Monday, February 25, 2013

Goodbye to the Penny (Maybe)

Canada is phasing pennies out of circulation because the cost of materials and minting a single penny is now 1.6 cents each. No business could survive this cost structure for very long and Canada has decided that in the long run, the country can do without the penny.

And Canada's not the only nation to take this action. For example, New Zealand stopped minting one-cent and two-cent coins in 1989; three Scandinavian nations--Norway, Sweden, Finland--no longer mint pennies. Treasury officials in other countries are looking more closely at the penny's cost-benefit analysis, as well.

The U.S. penny costs more than 2 cents to make! While rumors of the penny's demise swirl around us, talk of saying goodbye to this coin is nothing new. The future of the penny is unlikely to be settled at this very moment, but the economic case against continuing to produce this coin is strong.

Yet so many customers prefer to pay with plastic or with digital wallets that the penny may not be meaningful to daily life for very much longer. In practical terms, the rise of non-cash transactions may settle the fate of the penny within a few more years.

If the penny goes away, what would marketers have to deal with? A few thoughts:
  • Cash transactions would have to be rounded up or down. Think of all the prices that end in .99. Without pennies, those prices might end in .00 or, depending on each area's sales tax, they might remain at .99 if the cash price with tax included winds up to be a figure ending in .00 or .05. Otherwise, checkout terminals would have to be programmed to round cash transactions up or down accordingly, depending on any legislative or regulatory rules. In Canada, debit and credit card customers pay the full amount but cash customers pay a rounded up-or-down amount. (Until the penny disappears entirely, Canadian businesses have the option of continuing to accept pennies at the checkout--so some may avoid rounding for now.)
  • Consider new perceptions of pricing. Pricing theory suggests that consumers look at prices from left to right, which means a price of $14.99 is perceived to be more in the $14 range than the $15 range. Many upscale marketers use round numbers to avoid a discount image, pricing at $15 instead of $14.99. With the demise of the penny, prices that end in .00 or .05 may take on new meanings. What will shape those perceptions?
  • Pennies as nostalgia. If the penny goes the way of the buggy whip and the slide rule, pennies and prices that end in odd numbers may become the stuff of nostalgia marketing. Marketers may use advertising or other communications to remind consumers about the "good old days" when a few pennies could buy bubble gum or when copper pennies sparkled in the palms of kiddies. Some companies may retain .99 (or other odd price numbering) as a nostalgic branding device or a connection to the discount days when pennies were meaningful.

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