Currency & Irrational Consumer Behavior: Coins Are Almost As Good as Real Money

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The brilliant thing about money is that it’s entirely interchangeable. A hundred pennies equals a dollar, and 40 quarters has the same value as a $10 bill. So why would people be willing to give away nearly 10% of the value of one kind of money just to have it swapped into another form of cash?

This is essentially what happens every time someone excitedly pours coins into one of those ubiquitous green Coinstar machines and opts to trade their change to greenbacks. The fee for this service, according to a NY Times story, is 9.8%.

Presumably, this is a convenience fee. The Coinstar machines are supposedly within five miles of 95% of the population, so it’s easier to dump your change there as opposed to rolling the coins yourself and bringing them to the bank. Consumers pay for this convenience, of course, with that service fee.

But there’s something else at play here. Literally at play, that is. The sounds and sights involved in the Coinstar experience—with numbers adding up higher and higher on the vending machine screen, and metals clanking against each other—are positively slot machine-like. People pay the service fee not only for convenience, but because it’s fun. It seems like a game. A Coinstar executive spoke with the Times and said:

“We have videos of folks pouring coins into the machine and they’re watching the ticker go up and up and they can’t believe it, because they usually have about 50 percent more than they thought they had,” said Engle Saez, vice president for consumer experience at Coinstar. “They’re elated.”

When you’re coming away with 50% more than you anticipated, who cares about the measly 10% you’re giving away?

Not everybody gives away that 9.8%, however. For years, Coinstar machines have also given consumers a no-fee option, in which they can turn the full value of their coins into gift certificates valid at Amazon, Gap, iTunes, and other retailers. Now, the Times reports, Coinstar is running pilot programs that would allow customers to trade coins for no-fee gift cards at the very supermarkets where the Coinstar machines are located.

To me, that latter exchange scenario actually seems more worthwhile to consumers than the other possibilities. Why? Consumers need to buy stuff that supermarkets sell (i.e., food). They don’t need much of the stuff that’s on Amazon or at the Gap.

In either scenario, Coinstar makes money. The company has its service fee paid either by the retailers or directly by the customer who opts for cash. Now why would a retailer subsidize gift cards or gift certificates to its stores? For one thing, there’s the prospect of luring in new customers—who may turn into loyal customers and/or who are likely to spend more than the value of their gift certificates.

Also, there’s something you might call the gift card factor, in which consumers have been shown to shop carelessly, rarely bothering to check if items are on sale or good values. Customers using gift cards are 2.5 times more likely to pay full price.

Retailers like putting gift cards into the hands of consumers so much that they occasionally give coin trade-in bonuses. Last year, retailers including iTunes and Regal Cinemas gave a $10 bonus on cards when customers brought at least $40 worth of coins to Coinstar machines.

Another company, called Rixty, will be giving $30 gift certificates for customers who swap at least $25 worth of coins from March 25 to April 17. An executive with Rixty—a company that allows people without credit cards to buy virtual goods in popular online games like Farmville and Adventure Quest—explained to the Times some insight as to what people think of coins they bring to Coinstar:

“It is found money,” he said of their transactions. “It doesn’t come from a wallet or bank account, and people are much more willing to spend it on something on the edge of their budget, something they couldn’t justify spending money on before.”

Let’s think here for a sec. The first part of this quote says It is found money. Is it really? Most people don’t come about their change by stumbling upon a treasure chest full of nickels. They collect this money over the course of months or years. You might call this process (stay with me here) saving.

As for the second half of the quote, it’s too true—which doesn’t say a whole lot for the kinds of things people wind up buying with the “found money” they trade in at Coinstar machines.

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