FREE REVIEW
FREE REVIEW
No.16 of 36 The Denomination Effect

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.

Found this blog post useful?

Why not get a free brand review to boost your brand communications.

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.

Avatar face of Phillip

Phillip Adcock
Psychology & Behaviour
Change Consultant

Phillips Signature

More from Brainsights

Loss Aversion and the England Euros Team 2021

Loss Aversion and the England Euros Team 2021

Did loss aversion hold back the England football team in the Euros 2021?

Read Story
7 Tips to Tackle the Lure of the High-Street

7 Tips to Tackle the Lure of the High-Street

Paying attention to your surroundings is a crucial part of shopping more effectively. Now, more than, ever we must be alert and aware as shopping opens back up.

Read Story
7 Ways You Can Combat the Powers of Marketing

7 Ways You Can Combat the Powers of Marketing

Being influenced is inevitable, whether it’s by our surroundings, the actions of others, our internal instincts or the clever marketing of the brands around us.

Read Story

Get the latest brainsights straight to your email box

We will never share your email address with third parties.

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.

Got a question?
Let's talk

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.