Hyperbolic Perceptions of Black-White Tipping Differences

Jar_for_tips_at_a_restaurant_in_New_JerseyDr. Zachary Brewster and Dr. Gerald Roman Nowak III of Wayne State University recently published an article in Cornell Hospitality Quarterly, which is entitled “Racial Prejudices, Racialized Workplaces, and Restaurant Servers’ Hyperbolic Perceptions of Black-White Tipping Differences.” We are pleased to welcome him as a contributor and excited to announce that the findings will be free to access on our site for a limited time. Below Dr. Brewster reveals the inspiration behind the research, as well as additional information not included in the final publication.

cqx .jpgWhile a fair and growing number of studies have observed statistically significant Black-White differences in tipping, the size of the estimated difference has varied greatly across studies. As such, it is not readily clear how much less Black customers on average actually tip their servers when compared to Whites. Further, there have been no studies published that have seriously interrogated the accuracy of servers’ perceptions of the Black-White tipping differential.  In fact, the existence of a Black-White difference in tipping is often taken as prima facie evidence that servers’ perceptions are generally accurate. Moreover, studies that aim to identify and test for individual and/or environmental factors that encourage the development and sustainment of exaggerated perceptions of Black-White tipping differences are lacking. These shortcoming in the literature on interracial differences in tipping motivated us to pursue this particular piece of research.

More generally, we were motivated to advance this line of inquiry because of the many implications surrounding servers’ perceptions of interracial differences in tipping practices—not the least of which is the threat that such differences pose to customer service. The majority of times that Black consumers visit a full-service restaurant they are likely to receive good service. However, when this is not the case, when Black customers are given a level of service that is less than should reasonably be expected, or even outright poor, it will inevitably sometimes stem from servers’ negativity towards these customers’ tipping practices. To curtail this threat to Blacks’ dining experiences scholars have advocated for initiatives that aim to increase Black Americans’ awareness and adherence to the U.S. norm prescribing that customers leave a tip that is equivalent to 15% – 20% of their bill if the service was acceptable. If Black Americans were as familiar with the 15% – 20% tipping norm as Whites, racial tipping differences would logically be attenuated.

However, our findings indicate that any initiative that is intended to curtail race-based customer service will necessarily have to be targeted towards changing servers’ perceptions as much as, if not more than, changing consumers’ tipping behaviors.  For instance, while a Black-White tipping difference does appear to exist (as a percentage of the bill we estimate the difference to be about 3.3 percentage points) our results underscore a segment of the population of restaurant servers who cognitively exaggerate the magnitude of this difference. Racially prejudiced servers as well as those who work in racialized workplaces are, in particular, likely to overstate the difference between Black and White customers’ actual tipping practices. Thus, to curtail the industry challenges that stem from Black-White tipping differences (e.g., service discrimination, lawsuits, etc.) we encourage restaurant operators to devise strategies to attenuate the individual and environmental manifestations of the racial prejudice that underpins servers’ stereotypic perceptions of Black customers’ tipping behaviors.

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Tip Jar photo attributed to Free-Photo (CC)

 

How Changes in the House Advantages of Reel Slots Affect Game Performance

backgammon-2488089_1920[We’re pleased to welcome authors Dr. Anthony F. Lucas of the University of Nevada and Katherine Spilde of San Diego State University. They recently published an article in Cornell Hospitality Quarterly entitled “How Changes in the House Advantages of Reel Slots Affect Game Performance,” which is currently free to read for a limited time. Below, they reflect on the inspiration for conducting this research:]

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Our motivation for this research stemmed from inquiries regarding extant policies for par selection and from the results of our previous research projects. Our prior work suggested that the highly skewed outcome distributions of modern slot machines would obscure even considerable differences in programmed casino advantages (i.e., pars), especially given the limited number of trials produced by individual players. In spite of these results, many industry stakeholders and casino operators contended that experienced players from high-visitation segments would be able to detect such differences over time. It was for these reasons that we decided to conduct the longitudinal field study with data collected from venues relying on a repeat clientele.

