The Missing 1 Rupee

What happens to the 1 Rupee that we leave at cash counters for our purchases? Have you ever wondered?

Have a look around you. What did you observe? I can safely assume that most of them are products that are sold to you in numerous ways through numerous channels. The pen you write, the food you eat, the bed you sleep, the car you drive, everything is a product. Made from different materials, imported from different parts of the world and sold to you through different channels, all of them made way into your life. Even though they look, feel and serve differently almost all of them a similarity. It is the similarity of pricing.

What is the most common pricing format that you have seen? I can bet safely that the 99 pricing is the most common pricing you might have seen. Be it in rupees, dollars or pound, anywhere in the world it is the same. The reason for corporate using this is based on Psychology.

Psychological pricing: “Psychological Pricing” is a pricing/marketing strategy based on the theory that certain prices have a bigger psychological impact on the customer than others. All the offers that MNC’s give to their customers are carefully planned Psychological pricing strategies. Buy 3 Get 2, 40% and Additional 10 % are some examples of pricing strategies.

The impact of psychological pricing has serious impacts on product performance. Consider this example. Americas A&W restaurant chain created a new hamburger to compete with the Quarter pounder of McDonald’s. The new product was the Third-pound burger; it has better taste and more meat (0.33 Pound compared to 0.25 Pound of McDonald’s) at the same price of a quarter pounder.

However, once the product got released, it didn’t reach the expected response and sales were plummeting even with a lavish television and radio marketing campaign. The reason being customer perceived 1/3^rd to be lesser than 1/4^th because in simple numerical 3 is less than 4. 

Now coming back to the point why is pricing ends with a “99.” The strategy at play is “Charm Pricing”, one of the many psychological pricing techniques. According to a 2005 research by Thomas and Morwitz called “the left-digit effect in price cognition”, nine-ending are perceived to be smaller than a price one cent higher if the left-most digit changes to a lower level. In simple terms customers perceive 3.99 to be far lower than 4.00 even though the difference between them is 0.01. Customers relate more to the left ended digit as we read from left to right in general. Customers tend to perceive the price as less compared to what they thought of and hence will select more. Customer may or may not buy the additional product but at the least, there is a chance for the customer to consider looking at other options. This ultimately will result in an increase in Average Basket Value.

Now, what happens to all the cash change that customers will leave at the counter? I have seen threads online which answer this question saying that the amount would be unaccounted and would go directly into the pockets of the retailer. Some even calculated these amounts into crores which would be unaccounted.

For Example, if a product is priced at Rs 99 and let’s say 100 people bought it, then the amount would be Rs 100 per day per store. And for a retail chain of 500 stores, the amount would be Rs 50,000 per day. This would translate to Rs 15 Lakhs per month and Rs 1.8 Crore per year. That’s a lot of money unaccounted for.

But will it really happen?

Firstly, thanks to the digital era and the increase in mobile penetration customers now are increasingly paying money through Credit/ Debit cards, E-Wallets. So there is no question of leftover cash change in these cases.  Secondly, customers won’t buy a single product and most of the transactions result to bills with a 6 or 7 at the end. Customers might leave 1 rupee but that is not the case when the value increases. Also, the converse is also true and when the transaction value ends with 1 or a 2 at the end, retailers won’t force you to pay (They will take the money if you give though).

Still, there is a considerable amount of unaccounted money at every store. To know what happens to this amount we should know how cash settlement happens at every retailer. For most of the MNC’s/ Corporate retailers, cash management is a daily activity. Cash sale for the day is deposited in the banks the following day. As far as the retailer is concerned the deposited value should match with the Point of Sale cash value in the system and it is the responsibility of the Cashier/ Store Manager to ensure that both the POS cash value and deposited cash value matched. This means that the additional value enters the pockets of Cashiers/ Store managers. Is that so?

Billing and cash settlement are tedious jobs. Employees who work at cash counters often make mistakes in delivering the cash change. Imagine the scenario when a customer is given short change, he/ she will immediately rectify and will come back to collect. But what if the customer is given excess change? Will he/she will return. It is also hard to identify the customer to whom the excess cash is given out of all the transactions happened that day. The cashier/ Store manager will know about it only at the day end when he/she is about to settle the day cash sale. And the only option left for him/her is to put money out of their own pocket. In simple terms, Cashier/ SM would save Rs 20-30 per day but the loss would be in hundreds due to cash mismanagement.

Let’s say that these mistakes are also not happening and the money is still in the desk. Then it would be used as petty cash expenses to the store staff. Be it the snacks they eat or the juices they drink. So the missing 1 rupee will end up as food for underpaid sales staff who work hard for 12 hours a day. So, next time when you leave 1 rupee at the cash counter, feel good about it.

References:

https://www.entrepreneur.com/article/279464

https://www.quora.com/Why-do-retailers-add-%E2%80%9899%E2%80%99-to-the-end-of-their-pricing-1-99-399-00-etc

https://gizmodo.com/whats-bigger-1-3-pound-burgers-or-1-4-pound-burgers-1611118517

https://www.quora.com/What-is-the-reason-behind-keeping-the-price-of-products-ending-with-999-99-9