Recently the government announced in their 2012 budget to get rid of the penny causing many people to cheer and some to ponder whether that was a wise thing to do. We believe getting rid of the penny is not in the best interest of the people and will lead to higher costs for products and services.
The Finance Minister, Jim Flaherty, said that the penny costs too much to make about 1.6 times the actual value of a penny so getting rid of it was the right thing to do and it will also save the Royal Canadian Mint about $11 million a year when it stops making the penny.
In order to make things fair, there will be rounding up and rounding down to make everything within five cents. So for example, if something costs $1.61 to $1.62 it will be rounded down to $1.60 and if something costs $1.63 to $1.64, it will be rounded up to $1.65.
This sounds fair except we believe that in some rare cases, you will never see the value of products or services will be rounded down.
Here’s what will happen in our opinion, big business will use their access to their computing power to find that magic number where they will price their items or services that will result in the final price to be rounded up.
This will be an instant profit for big companies because of their ability to find the right price combination. Little businesses will not be able to understand this until they catch on and then will apply the same practice. The winners will be the business owners and the losers the consumers without even them realizing.
You might think that who would do such a thing? Well consider this, supermarket makes money by selling in huge volume making a small margin on each item, but in the huge volume they sell, that’s quite a lot of money they will make.
So would it not be advantageous for them to tell their economists and IT departments to come up with that supply and demand curve backed with a pricing strategy to take advantage of this newfound revenue stream now that we ditched the penny?
Here is a real-life example, as most items are priced as either $0.99 cents or $1.99, you see a lot of this pricing method in many stores, so if you were to buy two items at $0.99 plus $1.99, that would have a total cost of $1.98. Rounding up, the store just made 0.02 cents off you without doing a thing.
Still not convinced and think that this is the stuff of fantasy? Well, you could be right and we, absolutely wrong in venturing into this conspiracy theory, but our vindication will come with the old saying “Time will tell.”, just like our other favorite saying “A penny saved is a penny earned.“
