This week, Starbucks launched an iOS update that allows customers to tip their baristas from within the mobile app immediately after paying. The new digital mobile payment feature will likely be no small change for Starbucks, which boasts a dedicated base of nearly 10 million customers already using the mobile app for in-store transactions. In the updated app, users have the option to add $0.50, $1, $2 (or no tip) to their order with a single tap.
With the new release, Starbucks joins the ranks of digital leaders betting on innovation in transactional design to change the way people tip in an increasingly cashless society. Digital mobile payment service Square brings tipping to the forefront of its checkout flow and Uber automatically includes tip for all of its riders. New York City-based startup Cover, the so-called “Uber of restaurants”, allows users to skip the hassle of waiting for the check by paying for their meal (and tipping) through the digital mobile payment app. The result: the average Cover user tips 21.7% — a bold 3% more than the average New Yorker.
Though Cover co-founder Mark Egerman admits that Cover users are better off financially than the average New Yorker, Cover’s elevated tips are supported by behavioral economic theory indicating that well-designed digital pathways can be successful in encouraging users to tip up. Digital and mobile payments, even more so than credit cards, minimize “the pain of paying” by widening the psychological gap between the task being performed and the “real money” behind it.
The success of digital tipping hinges on two principles: realignment of consumer expectations and optimization of simple, easy-to-follow paths to purchase.
When New York City taxi cabs began accepting credit cards payments in 2007, riders were faced with a prominent new option to add a tip of 15%, 20%, or 25% at the end of the ride. Though these amounts seemed steep to early riders, tipping behavior soon rose to meet these high expectations and taxi cab revenue increased by 13% over the next two years. This tactic is referred to as “anchoring”, the establishment of a certain context or expectation that leads consumers to reconsider a behavioral norm. When you’re given the options of tipping 15-25%, a 10% tip suddenly feels very cheap. Uber, Cover, and Seamless employ a similar tactic by including a default tip with all transactions, a practice which relies on passive users’ propensity to conform to an expected tip rather than deal with the tension and effort of opting out or tipping down.The second principle driving the success of digital tipping is the optimized, intentional design of digital paths to purchase that nudge users toward tipping. These paths should be simple, easy, and enjoyable, while still calling appropriate attention to tipping. Square’s two-step checkout process gives tipping its own screen — before the final payment. Starbucks users can add a tip in-app at any time over the two hours following their purchase. The easier it is to tip, and the more naturally tipping fits into the transactional flow, the more customers will do so.
In the end, tipping is yet another traditional business practice being upended by digital strategies that improve consumer experiences and drive increased revenue. All companies should be identifying their core consumers and developing a business case around desired consumer behaviors (ie. purchase, sharing, and content consumption). Upon identifying a key behavior, companies can apply the lessons learned from digital tipping: realign consumer expectations so that the desired behavior is the norm, and above all else, make the desired behavior easy through thoughtful digital design.