Relatively common practices like slipping friends an extra appetizer or comping drinks cost companies as much as $80 billion annually and do little to improve customer loyalty, according to a new survey by researchers at Florida State University.
Two thirds of service industry employees surveyed admitted to "sweethearting," which Michael Brady, one of the authors of the study, says extends far beyond rewarding loyal customers.
"They are behaviors outside the bounds of what the company allows. If you have a good customer, most bars will let you give them a free drink every once in a while. We're not talking about that," Brady says of the study, which will be published in the March issue of the Journal of Marketing. "There has to be a social relationship between the employee and customer. The idea is that the employee gives away goods and services as a token of affection."
That affection is costing companies big time. Employee theft has been estimated to cost American companies nearly $200 billion annually, and sweethearting makes up about 40 percent of that loss. Compared to the more than $3 trillion spent annually at retail and food service, that can seem like chump change, but it adds up, especially for small businesses. According to the U.S. Chamber of Commerce, approximately one third of business bankruptcies are attributed at least partly to employee theft.
Sweethearting, Brady says, can be anything from a free drink at a bar to "forgetting" to charge a friend for a shirt. According to respondents, many in the service industry feel that hooking up friends is a job perk.
Unlike shoplifting, "people don't see an ethical issue with it," Brady says. "For most, it was an employee reward they almost feel entitled too. They're not hiding it whatsoever."
Within a town, employees at different shops might trade goods and services whenever they can.
"It's a network," he says. "They're bartering wherever they work. It's, 'You clean my skis in Aspen and I'll give you free lift tickets.'"
Besides the monetary impacts, there aren't any side benefits for the company, according to the survey. Beneficiaries aren't likely to be loyal customers or spread good word-of-mouth vibes.
"We were looking for a silver lining to this otherwise negative situation—maybe customers would say, 'You should go to this place,'" Brady says. Instead, the beneficiary will just feel closer to the friend.
According to the researchers, there are tactics business owners can try to cut down on employee theft. Personality tests that identify potential employees who have high moral standards and aren't thrill seekers seems to do a good job of identifying potential thieves. Technologies similar to those used in a Las Vegas casino have even been developed to watch employees' hand movements at the register, making sure they aren't slipping an item into the bag without ringing it up. While those technologies can help, Brady says it's up to business owners to create a culture of morality and let employees know they're watching out for theft.
"If you make it easy for them, it's far more common," he says. "With companies that keep inventory, that are on the ball, it's far less common. It's about being aware and vigilant."