Our work is the first to focus on the longitudinal effects of par on unit-level game performance, within live casino settings. The results of our study were surprising in a couple ways. First, the high par games outperformed their low par counterparts, in terms of theoretical win. This surprised many operators who believed that frequent players would quickly recognize the value of the low par games, which were located a mere three feet away. Second, there was a lack of evidence of play migration, i.e., from the high par games to the low par games. The time series analyses failed to indicate a statistically significant and positive change in the magnitude of differences for both daily coin-in and theoretical win levels, over the sample periods. That is, the data failed to indicate a growing recognition of the differences in pars. If players were able to detect such differences we would expect to see both increased play and theoretical win levels on the low par game, over time. We would also expect to see simultaneous decreases in the same metrics on the high par game. To the contrary, these difference metrics remained stable within each two-game pairing, in spite of the clear economic disincentive for players to risk and lose bankroll to the game with the greater par.

Our results present an empirical challenged to the innervate wisdom regarding player hypersensitivity to par settings. Other slot operating paradigms related to “price” positioning and revenue optimization strategies are also contradicted by our findings. Because these all represent critical operating platforms, we are not sure how this work will ultimately impact the gaming industry. In large part, it depends on the willingness of those within it to re-examine longstanding beliefs and predispositions, and place evidence above instinct. While we expect some operators to accelerate in-house experimentation, it is likely that many will wait for future research, which we have in the pipeline.

It should be noted that without the cooperation of willing casino operators this research cannot be completed. They deserve a great deal of credit for bringing this work to light. Open minds bring positive change.

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Diversification, Branding, and Performance of Professional Service Firms

[We’re pleased to welcome authors Carolina Castaldi of the School of Innovation Sciences, Eindhoven University of Technology and Marco S. Giarratana of the Department of Strategy, IE Business School, IE University. They recently published an article in the Journal of Service Research entitled “Diversification, Branding, and Performance of Professional Service Firms,” which is currently free to read for a limited time. Below, Dr. Castaldi reflects on the inspiration for conducting this research:]

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What motivated you to pursue this research?

We have been interested for a while in figuring out how service companies manage to grow despite the absence of clear economies of scale/scope. Management consulting firms are an example of firms that define themselves as providing high-end customized services to organizations. If this is the value added that they propose, how can they manage to expand beyond simply hiring more professionals to deliver those specific services? The answer had to be found in the specific way in which these professional service firms diversify.

In what ways is your research innovative, and how do you think it will impact the field?

There is already extensive research on how diversification is at the core of companies’ growth. In this paper we are looking at a very specific type of diversification, namely the transition from offering only services to adding products. In the case of management consulting firms, several new business models are appearing that are based on ICT solutions embedded in software and other tools. These solutions offer clear economies of scale but they change the very nature of the service being offered to clients. What our results suggest is that diversification only translates in economic benefits when it is bounded to services. Moreover, it appears important for these firms to opt for branding strategies based on specialized narrow brands developed for each new service segment.

What advice would you give to new scholars and incoming researchers in this particular field of study?

We would like to encourage more scholars to exploit trademarks data in empirical research at the firm level. In this study we have used trademarks to capture both the product diversification of professional service firms and their branding strategy. Trademarks are registered for specific product and/or service classes. Here we have captured the transition to products by looking at companies shifting their trademark applications towards including service classes. One can also use trademarks to capture the opposite process, namely servitization, i.e. adding services next to products. Trademarks are used extensively across all economic sectors, including service sectors. They are also used by firms of all sizes. These are two properties that make them salient data for constructing novel indicators of market strategies. For more ideas, check out our other papers as well.

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How Consumers Assess Free E-Services

cyberspace-2784907_1920[We’re pleased to welcome authors Björn A. Hüttel of the University of Passau, Jan Hendrik Schuman of the University of Passau, Martin Mende of Florida State University, Maura L. Scott of Florida State University, and Christian J. Wagner of the University of Passau. They recently published an article in the Journal of Service Research entitled “How Consumers Assess Free E-Services: The Role of Benefit-Inflation and Cost-Deflation Effects,” which is currently free to read for a limited time. Below, Dr. Hüttel reflects on the inspiration for conducting this research:]

02JSR13_Covers.inddWhat motivated us to pursue this research was that free digital services are dominating the Internet, however to date it is not well understood why free online services are so successful. In particular, the business model of successful service firms such as Google or Facebook rest on consumers’ nonmonetary payments, for example users must pay the “free” service by giving their attention to advertising. To illustrate further, consumers may receive a free email account or music subscription, but incur nonmonetary costs through exposure to advertisements or disclosure of personal information. Due to the importance of nonmonetary costs for the design of free digital services, we were interested in how consumers perceive nonmonetary costs and how these cost perceptions influence their decisions for or against the usage of free online services.

