The US penny has been threatened for some time, with calls to discontinue it starting decades ago. While the so-called “penny debate” reached public consciousness in the 1980s, it has roared to life again with the current presidential administration ordering the Treasury to cease minting new pennies. 

Whether individuals will react well to having fewer copper-colored coins jingling around the bottom of their purses remains to be seen. Still, businesses are evaluating how the change might impact their bottom line. 

Retailers have long relied on 99¢ pricing as studies have repeatedly demonstrated that consumers perceive prices ending in .99 to be far lower than those in round dollar amounts. Yet that mere .01¢ has made all the difference in production cost, with pennies becoming more costly. While the penny will not altogether disappear immediately, retailers would do well to consider just how they might pivot to being penny-free to keep up with the changing times. 

Understanding Charm Pricing

To adjust to a slowly disappearing penny, retailers can reconsider the charm pricing model that helped give them their staying power in the first place. Consumers know logically that $9.99 is only one cent less than $10, yet the price difference is perceived as far greater. 

Similarly, an item marked as $10.99 is considered a flat $10 when it’s much closer to $11. The question for retailers is how to convert this well-laid neural pathway to adapt to penniless prices. 

Not to Nickel and Dime Anyone

The same psychology that has powered the penny with the .99¢ pricing model can be used for prices ending in .95¢ instead. While .92¢, for example, is quite obviously less than .95¢, the perception persists that the amount ending in an odd number (like 9 or 5) is less than amounts ending in an even number (in this case, 2). If retailers seek studies to confirm this, they need to look no further than retail giant Costco, which has already adapted to different pricing models beyond the .99¢ one.  

Turning on a Dime: Operational Challenges and Shifts

Beyond merely adapting to consumer psychology, retailers must address other challenges this change presents. Wherever cash is accepted for transactions, the point of sale (POS) system must be updated accordingly, along with price tags and stickers. Employees, too, will require training as they navigate the change on multiple fronts—both as consumers and as retailers. 

For digital-only retailers, they must decide how they will proceed, as they could well continue to use the .99¢ pricing model. Some in-person retailers have already decided to go entirely cashless. For these establishments, getting rid of the penny may instead lead to a discussion on whether to standardize prices to match those of cash-carrying competitors or leave them as-is. 

Similarly, vending machines and automated self-checkout kiosks may require recalibration and modifications to the coin-dispensing mechanisms. Vending companies may also choose to stop accepting cash altogether and offer card-only options instead.  

A Penny for Thought Provoking

While consumers may feel ambivalent or even glad to be rid of the small change, businesses may want to consider these different options and pricing models carefully. Whether modifying their take on charm pricing or deciding to eliminate cash transactions, retailers must analyze how best to serve their customer base while continuing to grow revenue. While there might be fewer loose coins in circulation, we can keep the change.