Tips for entrepreneurs: Is cash king?

When the gift was a true gift-like item, for instance a ticket to an exotic destination or a bouquet of flowers, workers reciprocated much stronger with harder work than those who received cash.

By
August 27, 2013 23:13
4 minute read.
Isreli currency.

Money cash Shekels currency 521. (photo credit: Reuters)

We all know the of the popular expression “cash is king.” There’s a famous cartoon from my childhood that I see hanging in many shops. In the first frame, a man dressed in tattered clothes says, “I sold on credit,” while in the second frame, a well-to-do-looking man with a big cigar in his mouth says, “I sold for cash.”

But what does cash do, exactly? And is the statement “cash is king” always true? Well. Not quite.

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While in Vienna, I stumbled across the highly acclaimed book Secrets of the Money Lab by Hewlett-Packard chief economist Kay-Yut Chen. The book discusses a variety of important concepts at the crossroads between economics and social psychology. One of these is about the principle of reciprocity.

When someone is hired to do a job for which the minimum wage expected is $10, and the worker is paid $12 an hour, what is the relationship between worker and boss? Berkeley economist George Akerlof describes such a relationship as a “partial gift exchange.” This means that while real money is changing hands in exchange for real work, there’s also something else at play here: The extra money is accepted as a gift by the employee, who then works harder than a similar worker who would have been paid the lower wage. Essentially the worker receiving this “extra” pay is reciprocating with harder effort for the “gift” of the extra money.

But in the real world, when this was originally tested, something surprising happened; The workers would boost productivity in amount of work done per hour compared to a lower-paid control group (as theorized), but that extra effort dissipated quite quickly after the first few hours. (If you’ve ever given a raise to an employee, this may not be not surprising to you – within a few weeks or months things are usually back to the original level of productivity, as it was before the salary increase.) What researchers did find is quite fascinating: When the gift was a true gift-like item, for instance a ticket to an exotic destination or a bouquet of flowers, workers reciprocated much stronger with harder work than those who received cash.

When I was a teenager, I ran a student learning program for Agudath Yisrael of America, and once a week there would be a raffle among all the attendees, with nice little prizes. They were great incentives for the students to learn.

One week, I did not have a chance to buy gifts, and knowing what I personally would appreciate, I raffled off two $5 dollar bills.

The winners of that week’s drawing were happy, but nowhere near as impressed as those who got the toy or trinket I had raffled off the week previously.

One of the fathers who had come by to pick up his son called me over and advised me that “a gift that costs fifty cents will be more valuable to a child than a $5 bill.”

The image of piles of dollar bills and bundles of banknotes speaks very strongly in ads to the business-opportunity market. Even though we all know that real work is required to successfully earn an honest living, the power of the visual image of cash, and even the color green (in the United states, where it is the color of money), has been proven to impact ad performance and gain buyer attention.

When targeting an affluent demographic, however, the use of such images can backfire. This is especially so when not presented with the right back story. Although, ultimately, even for this market it’s very much about the cash and the prestige your product or service will bring to them.

The color green is also often employed by retailers to attract eco-minded clients. Does that mean it’s environmentally friendly? Not in the slightest! Just goes to prove, yet again, how important perceptions are in marketing.

In fact, CNN reported that colors can increase brand recognition by a whopping 80 percent. This is according to a study by psychology and management researchers at the University of Loyola, Maryland. Finding a way to work specific, strategic colors into your logo, branding, retail space and other design elements will help your clients and potential clients associate those colors with your company.

If that’s what it takes… go repaint the walls! Your company and brand must constantly be broadcasting a message to help shape the perceptions of the potential customer, as well as the current customer, to what this brand represents. When there is a vacuum in the concept of who you are and why you exist, the brand story gets lots and follows whatever pattern the market draws for it. The perception of the brand can be that it’s an “old-fashioned” brand, a “does that brand still exist?” brand, or sometimes the brand goes into total oblivion.

[email protected] Issamar Ginzberg is a business adviser, marketer, professional speaker and rabbi who has been published in more than 50 business publications.


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