Because we identify novel mechanisms that help explain free services’ success we believe that our findings can impact the research field of “free” as a business model as well as the behavior of consumers when deciding to purchase free digital services. Specifically, from a consumer perspective, we find that consumers should be cognizant that their decision for or against the usage of free online services is influenced by two distinct effects: a benefit-inflation effect, such that they tend to overemphasize the benefits of free service offerings, and a cost-deflation effect, such that they judge the corresponding nonmonetary costs as lower. These two effects are separate drivers of the success of free digital offerings and consumers must recognize that the effects can and will be leveraged by marketers such as by bundling free services with relatively more advertisements. Consumers thus must realize that a label “free” means that they often have to contribute more nonmonetary costs, a fact which they should consider when evaluating a free digital service offering.

From an industry point of view, our findings have implications for the success of business models in the online environment. Firms that intend to switch their business model from free to fee and offer e-services for very low prices (i.e., apps for $.99) should note that consumers will likely judge the associated nonmonetary costs as significantly higher in the presence of the monetary fee, with negative downstream effects on demand. Therefore, it may be more effective to offer the service for free and benefit from the cost-deflation effect by selling more advertising

We like to thank Kristina Shampanier, Nina Mazar, as well as Dan Ariely for their inspiring initial work on the zero-price effect, on which we build heavily. To continue, we believe that future research in this field is necessary, especially in light of the growing importance of nonmonetary cost-related topics in the society such as consumer privacy concerns, private data usage and the employment of customers for conducting co-creation tasks in order to receive free offerings.

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Customer Service photo attributed to jarmoluk. (CC)

Customer-Firm Interactions

cup-2884023_1920[We’re pleased to welcome authors Jesús Cambra-Fierro of the University Pablo of Olavide, Iguácel Melero-Polo of the University of Zaragoza,  F. Javier Sese of the University of Zaragoza, and Jenny van Doorn of the University of Groningen. Wakefield. They recently published an article in the Journal of Service Research entitled “Customer-Firm Interactions and the Path to Profitability: A Chain-of-Effects Model,” which is currently free to read for a limited time. Below, Dr. Melero-Polo reflects on the theories and implications of this research:]

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This study investigates a chain of effects to understand the causal path from customer informational inquiries (CIIs) and firm-initiated contacts (FICs) to customer profitability. Customer–firm interactions are the starting point of the relationship between these parties, and contribute to determining the relationship’s future (Dwyer, Schurr, and Oh 1987; Anderson and Weitz 1992). These interactions can be initiated either by firms or by customers. Although companies have traditionally taken the initiative to contact customers (FICs), nowadays, the growing importance of the customer in value-creation processes has changed the rules of the game. Thus, there has been a significant increase in the number of CIIs that companies have to properly manage. However, despite the importance of this topic, more research was needed to clarify the effectiveness of FICs and CIIs (Hennig-Thurau, Gwinner, and Gremler 2002; Hogan et al. 2002; Palmatier et al. 2006).

Drawing on social exchange theory, our framework identifies a set of attitudinal (perceived relationship investment and relationship quality), behavioral (customer cross-buy and service usage), and financial (customer profitability) consequences of CIIs and FICs, and also explores the extent to which customer-perceived financial risk and customer involvement shape attitudinal reactions to CIIs and FICs. We follow Bolton, Lemon, and Verhoef (2004), who propose a causal sequence of the effects of marketing instruments (FICs): (1) FICs influence relationship perceptions, (2) which influence customer behaviors, (3) which, in turn, affect financial outcomes. However, we go a step further and empirically analyze the chain of effects following FICs and CIIs. Furthermore, we include two contingency variables that can help in understanding how these customer–firm interactions (FICs and CIIs) contribute to building stronger relationships.

Through our analysis of this chain of effects, we are able to propose specific guidelines for managers in order to improve customer–firm relationships and increase the value that each customer can provide to the firm.
Our contingency framework reveals that the impact of FICs and CIIs may vary between different customers depending on their levels of perceived risk and customer involvement. Specifically, FICs and CIIs are a particularly valuable tool for strengthening the relationship with customers with a low level of involvement, but high perception of financial services risk. For highly involved customers, FICs and CIIs are not very effective; CIIs can even backfire if the customer also perceives the risk to be low. Our results highlight the importance of market segmentation for marketers to more effectively manage when and to whom they should target marketing activities (FICs) and steer CIIs.

