other neighborhoods and come work in this shop, only.

(LAUGHTER)

BOBKOFF: Then, one day, Square updated its software so that the tip options were on the same screen as your signature. No longer did you have to choose a tip to get to the next screen.

NEITZEL: Our employees at that shop started to freak out.

BOBKOFF: That small tweak, she says, meant they were making a lot less money. In a couple of days, Square restored the old way, and avoided a riot.

Next, let's go to Chicago.

KAREEM HAGGAG: Ok. All right, we're getting into the cab now.

(SOUNDBITE OF DOOR CLOSING)

UNIDENTIFIED MAN #1: Hello.

HAGGAG: Hi.

BOBKOFF: Kareem Haggag is taking a taxi to a coffee shop.

HAGGAG: I'm a PhD student in economics at the University of Chicago's Booth School of Business.

BOBKOFF: And, just like at Molly Moon's, when he goes to pay in the cab, the screen gives him a few tip options.

HAGGAG: There are three buttons here. These are actually not percentage amounts, instead it's $2, $3 and $4.

BOBKOFF: Haggag was intrigued by these suggestions. He started looking into it, and ended up co-authoring a paper based on 13 million cab rides in New York City. And, they 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.

HAGGAG: The first result sort of raises the question, if taxis can just increase their revenues by making this small change, why don't they just keep raising their percentages through the roof?

BOBKOFF: It turns out taxis that suggested higher tips did take in more money. But suggesting a 30 percent tip also really annoyed a lot of taxi riders.

HAGGAG: The backlash effect. So what we found is that the proportion who leave no credit card tip also jumps, so more Than a 50 percent increase.

BOBKOFF: Haggag gives the taxi driver a nice tip on the screen, and heads to Bridgewater Coffee Company.

HAGGAG: Trudging through the snow to the coffee shop.

BOBKOFF: And, he orders a coffee.

UNIDENTIFIED MAN #2: To go?

HAGGAG: Yup.

BOBKOFF: Here too, he gets tip suggestions on an iPad.

HAGGAG: Fifteen percent, 18 percent and 20 percent.

BOBKOFF: And, this brings us to point number three. 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 change norms. If it used to be okay just to round up to the nearest dollar, maybe now a 20 percent tip will become standard.

HAGGAG: Customers might have seen these buttons and inferred that 20 percent is what everyone else does, and so I'm going to try and do that.

BOBKOFF: And, with that, Haggag leaves the coffee shop, gets back in the cab, tips the driver a generous $4.

HAGGAG: I'll go ahead and push $4.

UNIDENTIFIED MAN #3: Thank you.

BOBKOFF: And, probably just gave a lot more than he would have if technology hadn't nudged him to be generous.

For NPR News, I'm Dan Bobkoff. Transcript provided by NPR, Copyright NPR.