Thursday, April 24, 2008

Size matters...

I got an email the other day from the MarketingProfs people saying research has shown that the size (denomination) of bills consumers carry affects their willingness to spend those bills.

Apparently, if we have a larger bill in our wallet, say $100, we're less likely to break it to buy a $10 item than we are to fork over $10 or two $5s. Carrying around large bills therefore affects consumer spending - effectively lowering it if bill denominations are high.

I haven't read the whole article, just the summary. But this makes sense to a point. Human beings are bad at valuing things. It's understandable that we think a $100 bill is more 'valuable' than five $20s - it's rarer for one thing, and rarer generally means 'worth more'.

However, it's also easier to carry around and harder to change - so there is a convenience factor in there as well.

The summary claims that banks can somehow affect consumer spending by giving out smaller bills. I think this is a bit far fetched. Again, I haven't read the article, but from what I know about consumer behavior I would argue that the relationship between 'perceived value' and actual value of different bill denominations goes something like:

You might be able to give the $50 a 'perceived value' score higher than the $20 (rather than the same value), but not by much. And as most banks shell out $20s at ATMs, I can't see moving to $10 or $5 having any affect whatsoever.

Ok, so this is, again, me not reading the article. I'll now go and try and find it to see if I even came close to guess the right relationship.

Ugh, it's in the Journal of Consumer Research - the greatest collection of practically useless information known to man.

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