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Interaction photo attributed to rawpixel. (CC)

The Impact of FSMA on Restaurants

restaurant-2623071_1920[We’re pleased to welcome author Mark Johnson of Michigan State University. He recently published an article in Cornell Hospitality Quarterly entitled “An End User Perspective: The Impact of FSMA on Restaurants,” which is currently free to read for a limited time. Below, Dr. Johnson talks about the background of this research:]

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On January 4, 2011, President Obama signed into law the Food Safety Modernization Act (FSMA or P.L. 111-353). This act may be the most far-reaching food safety legislation since the Food, Drug and Cosmetics Act of 1938 (FDCA). FSMA aims to ensure that the U.S. food supply is safe by shifting the focus of regulation from contamination response to prevention. This legislation imposes administrative costs on the food supply chain in the U.S. by requiring additional record keeping and safety procedures.

The law created record keeping requirements for firms. These requirements are often referred to as one-up-one-down. This nickname emphasizes the fact that the act requires grocers, wholesalers, and food processors to keep track of the immediate parties that they buy food and food products from as well as the parties that they sell food and food products too. This ensures that any contamination problems in the U.S. food supply chain can quickly and efficiently be traced to its source and aid in the rapid response to foodborne illness before it becomes widespread. The Congressional Budget office (August 12, 2010) estimated that FSMA would directly cost taxpayers $1.4 Billion through federal administrative costs. However, attempts to measure the costs imposed on businesses by the legislation were largely ignored until we reported, in a previous study, that expected costs to food processors, wholesalers and grocers was approximately 10% of equity value (Johnson and Lawson 2016). This represented a market value cost of $33 Billion. This previous result encouraged me to consider that others in the food supply chain, end users, such as consumers and restaurants may bear some of these supply chain costs.

The surprising evidence from my current article indicates that restaurants lost approximately 5% of firm value. In this case of restaurants this represents approximately 7.5 billion dollars of lost value. These equity costs represent expected future cash flow and risk effects for the firms studied. These costs, 1.4+33+7.5= $42B, should be weighed against the potential benefits to consumers that the act brings. These benefits may be directly measurable in a potential drop in food borne illness cases over the next 5-10 years as the act is fully implemented.

Previous article:
The Impact of the Food Safety and Modernization Act on Firm Value,” M. Johnson and T. Lawson, Agricultural Finance Review, 2016, 76(2): 233-245.
Current article:
An End User Perspective: The Impact of FSMA on Restaurants,” M. Johnson, Cornell Hospitality Quarterly, Forthcoming

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Kitchen photo attributed to StockSnap. (CC)

The Bias of Size in Gambling Decisions: Evidence from a Casino Game Hierarchy

backgammon-2488089_1920[We’re pleased to welcome author Lawrence Hoc Nang Fong, Davis Ka Choi Fong, Robin Chark, Peter Man Wai Chui of the University of Macau. They recently published an article in Cornell Hospitality Quarterly entitled “The Bias of Size in Gambling Decisions: Evidence from a Casino Game,” which is currently free to read for a limited time. Below, Dr. Wang reflects on the inspiration for conducting this research:]

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What motivated you to pursue this research?
This study stems from the authors’ observations of Cussec players in casinos. As gamblers strive to predict the outcome based on previous outcome pattern shown on the screen which is attached to the table, is there any other hint they are trying to locate? While the Chinese characters “Big” and “Small” are clearly displayed on the screen, they can be the hint. Our feeling is that gamblers would incline to bet on “Big” as it sounds more positive than “Small” and they may intrinsically link “Big” to win which is the positive outcome in gambling. Given this speculation, we’ve tried to find whether there had been a study about the said phenomenon, but we got nothing. We think this topic deserves documentation in the literature and thus initiated this research.

In what ways is your research innovative, and how do you think it will impact the field?
Cognitive bias has been a popular research agenda for decades. The bias of size, to our best understanding, remains unexamined. We believe that this study opens a new research stream of cognitive bias in gambling. Future research may examine the questions that we raised at the end of the paper:
“Is the bias maintained if the cue is physical size? In the gambling context, will an outcome option with a larger area on the table layout signal a higher chance of winning?”

What is the most important/ influential piece of scholarship you’ve read in the last year?
Peetz and Soliman’s (2016) paper entitled “Big money: The effect of money size on value perceptions and saving motivation” is an importance piece of work that sheds light to our study. They found that a picture of money with larger size was perceived as more valuable. While gambling is an activity overwhelmed by monetary reward, the mental link between “Big” and win (money as reward) is not unreasonable. We felt blessed to discover and read Peetz and Soliman’s paper.

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