Note to Banks: Think Small  Logically, if a product costs $10 and consumers like it, they should be willing to pay for it, right? Maybe not. According to researchers at the University of Iowa, it might depend on the denomination of the bills they have in their wallets.
Apparently consumers are less likely to spend money on something when they have one large bill (say $50) than if they have a few small ones (five $10 bills). One big bill just looks like it's worth holding onto longer.
"The denominations of the bills plays significantly into a customer's willingness to spend," claim the authors.
Researchers think that this "bias for the whole" occurs because having a whole amount is pleasing. Consumers readily understand that a $100.00 bill is worth—hey!—100 bucks! It's more difficult to visualize smaller bills making up the same amount. To shoppers, the whole really is greater than the sum of its parts.
Since ATMs are the primary source of cash for many consumers, these authors conclude that banks can actually influence consumer spending by the denominations of money they distribute through their ATMs. Time to encourage your local bankers to think small.
The Po!nt: What customers see in their wallets can hurt you. Their feelings about spending money may well be tied into what denominations of bills they carry.
Source: "Money: A Bias for the Whole", by Himanshu Mishra, Arul Mishra, and Dhananjay Nayakankuppam. Journal of Consumer Research, 2006.
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