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Do British shopkeepers know how to round prices up?

Started by Figleaf, January 11, 2009, 03:19:20 AM

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Figleaf

Coin shortage crisis looms after Darling's VAT cut
By DAN ATKINSON, Last updated at 10:59 PM on 10th January 2009

The Royal Mint is bracing itself for a surge in demand from shopkeepers for smaller coins as a result of Alistair Darling's VAT cut.

By reducing the rate from 17.5 per cent to 15 per cent in his November Pre-Budget Report, the Chancellor made transactions much more fiddly because price tags have long had the old VAT rate built in.

A £10 item, for instance, would fall in price to £9.79, while a £15 item would be reduced to £14.68. A £4.99 item, which would previously have called for just one penny in change from a £5 note, will now cost £4.88, increasing the demand for change.

All of this means that much more small change is needed when customers pay in cash and the Royal Mint is on alert for an increase in demand.

'We have been looking into this,' said a Royal Mint spokesman. ' We are monitoring the position closely. There is no sign as yet, but it may be a bit early for demand to have fed through the system.'

The first port of call for shopkeepers will be their banks. Once the branches start to run short, they will report this fact to their head offices, which, in turn, will put in bigger coinage orders to the Mint, of which Darling, as Chancellor, is the Master.

There are coins worth about £3.6 billion in circulation, of which £2, £1 and 50p pieces account for £2.5 billion, or 70 per cent. Smaller silver coins - 20p, 10p and 5p - account for £815 million, or 23 per cent. Copper coins - 2p and 1p - account for £241 million, or seven per cent.

In 2007, the Mint estimated that since Britain switched to decimal currency in 1971, 6.5 billion penny coins had been taken out of circulation, either because they had been lost 'down the sofa' or been collected in jam jars and never spent - with a total value amounting to a staggering £65 million. That figure looks likely to increase given the likelihood of ever more small change being handed out in response to the VAT cut.

Source: Daily Mail
An unidentified coin is a piece of metal. An identified coin is a piece of history.

chrisild

Stores will certainly adapt their prices. When the British government announced this VAT reduction, that was a common question, I think: Who guarantees that the reduction will be "forwarded" to end customers?

Surprise - nobody will, except the market maybe: If your competitors all lower their prices, it will be tough for you to keep or even raise them. But with low price products, I think grocery stores will simply do a mix. Lower some prices significantly (yeah, call me an optimist), go down a little with others, leave some unchanged ... This way they can continue to have threshold prices such as "0.99" or "2.98".

This is one of the few situations where having the "odd" US system, with prices that include everything except sales tax, would actually be helpful. ;D

Christian

translateltd

At least there are still 1p and 2p coins in England to make this possible on all transactions.  Here in NZ the smallest circulating coin is 10c (about 4p), and individual items have to be rounded up or down accordingly.  On a bulk purchase it doesn't matter, as everything is charged at its nominal value (49c, $2.98, whatever), and it's only the final total that is rounded.  And if you pay by direct debit or credit card you still pay down to the last cent too.  So if you were totally mean, you could choose to pay by electronic means when the transaction total would otherwise be rounded up, and by coins when it would be rounded down, thus getting the best of both worlds.

Example:
Total purchase value $20.56; pay electronically - $20.56; pay by cash - $20.60 => save 4c by using a card
Total purchase value $20.54; pay electronically - $20.54; pay by cash - $20.50 => save 4c by using cash

Not sure how many people are tight-fisted enough to do this (I don't bother) but the savings would probably mount up.







Figleaf

#3
It would amount to a severe loss. Suppose you go to two shops every working day on average, that's 20 payments a week, times 52 weeks is 1040 payments a year. Suppose you add up your purchases yourself before going to the checkout counter, so you get it right every time. Your average savings will be 2,5 cents per payment. That's a total savings of 0.025 x 1040 = 26 dollars a year. Now suppose you need 90 seconds on average to add up your bill yourself and your hourly wage is 100 dollars. That's 1040 x 1,5 = 1560 minutes or 26 hours @ 100 dollars or a loss of 2600 dollars against a savings of a mere 26 dollars. There's no way you can be profitable, unless you can add up your bill in mere seconds. Play with my assumptions and see what I mean.

The only strategy that would work is that you would decide on your method of payment only when you buy no more than three items at the same time, assuming that you can add these up in your head while waiting for your turn at the checkout counter, but then your savings wil be almost invisible.

