Ethics of Shoe-Shine Pricing

A few days ago at the airport I stopped to have my shoes shined professionally, something I rarely do. The service was excellent. The guy doing the work was pleasant and knowledgeable, and the results were beautiful. The price, revealed at the end of the process: $6.75. I gave the guy a ten, and told him to keep the change. Now, that’s not exactly enough to make me think I’m a big spender, but it’s pretty good, percentage-wise (nearly a 50% tip). The guy sitting next to me did the same thing, by the way, and I’m betting that’s actually a pretty common pattern.

This got me thinking about the relationship between pricing, tipping, and currency denominations. If the price of the shoe-shine were $8.00, most people likely would still give the guy the same $10, resulting in a substantially smaller tip. But if the price were closer to $5, I bet most people would pull out a $5 bill and then looked for some change to add as a tip. So whoever sets the basic price for the shoe-shine has enormous power to influence the size of tips.

Now, the guy who shined my shoes was wearing a shirt bearing the logo of a chain of shoe care-and-repair stores, so I’m guessing he wasn’t setting his own prices. This implies that the company he works for, in addition to making a decision about his base pay, is also, through its pricing policies, making a decision that likely has an even bigger impact on his income. Of course, that decision is not entirely unrestricted. The company in question has to cover its costs. But presumably it has different pricing strategies open to it. Crudely, it can set prices high, which will likely keep demand down but will result in a big per-sale profit margin; or the company can set its prices low, and rely on volume. Either strategy might make economic sense. If (and that might be a big “if”) both strategies have the potential to work out equally well for the company, that means the choice is open, and the potential is there to base pricing on whichever strategy will do the most for employees in terms of providing customers an incentive for large tips.

(Another example: any bar manager that sets the price of a beer at $4.50 is pretty much ensuring that wait-staff are going to get lousy tips — the temptation for many people is going to be to plunk $5 onto the bar, resulting in a tip of 50 cents or 11%.)

But the factual foundation of this question, beyond my own anecdote, is all speculation on my part. I’ve never had a job where I relied on tips. Can anyone shed any light on the relevant facts, here? And does anyone know whether incentivizing tipping is something companies ever take into consideration in their pricing decisions?

5 comments so far

  1. Franziska on

    Hi Chris,

    I hope it’s fine for you to use your first name. Nice blog that you have there.

    Since I am working in hospitality for years and years now in different countries of the world I can say that it is depending on where you are how good tips are coming in.

    I am born in Germany living in Egypt now having worked for quiet some time in Canada I have the comparison of very different environments.

    Where in Germany a good tipping attitude has never been very popular tipping where salaries are somewhat higher then maybe elsewhere?! We should as well take the Euro changes into account that has even decreased tipping. Where in Canada you have this unspoken ten percent (it was I believe) rule and where ever you work you surely will get tips. Still all of it connected to the quality of service you provide.

    Thats fore once and there are actually employers that think the way of prices you have explained above. I had the pleasure to work for one for some years.

    I am now a hotel manager myself and if there is a pricing decision to make I would consider tips possibilities as well. I am unfortunately running an All Inclusive business so there is little chance for tips. The “All In” business is ruining the tips idea anyhow. Here in Egypt however I am getting the question on how one should tip quiet frequently and I try to answer as honest as possible with as many details as I am allowed to reveal without hurting company policies.

    I believe that it is down to the one running the business as I have never heard of a company policy that includes the pricing to be tips friendly but I might be wrong here.

    I believe however that taking such question into account will increase motivation to an extend that might give me possibilities I wont have without incentive-thinking….

    I hope that this brings a little light into how tipping is done in some parts of the world.

    I wish everyone a nice day.

    Franziska

  2. Matthew Brophy on

    My friend, Charles, can be a bit of a cheapskate. In graduate school, a few buddies would go to a local pub for 50 cent beer night. They give you a cup and each fill is 50 cents. He gave the server 75 cents and told her to keep the change, to which we rolled our eyes. His reasoning was that the extra quarter was a generous 50% tip! While he was technically correct, the mere service of filling your cup with draft beer is traditionally a dollar per beer. To hold the server hostage to a more-than-generous discount night seems dubious in terms of ettiquette and perhaps even ethics (if she, say, earns her college tuition and/or salary this way). Needless to report, the server did not come back to serve us with much alacrity given other patrons who were far more “generous” with their tipping.

  3. Mark on

    I’m from a country where tipping is extrememly unusual and basically confined to very small sections of the overseas tourism industry. The minimum wage was invented here and many people in Australia regard tipping as essentially demeaning of an employee and their work. Why should any proportion of their income be dependent on the whim of their customers? Whereever I encounter it, my gut reaction to tipping is always that it is a sympton of a deeply unethical system of worker remuneration. Why is this person not being paid a decent wage and why should they rely on random acts of charity to top their salary to some reasonable level. So for me the whole tipping culture is unethical, dehumanising and a social ill that needs to be overcome like indentured labour.

    • Chris MacDonald on

      Mark:

      If that’s your view, what does that imply for the question I posed above regarding employers’ obligations? Assuming employees’ base pay is already as high as it’s going to get, should employers be indifferent to how their pricing decisions affect what you call customers “random acts of charity” (and what others would regard as rewards or incentives)?

      Some businesses do post signs discouraging tipping, of course. I have no idea how employees feel about that.

      Chris.

  4. [...] on April 7, 2011 by jubsjubs A blog entry from the businessethicsblog by Chris MacDonald, “Ethics of Shoe Shine Pricing“¬†commented on the $6.75 price of a shoe shine, and how that encouraged customers to give $10 [...]


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