On the face of it a pound is a pound. So asking whether a single £50 note is worth more than ten £5 notes seems illogical. Economically it is clear that they are exactly the same. However, from a psychological perspective things may not be so clear.
A recent study by a team of persuasion researchers suggested that people place more value on their money if they possess it in higher denominations of notes than smaller ones. This is the case even if the amount of money they have is the same. The study went on to show that not only do people value the same amount of money more if it is represented with higher denominations of banknotes than smaller ones, they are also more likely to be persuaded to make purchases and spend more when they possess their money in smaller denominations than larger ones. Given that an important part of stimulating the economy is in persuading consumers to start spending again, filling cash machines with £5 notes rather than £20 ones seems as if it might be a smart move.
But what about non-cash transactions? Most consumer purchases these days are not made with cash. Instead payments by credit and debit cards are the most common. And in business to business environments cash is used even less, with most transactions taking place electronically by bank transfer or, less frequently, by cheque. Does this mean that we are getting things wrong and, in order to effect an increase in business, we should start to persuade our customers and clients to become cash purchasers again — and preferably cash purchasers that use small denominations? This is probably not the most practical of suggestions.
However, there is an alternative. The study authors noted that this ‘denomination effect’ doesn’t just apply to cash but to other nominal values. For example, studies have shown that people tend to rate purchases as more positive if they are informed how a purchase equates to a per day or per week value rather than a total purchase price value. As a result more people can be persuaded to choose a particular product or service if they hear that owning the product costs less than £3 a day rather than describing it as a £1,000 per year cost.
In our increasingly competitive and overloaded environment, where customers often see little differentiation between the products and services we offer and those of our competitors, describing ours in the context of how little we cost per day or week or unit could make a significant difference.
Steve Martin is co-author of Yes! 50 Secrets from the Science of Persuasion. Visit scienceofyes.com
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