You can argue that your free time is worth much less than your working time, but then, why take free time? If you are self-employed and not restricted to labour contract hours, your free time must be worth as much as your work time. For office slaves, I would imagine that free time is worth even more then working time if you hear them talk about weekends. Maybe retired people with a fixed income who like to work their brains could turn a small profit ...

Peter
An unidentified coin is a piece of metal. An identified coin is a piece of history.

translateltd

Quote from: Figleaf on January 11, 2009, 08:45:21 PM
It would amount to a severe loss. Suppose you go to two shops every working day on average, that's 20 payments a week, times 52 weeks is 1040 payments a year. Suppose you add up your purchases yourself before going to the checkout counter, so you get it right every time. Your average savings will be 2,5 cents per payment. That's a total savings of 0.025 x 1040 = 26 dollars a year. Now suppose you need 90 seconds on average to add up your bill yourself and your hourly wage is 100 dollars. That's 1040 x 1,5 = 1560 minutes or 26 hours @ 100 dollars or a loss of 2600 dollars against a savings of a mere 26 dollars. There's no way you can be profitable, unless you can add up your bill in mere seconds. Play with my assumptions and see what I mean.


Not if you make the decision when presented with the bill.  The cashier has done the calculation for you - you look at it and decide if it's going to be rounded up or down and choose your method of payment accordingly.  No more than a second or two needed in each case.

My "fishhook" is rather different - if I put the bill on my credit card and pay off the entire sum on the due date (as I always do, therefore incurring no interest charges), will the interest that I earn by keeping the money for the intervening six weeks (on average) be greater than the few cents I would save by paying in cash or by direct debit immediately?



Figleaf

Interesting. That's not how it works here. The amount to be paid will be rounded automatically and it's considered impolite to ask what the exact amount is. You won't even know until it's deducted from your account if you pay by card. The exact amount is indicated on the cash register, but by that time you're supposed to be packing your stuff already and paying while doing so. It's technically possible to find out the exact amount, but it's socially impossible. One large supermarket chain has introduced scanners for customers, though. If you can handle all the buttons, you can find out what the exact total is, but they're not exactly the cheapest in the land, so you'd still lose.

The interest rate approach is not so different. Say that your monthly shopping bill amounts to 1500 dollars, that the interest rate on New Zealand dollars is 4% and that you have to settle at the end of the month. Your savings are half a month (1/24th of a year) of 1500 dollars @ 4% is 2,5 dollars a month or 30 dollars a year if you'd pay everything by card. Your loss if you decide to beat the rounding system would be 15 dollars and your gain would be 26 dollars (see my previous post). Your total profit would be 11 dollars a year. Fill in more realistic numbers for my assumptions to see what your savings would be and if they would be worth the bother.

Peter
An unidentified coin is a piece of metal. An identified coin is a piece of history.

translateltd

Quote from: Figleaf on January 11, 2009, 09:06:38 PM
Interesting. That's not how it works here. The amount to be paid will be rounded automatically and it's considered impolite to ask what the exact amount is. You won't even know until it's deducted from your account if you pay by card.

That's ridiculous from my perspective.  I don't believe anyone in this country would pay a bill without knowing what the amount was.  Even when you pay by credit card you can see the amount to be paid on the keypad screen when you authorise the payment.

In any case, what rounding do you have at your end, given that you have 1c and 2c coins in circulation anyway (in theory ...)?


Figleaf

#7
Of course, you see the amount on the pad, but by that time it's too late and you are too busy packing your stuff to notice. The 1 and 2c are used at the Post Office only. Since we travel much, we find we get them in other countries and can't spend them here. Fortunately, Belgium is not too far away.

Peter
An unidentified coin is a piece of metal. An identified coin is a piece of history.

chrisild

As long as Peter stays in NL, he will hardly ever have to deal with those low denomination coins. Unfortunately we do not round that (Dutch-Finnish) way in DE ...

Of course, as a coin collector I like even the two small ones. Especially the 2 ct coin due to its interesting edge. But other than that, I would gladly see them go, be phased out, and sent to oblivion.

Admittedly I am not sure how the checkout procedure works in Dutch supermarkets; I am in NL fairly often but for small purchases, say <€20, I use cash almost all the time anyway. Another option would probably be a self-checkout point like some supermarkets around here (Western Germany) have them. This way you could, in places where cash totals are rounded, see what kind of payment "pays off". Having to scan purchases yourself is a drag though.

Strictly speaking, stores in the UK cannot simply "round up" without a legal framework, I suppose. Wouldn't there be complaints if at the cash register you were told "the total is £15.88 but since you pay cash, I want £15.90 from you"?So unless the prices are changed, all they could do is round down ...

