9/10 of one cent / by kevin murray

There is one common item that most of us purchase that is priced out to the one-thousand cent and that is gasoline.  When we purchase gasoline the price should always be rounded up by $.01 because the gallon price of let's say $3.57 is in reality $3.579 which translates into $3.58 per gallon and what appears to be $3.57, is essentially a penny more or more precisely $.009 more which is exactly 9/10th of a penny more.  This extra $.009 which may seem trivial does add up. For instance, the average consumer who uses 500 gallons of gas a year would spend an additional $4.50 (500 x .009) on gasoline because of this 9/10th of one centWhile that might not sound like much, it's enough to get yourself a decent meal at a fast food place. 


Of course, from the oil business perspective the view is a little bit different, because they deal with really large numbers.  According to the U.S. Energy Information Administration (EIA) in 2011 the United States consumed about 134 billion gallons.  Assuming that all those gallons had an extra $.009 tacked onto them that would mean an additional   $1,206,000,000 (134,000,000,000 x .009) was spent on gasoline just from that modest and almost immaterial increase per gallon of $.009.  That's right, folks, that's 1.2 billion dollars more spent on gasoline for that innocuous $.009 that is tacked on and hardly noticed.


Having stated the above, I often wonder why more retailers don't add on this $.009 charge, especially given that everything is computerized and consequently adjusting your cash register to handle and round up a given number would seem to be a relatively trivial matter.  While I'd be the first to admit that while selling something for a high price, let's say $20 and above, it might not be worth the exercise there are plenty of stores that sell goods for consistently low prices or have consistently low margins.  In particular, I think of grocery stores and those bargain stores such as Dollar Tree, Dollar General, and the like.


In fact, one of those stores did make the change and took their price all the way out to the one-ten-thousand of a cent.  That store is the 99 Cents Only Store which implemented a new pricing policy of 99.99 cents or $.9999 in 2008 and got hit with a class action lawsuit in 2010 for their troubles.  The suit probably says more about our litigatious society rather than the merits of the suit because I believe their price increase was absolutely brilliant and probably necessary.  To put this in perspective, Family Dollar, which despite their name does sell goods for more than $1, claims that their average transaction in 2010 was $9.91.  Using this number for the 99 Cents Only Store this extra $.0099 would cost the consumer about $.10 per trip which is trivial.  For the 99 Cents Only Store this $.0099 price increase was probably a necessary step in order to maintain or improve their gross margin and it essentially gave them another penny to absorb any additional costs involved in purchasing the products that they sell--meaning that they can hold the line on a larger variety of products for a greater length of time.


It is this extra penny that businesses with low margins and/or low pricing need to make a play at.  The consumer is pretty much is acquiescent to it and/or easily accommodative to it.  A penny here and a penny there do indeed add up.