The Impact of No-Tipping on Customer Online Reviews

This study examines the effects of a no-tipping policy on online customer reviews in the restaurant industry. Relevant literature in hospitality and behavioral economics suggests that on average, no-tipping can reduce customer satisfaction. However, it remains unclear how customers might respond differently based on their cultural background and how business owners could manage their responses and adapt over time. To understand such customer heterogeneity and managerial dynamics, we explore three research questions: (1) How does no-tipping lead to changes in online customer reviews, including ratings and sentiments in specific areas of business operations? (2) How does cultural diversity in the customer environment moderate these effects? (3) Does no-tipping shift business owners to respond to online reviews differently, and if yes, how do such responses, in turn, affect future online reviews? To address these questions, we collect online review data of a restaurant chain, Joe’s Crab Shack, which introduced a no-tipping policy at 18 of its 131 restaurants at different times in 2015. The restaurants without tipping charge higher menu prices to compensate their servers. We supplement the restaurant-level data with U.S. census data that capture the cultural diversity in each city where the restaurant is located. Our study aims to discover granular understanding about the impact of no-tipping and provide implications for businesses to manage online reviews in response to a policy change