Pennies-Be-Gone: The Ethics of Rounding

The always-useful Consumerist brings us this story, with a self-explanatory title: A Lone Dunkin’ Donuts Sort Of Abolishes Pennies

One donut shop is taking a stand against the bacteria-ridden zinc disks of suck that are pennies. Reader Tom sent us [a photo of a sign] from a store he recently visited. In a policy change that was probably born during an 8 AM rush, this franchise appears to be are rounding customer totals up or down to the nearest five cents, and only providing pennies to those annoying people who actually want them….

Setting aside paranoia about pennies causing germs, what should we say about this policy, from an ethical point of view?

First, the efficiency argument is worth noting. Lines are annoying. Lining up (i.e., standing behind other people) to get something you’re anxious for (like coffee) is doubly annoying. Speeding things up is good. So, improving the efficiency of the payment system is good.

Second, it’s worth pointing out that the system intends to treat everyone equally. Every customer is subject to the same system of rounding. In principle, no customer is disadvantaged relative to any other customer, and indeed (importantly) the customer is not disadvantaged relative to the coffee shop. Round up or round down — it’s all just a matter of math.

Third, in practice, this system may not actually end up treating everyone equally. As one person (with the pseudonym “Pecan”) who commented on the Consumerist piece pointed out, regulars who buy the exact same thing every day are going to be either systematically advantaged or systematically disadvantaged. If their change is “supposed” to be 27 cents, they’re only going to get 25 cents — every time. If they don’t realize that, then they’re going to lose money, time after time, in a way that will add up. Clearly, it would take a long time to add up to an amount that most of us might care about, but it’s still worth noting.

Finally, it’s worth pointing out that such a system allows the coffee shop a new way of acting unethically. Not that the rounding is itself unethical — it’s not. But if accepted by customers, the rounding offers the shop the opportunity to set its prices so that, on average, it ends up rounding in its own favour more often than it rounds in customers’ favour. Prices that end in “8”, for example (such as $1.38) will always result in exact change ending in “2”. For example, a price of $1.38 results in 62 cents expected back from two dollars. When the exact change is an amount ending in “2”, that will always be rounded down to zero, resulting in 2 cents’ extra profit on every transaction. On low-priced items like coffee and donuts, that could mean a significant increase in the store’s profit margin.

4 comments so far

  1. Kevin M Roth on

    Interesting idea, but I don’t see it being a problem in the long run. Some businesses could price to gain a couple pennies per transaction, but if those two pennies are a big deal to any of their customers, the store across the street will price accordingly and round down and acquire all the unsatisfied customers.

    Now those coffee and donut shops could increase their service to make up the difference for those two pennies. Maybe they can smile for a half second longer or pretend to be slightly more interested in what the customer is talking about.

    If someone purchased something every day and was charged 2 extra cents on each transaction, that adds up to about $7 over the course of the year. It’s not nothing, but it’s likely less than the rate of inflation most years on the same goods. The impact would be negligible, even in the most extreme cases for everyone but the shop keepers who might be able to squeeze out an extra half percent profits from clever pricing, in a best case scenario (not sure there are many merchants with average sales of less than $4).

  2. […] The always-useful Consumerist brings us this story, with a self-explanatory title: A Lone Dunkin' Donuts Sort Of Abolishes Pennies One donut shop is taking a stand against the bacteria-ridden zinc disks of suck that are pennies. Reader Tom sent us [a photo of a sign] from a store he recently visited. In a policy change that was probably born during an 8 AM rush, this franchise appears to be are rounding customer totals up or down to the nearest f … Read More […]

  3. Jake on

    I’m not sure that I agree with the point about rounding.

    A store can manipulate such things if they assume that customers will usually buy one item, or very predictable combinations. However, consider this example:

    Coffee — 48 cents
    Donut — 48 cents

    If every person buys one coffee or one donut, the store gets 2 cents.

    However, if a person buys coffee AND a donut, then the store loses 1 cent.

    If the person buys a cups of coffee and 2 donuts, then the store gainst 1 cent.

    If the person buys 2 cups of coffee and 2 donuts, then the store loses 2 cents.

    I think it would be difficult for stores to manipulate this. Customers, on the other hand, might be able to manipulate it.

  4. Funnybunny on

    Just give the correct change for cripes sake, it doesn’t really take longer to give 4 pennies than a nickel.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 1,628 other followers

%d bloggers like this: