Sunday, April 26, 2009

You Don't Have to Pay Cash to Save by Paying Cash

A phenomenon we've encountered in Australia but didn't see in the United States is discount department stores that give a lower price if you pay in cash instead of either using a credit card or EFTPOS card. First we came across "The Good Guys" when we were first setting up our apartment in Australia. We didn't end up buying much there, because there cash price was usually no better than Harvey Norman's regular price. Then yesterday we encountered the same thing at "Clive Anthony's" a store I'd never heard of till one popped up recently at DFO in Fyshwick. We had finally decided to buy a Sony music system (like the one above except the wood bits are black). The marked price was $A228 but the guy on the floor said he could give it to us for $208 if we paid cash. We then started discussing with him how we'd have to go to the ATM and withdraw the money from our credit card anyway and I was starting to calculate the fees... I think when he saw a sale possibly slipping away he told us we could have it for $208 even if we paid by credit card!

Now the difference in price in this case can't account for credit card fees or even interest if there is some delay in them getting their money this way (and there are costs to the store in handling cash). And we got the price even when we imposed those costs on the store. So this has to be a method of price discrimination on the assumption that credit card buyers are less price sensitive than cash buyers.

Any other ideas?


frugal zeitgeist said...

Something similar is in place in many restaurants in the UK: credit cards trigger a surcharge of up to 10%. The common explanation is that it's the result of credit card fees charged to vendors, but I'm not totally convinced on that.

mOOm said...

In a restaurant it could be tax evasion perhaps? But I doubt these big chain electrical stores here are doing it for that reason - they advertise the "lower price for cash" very blatantly. said...

I think there's a tradition in Australia for getting a lower price for cash which probably started out as tax evasion (the 'black economy' - although that's probably not a PC term these days). You still get a lower price from many small service businesses if you pay cash and don't need a receipt (as the business avoids paying GST).

In larger businesses there wouldn't be the tax evasion aspect, but the expression "what's your best price for cash?" is used to signal a desire to haggle about the price. Once you negotiate the 'best price' you can then still choose to pay by CC - but will often be asked in that case to pay the real merchant service fee of around 1.5% for Visa or Mastercard, or 2.0% for Amex.

Advertising "less for cash" is basically just marketing-speak for "we're willing to negotiate about the price".

zzboy said...

I have been using to manage my personal finances for a few months now. Its the easiest to use free, offline personal finance software I have seen so far.