Different Price Points May Significantly Impact Tipping
If your barber charges $15 for a haircut, what will be the average tip? At $15, will $5 be the most common tip? Because it’s a 33% tip, perhaps not. For those on a budget or with a tight financial situation, a $2 or $3 might be more in order. If the most common tip is $3 at the $15 price point, it’s still generous at 20%.
After a few years, let’s say prices increase by $1, how will tipping be impacted? Perhaps $16 is closer to $20 so you may just hand John or Bill the barber an Andrew Jackson and thank him for a job well done. That of course, would still be an attractive tip — 25% variety. For those who tip at 25%, do they tip the same percentage at a restaurant after a fine dining experience? Will you be more likely to tip your barber a larger percentage than the restaurant because the haircut price point is not as expensive?
Inflation is the real constant and eventually the barbershop decides to increase the cost of a men’s haircut to $17. How will the tipping be impacted? Because there’s still a gap between 17 and 20, the common ritual might be to hand the barber an Andrew Jackson and thank him for his professionalism. Some customers who may give $25 for a $17 haircut although that would be an anomaly. At the $17 price point, I’ve rarely seen anything give anything beyond a Jackson for the service and tip.
Prices for services rarely are deflationary so eventually the barbershop feels compelled to raise their price from to $18 for a men’s haircut. This is where tipping becomes more intriguing. How many of the regular customers will continue to give 20 dollars for an $18 haircut? How many of these customers routinely review the haircut prices to know how generous they should be? The $18 haircut is at a precarious price point. If you give your barber $25, that’s almost a 40% tip. If you give him $20, that’s a little over 10%. Do others give him a $20 and then several Washington’s’? Some may tip $7 and others $2. At this price point, how will the barbers make out in the end with this new haircut price? Or, is the overall accumulation the same?
Eventually, when a new price increase happens, logic may apply so the $18 haircut would increase to $20. Would it not be awkward to increase the price of a haircut from $18 to $19 when it’s so close to an even number? If this change occurs, any tips at this price will require more than one greenback (unless of course you give your barber a Grant or Franklin).
I wonder if service providers have done any research on the actual price of the service and the potential tip at each price point. In other words, perhaps having the price at $15 or $16 will mean fewer profits but more tips. Once it rises to $17 or $18, their profits will increase but tips will be reduced. On the other hand, one could argue that their profits will stay the same. With fewer fees, the tips will be greater. When the fees are increased, the tips will be less but the net income might be the same. If their prices align to the consumer price index as their business matures, wouldn’t the average amount a customer tips be the determining factor in whether their income rises or falls?