Saturday, February 9, 2013

The Restaurant Service Auction Market

A recent story about a cheap pastor in St. Louis who got an Applebee’s server fired for uploading a copy of the pastor’s receipt (the pastor didn’t like the mandatory 18% tip for a group of 6, so she stiffed the server citing religious reasons) got me thinking about the Principal-Agent Problem again. I won’t dwell on it too much, but two quick things: 

First off, the obvious: doesn’t 10% seem a little low for a pastor? Why bother giving that figure, anyway? 

Secondly, punishing the server for a (disclosed and commonly applied) mandatory tip is a textbook example of the perils of the Principal-Agent Problem in the food service industry. The pastor should have gone directly to the manager to complain about the policy, but decided to take it out on the lowly server.

The fact that a religious figure was involved is a large part of why this story got out, but the fact of the matter is: the pastor should have taken out her frustration in another manner. It’s not like people blame her for bad weather events (a.k.a. Acts of God), right? 

Anyway, this sort of customer behavior can be avoided through a market approach. That is why, if I were to open a restaurant, I’d try something like this: 

  • All tips are set at a minimum of 15% and are pooled among all restaurant staff and there is no cap (i.e. a customer could bid for a 100% tip if they so desired)
  • Additional preferred treatment can be arranged by bidding (in units of % of the bill as total tip), such as: 
    • Personal food/drink recommendations
    • Faster service (this would be automatically controlled by the kitchen and bar – servers may game the system by holding up orders to appear like service to other tables is faster; customers can bid on when their meals or drinks come out) 
      • The estimated time of arrival of the meal or drink must be known to the customer for transparency. 
    • Requests for special occasions (birthdays, engagements, etc.) 
  • Customers are held to their promised tip amount unless the promised service at the time of the bid is not met (e.g. the food arrives a few minutes late) 
  • The price for a “bid for preferential treatment” is based on supply and demand. For instance, if it’s a busy Friday night with lots of people bidding, a 1% increase in tip won’t get you to the top of the list. 
    • Customers would only know if there is someone ahead of them and will be told by the system the current price (in % of tip) of a bid for a given request 
    • Someone who does not bid must be guaranteed some reasonable level of service. You might think of this as the “floor.” 
  • Standard quality must be maintained no matter how "rushed" a customer wants their food. This gets tricky if people want their food to be cooked faster than good quality would allow. This would need to be factored into resource constraints when telling the customer how quickly the food can be delivered to their table.

I'm not sure how well it would work (i.e. how long I'd stay in business), but it would be a good dining experiment.

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