Why are vending operators punishing consumers for using credit? They look at cashless and admit it’s prevalent among the end users. They might even agree with the case studies that show adding cashless devices improves sales beyond what is cannibalized. These operators might have added the equipment to some of their machines and increased the product prices to cover transaction fees or used the additional payment option as a way to eliminate commissions. Still others may have added cashless readers based on customer requests, but charge the consumer an extra 5 to 25 cents to use a credit or debit card over using cash at the point of sale, a practice called two-tier pricing.
I was in a meeting discussing this very topic when one of the executives stopped, and asked why the operator was charging more to consumers that use a credit card, instead of less. Many of you know this person, Gloria Cosby, once the publisher of this magazine and as unforgettable as she is shrewd. And because it was Gloria, I stopped and listened.
Blast from the past
Gloria’s thought was that in vending machines, all product prices need to be divisible by a nickel. However, credit card prices don’t. So in a machine or micro market, if an operator is pricing products for good profit margins, the cost per transaction, if less than a nickel, is forcing at least a 5 cent increase on any one product. If the consumer uses a credit card, the price could actually be less and the operator simply charges the fee amount (which in our scenario is less than a nickel).
This has many benefits. Locations with many credit card users would appreciate the price being lowered in their favor. It might encourage them to use your services instead of going to a place that either doesn’t charge for credit at all (i.e. a convenience store). Also, encouraging credit has been shown to increase the amount that is spent per transaction. That’s more money in your pocket, because the consumer is still paying the transaction fee and also buying more.
When you come right down to it, why are we encouraging the use of cash? Dollars aren’t backed by gold or silver anymore. Cash doesn’t carry transaction fees, but it is much easier for dishonorable people to steal, miscount or jam inside a bill validator. Cashless devices guarantee the operator’s account is credited (no theft or counting) and can be set to notify the operator if there is an error at the physical device (which can often be reset remotely).
I’m not saying this will work in every situation, but I will say that it brings a different perspective to the issue of pricing. So often we focus on encouraging cash, but what if encouraging credit would lead to more sales, higher revenues and less theft? It’s worth considering.