Christian

Figleaf

Coin glut following VAT change damaging our pockets, say dry cleaners
By Harry Wallop, Consumer Affairs Editor, Last Updated: 10:35PM GMT 25 Jan 2009

When Alistair Darling lowered the rate of VAT last year he promised it would put more money into people's pockets.

Unfortunately, he has been proved right - quite literally.

It would appear that some consumers' pockets are being worn thin by the sheer weight of coins that they now have to carry around with them.

By reducing the rate from 17.5 per cent to 15 per cent in his November Pre-Budget Report, the Chancellor caused retailers to reprice their goods, from round figures to oddly-priced sums. So a £10 jumper is now £9.79.
A £4.99 item, which would previously have called for just one penny in change from a £5 note, will now cost £4.88, increasing the demand for change.

Egin Eshref, a leading London dry cleaner who owns the Spots chain, said that he had noticed far more customers coming into his outlets asking for their half-pockets – the small coin pockets on many trousers – to be mended.
"It's very noticeable. We haven't been mending these pockets for years, but there's been a real pick up in people asking for them to be replaced or strengthened," he said.

He added that in recent years his company had almost stopped doing this type of repair because hardly any of his customers used the half-pocket, thanks to the increasing use of debit cards.

Coinstar, the company that supplies machines to supermarkets that sort small change and convert it into shopping vouchers, said it had seen an increase in people looking to cash in their extra coins.

"There has been an increase in the amount of coin machines being used, and there has been an increase in the average transaction from £25 to £32 in the past year," said a spokesman.

Many retailers have complained about the logistics of the new VAT rate, which has not only seen them print new price labels, but also caused them to stock more small coins in their tills.

Simon Hargraves, commercial director at Pret a Manger sandwich chain, said: "We've definitely had to stock our tills differently. It's been very confusing," he said.

A spokesman for the Royal Mint said that there were no more coins in circulation since the VAT change, but said they were "keeping an eye on the situation".

Source: Telegraph
An unidentified coin is a piece of metal. An identified coin is a piece of history.

translateltd

Sounds a bit fishy to me - if people weren't using the half pocket because of the increasing use of debit cards, why aren't they still using debit cards?  The VAT change shouldn't affect that aspect at all :-)

Basically, people don't like any change to their routines (no pun intended), so this is probably just another convenient opportunity to find something to grumble about.


Galapagos

Quote from: translateltd on January 11, 2009, 08:08:44 PM
At least there are still 1p and 2p coins in England to make this possible on all transactions.  Here in NZ the smallest circulating coin is 10c (about 4p), and individual items have to be rounded up or down accordingly.  On a bulk purchase it doesn't matter, as everything is charged at its nominal value (49c, $2.98, whatever), and it's only the final total that is rounded. 

How many countries use such a lunatic system, working in prices for which there may be a lack of suitably denominated coins? Surely it produced a lot of satire when it was introduced in NZ? If every shop were to round prices to the nearest 10c, the end result would be little different. How to make life difficult for yourself...

translateltd

No satire at all - mind you, this country is remarkably short of an ability to understand irony.

One small benefit is that it encourages a small amount of mental arithmetic on the part of till operators - if $2.94 shows up on the screen they will now automatically ask for $2.90 (or $3.00 if it says $2.96).  For this alone we may be thankful ...

The system is known as "Swedish rounding" here, so I assume the Swedes at least must be familiar with it.


Galapagos

Quote from: translateltd on January 31, 2009, 01:46:10 AM
The system is known as "Swedish rounding" here, so I assume the Swedes at least must be familiar with it.
Swedish rounding, Spanish flower. What goes with "English" in the numismatic world?

The Swedes sound as though they're trying to suppress a sneeze when they speak. In Newcastle, Scandinavians, who are frequent visitors, are nicknamed "Hurdy-Furdies" because of the way they speak.

Which reminds me of "The Political Party Broadcast on Behalf of the Norwegian Party", performed by Eric Idle on the Monty Python TV series - all in Norwegian (supposedly), with Idle persuading the Brits why they should vote for his party, but with very suggestive-digestive subtitles.

chrisild

Quote from: The Swan-Collarer with Two Necks on January 30, 2009, 11:27:43 PM
How many countries use such a lunatic system, working in prices for which there may be a lack of suitably denominated coins?

Most, I'd say. Think of gas prices with three digits after the decimal point/comma. Sure, not exactly the same thing (since you hardly ever buy precisely one gallon or liter) but it does make people familiar with the concept of rounding. :) Never heard the term "Swedish rounding" though; don't think it is used anywhere in Europe ...

Christian