“Tipping is this bizarre mess of a system”

Walnut includes tips in every move, but is it sustainable?

This is a follow up on the test launch of Walnut, a startup moving company. If this is your first time hearing of Walnut, we suggest you start here:

“Seriously, a moving company?” — Nick KimAn Introduction to Walnut — Dylan Kindler

Thanks, Nick & Dylan

UPDATE: Why we’re closing Walnut

Tipping is fundamental to customer pricing and employee wages in most service industries, but it is a broken system for both sides. At Walnut, we’ve removed tipping from our experience, and everyone loves the change. Unfortunately, it may affect our business model in unsustainable ways.

Even Kevin McCallister isn’t safe from the awkward linger (YouTube)

“At some point, the US decided that customers, not employers, should pay the salaries of service employees…it’s been this bizarre mess of a system ever since.”

—Tim Urban, Everything You Don’t Know about Tipping

Tipping is all over the place. From hotels to restaurants and salons to valets, employees from almost every consumer service industry rely on tips as part of their wages. This system fails in numerous ways:

Tipping is biased

Surprising no one, researchers have found that attractive waitresses receive larger tips. Unfortunately, biases can affect service relationships in the other direction too: employees may treat customers differently based on stereotypes about their tipping behavior.

Tipping is unpredictable

Some customers tip a lot and others tip a little. Earnings can be more about the luck of the draw than the quality of service delivered. To plan their lives, employees deserve to be paid fairly and consistently week to week.

Tipping is stressful

Tipping is burdensome and confusing for customers too. Why should people with no history of the employee’s performance determine their pay? In most cases, customers don’t want that responsibility either.

Tipping is awkward

Is it better to tip in cash? What is the right amount of tip? What happens if the employee and customer disagree on the quality of service? There are a lot awkward silences that leave both parties confused and frustrated.

“Please help”

Tipping especially fails the moving industry. Everyone has different ideas:

For a three-hour move, tips could range from $30 to $100 per person!

This short conversation shows why tipping issues are exaggerated in moving. Unlike in restaurants where norms have been established, people don’t know how to tip their movers. Confused customers lead to frustrated employees, and it’s rare that either side feels good about the transaction. Lose-lose.

In this environment, it’s clear why movers may work differently job to job—the inconsistency naturally surfaces biases they’ve developed about tippers. In the worst cases, they completely destroy customer relationships over tips.

We’ve heard from customers that other movers loudly voice dissatisfaction with their hourly pay to try to get bigger tips: “I don’t get paid enough for this sh*t.” Others play games with the customer’s work order: “This couch wasn’t on the inventory list, but we’ll move it for you if you give us $100.” Some even refuse to leave until they receive more tips!

These issues all came up in our customer research. That’s why, for our test launch this summer, we included tips into the sticker price of every Walnut move. This way, our customers avoid awkward cash transactions at the end of their moves, and our team makes higher and more consistent base wages.

Seems like a win-win, right? Not exactly.

It is nearly impossible to change consumer behavior

We pay our movers ~15% more in base wages than other moving companies, and as a rule, they decline tips on moving day. Everyone we’ve interviewed and hired prefers this approach, but it introduces a new challenge: how might we add tips to the base price when no other company includes them?

Although the sticker prices are different, Walnut has cost about the same as other companies this summer. We may quote $1,150 inclusive of tips for what another company quotes at $1,000. With a normal $150 tip, the moves are priced equally. Who wouldn’t choose a hospitality-inspired experience with no awkward cash transaction for the same price as the traditional company?

Many people, it turns out. Our tip-included policy relies on the belief that customers would see both options above as equal. This is a false assumption.

A real example

In July we quoted someone $1,195 for her large one bedroom move. She asked us to match the $1,100 quote she got elsewhere, and we explained that we offer our best price to every customer and that tips were included in the price. She simply stopped responding. She probably spent more than she would have with Walnut, but she went with the company that had a lower sticker price.

Psychologists may have predicted this. With so many low cost, low service options available, anchoring bias may set artificially low expectations of price. Shoppers may substitute the hard question, “what will I pay in total for my move?” with the easier question, “which quote is lower?”

Additionally, it’s not clear that even Walnut’s paying customers appreciate this tip-included policy. We’ve seen that 85% of Walnut customers still try to tip at the end of their moves. When we decline the tip, they think they are saving money.

That means one of two things:

1. The tip-included policy isn’t clear and credible. Customers don’t know about it, forgot about it, or don’t believe us when we say it’s included. Or,
2. The tip-included policy doesn’t matter. Customers know it and believe it, but still want to tip anyway, as long as it’s not baked into the quote.

If our tip-included policy doesn’t factor into the shopping process, and if it doesn’t add value to the experience for customers, it is not a differentiator for Walnut. In this environment, we compete on sticker price. We can’t.

Walnut’s business model relies on collecting tips in the base prices of moves. In our business model it is difficult, and maybe impossible, to be profitable when charging equal base prices and paying higher base wages to our team.

So…we should just accept tips?

Removing tipping is objectively a better experience for customers and employees. It comes up time and time again in surveys, interviews, and any other research we’ve done on the industry. We also deliberately set out to create the best experience in moving. How could we ignore our findings?

But, if we can’t change consumer behavior around tipping movers, can our no-tipping model survive? Would it come at the expense of our ability to provide good, dependable wages to our employees?

Which leaves us with an unsettling question: if the model doesn’t work, aren’t we becoming just another moving company?

About Walnut

UPDATE: Why we’re closing Walnut

We set out to learn if we could become the first hospitality brand in moving. A great moving company should not simply execute transactions like faceless transportation and logistics companies. Our goal is to build relationships with our customers and change how they feel about moving.

If you are moving in New York or the surrounding areas, please fill out this Moving Roadmap so we can get to know you better. To say just hello, email us at [email protected] or [email protected].

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Thanks, Nick & Dylan