Contents
What’s it: Perceived value is a consumer’s estimate or interpretation of how much a product is worth. It may be subjective between individuals. You and your friends may give different estimates for the same product.
In addition, value can also vary due to the nature of the product. Valuing goods will be very different from services because they have different attributes to be valued.
The perceived value affects customer satisfaction and, therefore, the success of a product. A product can be successful if it has value and can satisfy their wants and needs. And how valuable the product is depends on the customer’s perception of how they feel.
They are satisfied if the perceived value is higher than the cost they paid (price, effort, time). Conversely, they are dissatisfied if the product is worth less than the cost. In the buying process, perceived value plays a role in influencing their purchase intention and trust.
Perceived Value vs. Added Value
Companies create value for their products through features, design, and functionality. This process increases the product’s worth compared to its production cost. Imagine a manufacturer transforming raw cotton into a pair of designer jeans. The finished product holds significantly more value than the raw materials.
However, added value doesn’t guarantee customer satisfaction. Perceived value is what truly matters. This is the worth a customer assigns to a product based on their individual needs, wants, and experiences. It’s influenced by factors like brand reputation, emotional connection, and perceived benefits beyond just features.
The key difference?
Long story short, on the one hand, companies sell by adding value. On the other hand, customers buy based on their perceived value. The two must be equal to produce satisfaction.
Let’s illustrate the gap: Imagine two high-end athletic shoes, Brand X (think Nike) and Brand Y (consider a lesser-known brand with similar features). Both might offer excellent performance and durability.
However, a customer might perceive Brand X as more valuable due to a stronger brand image associated with athletic excellence and celebrity endorsements. This emotional connection, fostered by the brand, creates switching costs. In other words, the customer is less likely to consider Brand Y because they value the overall experience with Brand X more than just the shoe’s technical specs.
In essence, successful businesses bridge the gap between added value and perceived value. They create products with clear benefits but also understand the importance of building a strong brand identity and positive customer experiences. This alignment between what a company offers and how customers perceive it leads to higher customer satisfaction and, ultimately, business success.
Why perceived value matters
Perceived value is an essential concept in marketing. It forces companies to look at value from the consumer’s point of view. Because they have to satisfy consumers, companies must be able to explore what makes consumers satisfied, which may be beyond the added value they create.
Here’s why understanding perceived value is crucial for business success:
- Customers pay more for what they value: When a product resonates with a customer’s needs and desires, they’re willing to pay a premium. This allows companies to generate higher profits and gain a competitive edge.
- Branding creates value perceptions: Famous brands invest heavily in building a strong image. This image shapes how consumers perceive their products, potentially creating a sense of trust, status, or exclusivity that goes beyond the physical features.
- Satisfaction goes beyond price and features: Even if a competitor offers a seemingly better product on paper, strong perceived value can win over customers. Consider a situation where a reliable, well-known brand is compared to a lesser-known brand with slightly better specs. Perceived value, built through branding and customer experience, can influence the customer to choose the familiar brand.
Perceived value drives purchase decisions: Customers are constantly evaluating the cost (money, time, effort) of acquiring a product against the perceived value it offers. If the perceived value doesn’t meet or exceed the cost, they’ll likely search for a more satisfying alternative.
Beyond price and features: While features and price are important factors, a successful marketing strategy goes beyond them. Companies that excel at crafting a strong brand image, managing customer relationships effectively (think helpful salespeople!), and ensuring product availability create a positive overall experience that contributes to perceived value.
In short, perceived value is the bridge between a product’s features and a customer’s willingness to buy. By understanding and influencing perceived value, businesses can unlock the key to customer satisfaction and long-term success.
Determinants of perceived value
Customers consider not only monetary value, namely price. But they also consider functional, psychological, and social values.
- Monetary value (price) is the most straightforward factor, representing the actual cost a customer pays to acquire the product. While price is important, it’s not the only factor at play.
- Functional value (problem-solving) focuses on how well the product addresses a customer’s specific needs. It’s influenced by features, durability, quality, design, and reliability. For example, a high-performance laptop with a long battery life offers greater functional value for a busy professional compared to a less powerful model.
- Psychological value (emotional benefits) relates to the emotional connection a customer feels with the product. Does it make them feel confident, happy, or secure? Consider a luxury watch that signifies success or a comfortable pair of shoes that evokes a sense of well-being.
- Social value (connecting with others) reflects the product’s ability to help customers connect with their social circle. Think about a designer bag that garners compliments or athletic apparel associated with a particular sports team.
Key factors influencing perceived value
Understanding what truly drives customer decisions is a golden key for businesses. Price is certainly a factor, but it’s just the tip of the iceberg. Customers assign value to a product or service based on a complex interplay of features, emotions, and social connections. Let’s dive deeper into the key factors that influence perceived value, helping businesses bridge the gap between what they offer and what customers truly value.
Product performance represents functional value, which is very different for goods and services. In marketing goods, it includes benefits related to features, durability, model, quality, design, and reliability. Meanwhile, in service marketing, it is how quickly and precisely a company provides satisfactory solutions for customers.
Cost includes price, which represents a monetary cost. In addition, consumers incur other costs (time and effort) to purchase and obtain benefits, including:
- Installation fee
- Transportation costs
- Maintenance costs
- Renewal fees
- Time to install
- Time to search and select alternatives
Customer relationships are important for retaining customers and creating an emotional bond between brands, products, and companies and their customers. Customers don’t just deal with the product when they buy. However, they also deal with company people such as salespeople and after-sales service staff.
Thus, the staff’s ability, knowledge, and expertise in handling and providing customer solutions are important factors in creating perceived value. This factor is becoming increasingly vital in service marketing because companies depend on people to give the best for customers.
Images can be attached to the product, brand, staff, or company. The company builds a positive image to attract and entice customers because it influences consumer perceptions.
Product and company reputation is a consideration for consumers in choosing a product. For example, a company’s reputation might come from operating and developing environmentally friendly products. This reputation is aligned with the customer’s values, making them prefer the company’s products over competitors’ products.
Variation in perceived value
Perceived value isn’t a one-size-fits-all concept. Several factors can influence how different products and services are evaluated:
Product vs. service: The factors influencing perceived value differ between goods and services. In service businesses, factors like responsiveness, staff expertise, and overall service quality play a significant role. Think about a spa experience – friendly staff, a relaxing atmosphere, and high-quality treatments contribute significantly to perceived value.
In contrast, for physical goods, price often takes center stage alongside factors like features, durability, and brand image. A high-end phone with cutting-edge features might be more expensive but offers greater perceived value to a tech enthusiast compared to a basic model.
Product nature: Even within the same category, the nature of the product can influence perceived value considerations. For expensive items like luxury watches or designer clothing, brand image and exclusivity become significant factors. However, for essential, everyday items like soap or shampoo, price might be a more dominant concern.
Individual differences: Perceived value is also subjective and varies between individuals. Factors like age, education, occupation, and even cultural background can influence how people evaluate a product. For example, a young professional might prioritize features and functionality in a laptop, while a student might be more budget-conscious, prioritizing affordability over top-of-the-line specs.
