No. 16 of 36 The Denomination Effect

The denomination effect is a form of cognitive bias relating to currency, suggesting people may be less likely to spend larger currency denominations than their equivalent value in smaller denominations.

The denomination effect is a form of cognitive bias relating to currency, suggesting people may be less likely to spend larger currency denominations than their equivalent value in smaller denominations

To a rational shopper, the possession of £20 translates exactly to the ability to buy £20 worth of goods. The form of the £20 should not matter—whether it is one £20 bill, two £10s, four £5s, twenty £1s, or any configuration of change, the purchasing power is the same.

However, shoppers are rarely perfectly rational, and this case is no exception. In the event that a person is given £20, that person is more likely to spend it if it is given in smaller denominations (for example, £1 bills or change) than if it is given in larger denominations (especially in the case of one £20 bill). This is known as the denomination effect.

As a retailer, think about this for a minute, when a shopper takes money from and ATM outside the supermarket, the denomination of the notes dispensed will alter their spending propensity. And brands, shoppers appear to disproportionately value larger denomination notes. Something to consider in promotions, competitions and giveaways.

When it comes to applying this bias in-store, there are several considerations.

  1. Give change in larger denominations – Shoppers will feel they are getting more change if you give them a £20 note in preference to 4 X £5 notes.
  2. Smaller denominations please – If you have and ATM or a post office in-store, have them dispense smaller denomination notes so that shoppers are more likely to then spend them.
  3. Conversion rate - If you have a low browser to purchase conversion rate, find ways to get shoppers to make a small initial purchase, then they will have mentally ‘split a £20’ and bed more likely to continue spending.

Cognitive biases are powerful things and even the change given to shoppers can alter their perception of the in-store experience and brands purchased.

About Phillip Adcock

My name is Phillip Adcock: I have more than 30 years of human behavioural research and analysis, and have developed a unique ability to identify what it is that makes people psychologically and physiologically 'tick'.

Would you like to know more about how shoppers and consumers think? Download my FREE guide now. Alternatively, check out www.adcocksolutions.com, where there are more FREE downloads available there. Or why not simply email me with what's on your mind?

If you think there is value in this article then please, please share it, thank you.

Phillip Adcock
Psychology & Behaviour
Change Consultant

Are you fascinated by how shoppers think?

If you’re as fascinated by how shoppers think as I am, check out my books on Amazon for more insightful, provocative and stimulating information.

More from Brainsights

Shopper and Consumer Psychology Towards Sustainability

If building a sustainable business was a fashionable trend five years ago, today it is a business imperative. Leading brands & retailers have figured out that focusing on environmental & social factors is a necessity in today’s marketplace. And if done well, it is a true competitive advantage. But what does sustainability really mean to shoppers, in-store, or online at the moment they make their purchasing decisions?

Read Story

The Psychological Benefits of a Secondary Display In-store

Have you ever stopped to think about how many sales and how much share you might be losing, simply because your brand isn’t as psychologically effective in-store as those of the competition?

Read Story

Path to Purchase - Which is more effective in-store, on shelf?

Is the in-store performance of your brand suffering because it isn’t aligned with the minds of shoppers? Would you like to make retailing better for shoppers, better for your brand and better for your business?

Read Story

Learn about the
mind of the consumer

A guide to discovering what consumers really want

Download FREE now!

Get the latest brainsights straight to your email box

We will never share your email address with third parties.