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No.16 of 36 The Denomination Effect

A cognitive bias relating to currency, suggesting people are less likely to spend larger currency denominations than their same 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 note, 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 coins or small change) than if it is given in larger denominations (especially in the case of one £20 note). This is known as the denomination effect.

As a retailer, think about this for a minute, when a shopper takes money from an 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 are 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?

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Phillip Adcock
Psychology & Behaviour
Change Consultant

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