The effects of tipping policies on customer satisfaction: A test from the cruise industry

Many in the media have called for the abolition of the practice of tipping and at least some resorts, private clubs, hotels, and restaurants have replaced tipping with automatic service charges or service inclusive pricing. Particularly notable in this regard is the cruise industry, where several of the largest brands have switched to an automatic service charge system. Given the popularity of tipping and its perceived role as an incentive/reward for service, such moves to replace tipping with service charges seem likely to have negative effects on customer satisfaction. We test this expectation by examining the effects of Carnival Cruise Line's tipping policy change in the early 2000s on its customers’ evaluations of their cruise experience. After controlling for the effect of ship and review date, we found that Carnival Cruise Line's guests rated their cruise more positively when they sailed under a voluntary-tipping policy than when automatic service charges were added to their onboard bills. However, this effect was small and need not deter firms from replacing voluntary tipping with service charges. Discussion of this finding focuses on ways services marketers might be able to mitigate this modest negative effect of service charges.