Businesses' decision to accept foreign currency represents good customer service, professors agree

Thursday, January 18, 2007

Businesses that accept foreign dollars for payment as well as U.S. dollars - as Dallas-based Pizza Patrón announced it would do last week by deciding to accept Mexican pesos - may make less money from the foreign currency than from U.S. dollars, but still benefit by providing good customer service, says a University of North Texas economist.

Dr. David Molina, associate professor of economics and director of UNT's Center for Inter-American Studies Research, says that because the Mexican peso has been devaluated - one peso equaled only nine pennies as of the beginning of 2007 - Pizza Patrón and other businesses accepting pesos "would have to do a fairly high volume of business or provide a large differential between their exchange rate and the official exchange rate in order to make it worthwhile."

"The rates they charge for exchange are generally much higher than that of banks. The business owners will have to go to the bank themselves to exchange the pesos for dollars," he says. "However, in the plain old economic sense, it's a good idea because those who come back to the U.S. from trips to Mexico will be able to spend any pesos they have instead of holding onto them until their next trip and hoping they haven't been further devalued."

Finding a bank in the Dallas-Fort Worth area that will exchange pesos for dollars is "not that simple," Molina says.

"Most banks in the suburbs are not equipped for foreign currency exchange," he says, adding that while Dallas-Fort Worth International Airport has an exchange center, "the rates they charge for exchange are outrageous."

Pizza Patrón's decision to accept pesos has caused some controversy. The chain has received death threats and hate mail from Americans who see it as part of the nation's debate over illegal immigration. Molina says, however, that "emotion is being attached to it" only because not all of Pizza Patrón's locations are close to the Mexican border. The chain has 59 stores in Arizona, California, Colorado, Nevada and Texas, and its core customer group is Hispanic.

"The controversy is that pesos are being accepted hundreds of miles away from the border," says Molina, noting that some businesses in U.S. cities located directly across from the Mexico border and those in U.S. cities located directly across from the Canadian border have accepted pesos and Canadian dollars for years.

Dr. David Strutton, professor of marketing and logistics at UNT, says the media stories about Pizza Patrón that have appeared because of the chain's decision to accept pesos probably generated $20 to $30 million in free publicity and name recognition for the chain.

"This decision has certainly enabled Pizza Patrón to draw closer to its core customer group, and it has made it far more likely that both existing Hispanic customers and the many new Hispanic customers they will get because of this decision will become more loyal to the chain," he says. "When you calculate the lifetime value of an individual customer, you are talking about thousands of dollars in revenue. Maybe across the chain we are talking about thousands of new loyal customers. You quickly get into million dollar revenues."

The decision also differentiates Pizza Patrón from other fast food chains by making its product easier and more convenient to use, Strutton says.

"Pizza Patrón has meaningfully differentiated itself from competing firms in the same industry like Domino's and Papa John's, and at the same time, it has differentiated itself from alternative fast food choices such as Subway, McDonald's or Sonic," he says. "People will eat fast food, and given all this publicity and convenience advantage, it will draw people away from a lot of competitors."

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