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.
The difference between perceived value and added value
Perceived value looks at value from the consumer’s point of view. That’s a little different with added value.
Companies add value to generate profits. They make their product worth more than it costs to produce it. For example, manufacturers turn aluminum sheets into car frames, which is worth more than it costs to buy aluminum.
Does the added value satisfy the customer? The answer is not necessarily. Satisfaction depends on the value perceived by the customer. It is influenced, among other things, by the value added by the company.
So, a company might consider adding value to their product. But, only some consumers buy. Many customers do not buy because the added value created is lower than they expect or feel.
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.
For example, two smartphones, say iPhone and Samsung, have the exact same specifications and are sold at the same price. However, customers may prefer the iPhone over Samsung due to being attached to the brand. This attachment creates switching costs, namely, customer reluctance to switch brands.
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.
Companies can gain high profits and competitive advantage by influencing the value perceived by consumers. Consumers are willing to pay a higher price when they perceive a product as valuable. Conversely, they do not buy or are only willing to pay a low price if not. So, value is not only related to product performance, but also consumer perception.
This is the reason why many famous brands invest in branding. They seek to create consumer perceptions and, ultimately, influence the value consumers feel.
There may be many alternative products available. They are better in quality or performance than those famous brands. However, consumers are bound to the brand, thus preferring them over the alternatives.
Perceived value is the reason why customers buy products. It has to be at least equal to the cost (money/price, time, and effort) the customer incurs to buy. If it is lower, they will look for more satisfying alternative products.
Satisfaction depends not only on price and product attributes such as features and performance. However, it also depends on branding and other marketing mix elements such as promotion and product availability.
Customer relationship management is also important for high customer satisfaction. For example, customers are satisfied when they deal with the right salesperson. It contributes to an emotional attachment between the customer, the company, and its offerings.
Determinants of customer perceived value
Customers consider not only monetary value, namely price. But they also consider functional, psychological, and social values.
While price represents monetary value, functional value represents the solution provided by the product to the customer. Psychological value relates to the product’s ability to make people able to express themselves or make them feel better. Meanwhile, social value relates to what a product can offer customers to connect with others.
The following are the determinants of the value perceived by customers of a product:
- Product performance
- Cost
- Customer relations
- Image
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.
An image 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
The main factors may vary between products. Goods will be different from services. Likewise, the nature of the goods and services offered also affects.
For example, in a service business, the following factors might determine perceived value:
- Cost/price
- Quality of service
- Image
- Staff appearance
Meanwhile, the price can be a major consideration in marketing the goods besides product performance. Meanwhile, the image can be an important factor for expensive products. Conversely, it may be less important for cheap, standard products like soap or shampoo.
Then, perceived value also differs between individuals due to different factors such as age, education, occupation, and in general, geographic, demographic, and psychographic attributes. Each individual can give a different assessment according to their background.
