Customer perceived value: What it is & why it matters to pricing

Customers are complex creatures with needs, wants, and desires for particular services or products. Finding out the pain points for a target market and designing services or products for that market can help with customer perceived value. But what is that, and why does it matter in relation to finding a price point?

Whenever a new product or service hits the market, marketers scramble to affix an image, price, and branding to the item to help define its perceived value. Investopedia defines perceived value as "the customers' evaluation of the merits of a product or service, and its ability to meet their needs and expectations, especially in comparison with its peers."  

Perceived value can vary from individual to individual, which is why it’s crucial to hone your target market and user personas to generate the right price point.

It was Warren Buffett who said, "Price is what you pay. Value is what you get." Perceived value is what the consumer is willing to pay for an item, taking into consideration convenience, benefit, utility, security, brand, service, etc. Supply and demand, influencers, and hype can influence it. 

Perceived value vs. real value is all about the assessment of the product or service, and it may vary depending on the specific product or service category and the target customer segment.

Marketers focus on the power of perceptions and expectations by consumers to drive sales. Where is that power, and how can you use it to increase sales? Here are a few things to consider:

Increase prices

Even in uncertain times, with financial instability and inflation, customers have been shown to pay higher costs for the brands they trust. With a good loyal customer base, even raising prices will not deter them, but that foundation must be there.

Increase customer satisfaction

The Edelman Trust Barometer 2020 showed that 64% of consumers are more apt to trust a company that they perceive shares their value system. By improving the perceived connection between the customer and the business, the value of the item increases through that perception. 

You can increase customer satisfaction by tapping into marketing to that target demographic with promotions and advertising that speaks to those same values and connections. 

Increase customer loyalty

According to Indeed, an effective way to nurture customer loyalty to your company, product, or service is to get good media coverage. By heightening the social media buzz around it and creating hype through varying platforms, you’re increasing both customer awareness of the item and the emotional perception of it.

Increase demand

Increasing customer perception and perceived value can increase the demand for the product or service. Improving that perceived value directly correlates to rising demand and, in turn, higher levels of sales and profits. 

There are many different types of perceived value. Customers may have a combination of these and change their minds on what’s most important depending on their circumstances. Perceived value types include form, availability, task, emotion, reputation, and price.

Form

The aesthetically pleasing look of a product can definitely help shape a perceived value. A great design with elegant colors and a luxury feel can have a much higher perceived value than a product with strange colors and cheaper-looking accents. An example of this is "no-brand" grocery items with plain packaging versus brand-name grocery foods.

Availability

Availability is a double-edged sword. Sometimes if you can never find the product, it lowers the perceived value, and customers move on to the next brand that is similar to that product. 

There are other times when the low demand creates even more perceived value. An example of this would be when the new PS5 gaming console came out, and there were more people buying them at double the sticker price than people willing to wait until the supply caught up to the demand.

Task

Products or services that save time or money or have a great functional purpose can increase their perceived value. Customers like things that work well and can help them, which aids loyalty for repeat purchasing. 

Emotion

If a product or service speaks to our emotional selves, even when it may not be rational, it will boost customer perceived value. This can be through the power of nostalgia and other experiential forms of satisfaction. 

There's a reason that you're seeing marketing trends with the "retro" packaging or companies bringing back items you haven't seen in a dozen years or more.

Reputation

Reputation also ties in with the "values sharing" philosophy, where a customer believes that the business has the same principles in mind. Reputation can also be from the business doing good in the community, showing a history of morals and sound judgment, or having a product that has stood the test of time. 

All of these can add to the customer’s perceived value of a product or service.

Price

For some people, value comes straight down to pricing. Budget-minded individuals want the cheapest product; no amount of marketing will change that. For this target market, the only customer perceived value is if you're the cheapest or at least promoting a cost-saving aspect to the product/service.

So now you know what goes into the concept of a customer perceived value, it's time to see what you can do to raise it for your service or product.

Make it scarce

Just like the above example of the PS5, creating a demand for your product that exceeds the supply can boost your perceived value. You can also do this by creating special "limited edition" or "seasonal" items only around for a short time. The more in demand the product, the more customers will see this as a hot commodity that’s worth more money.

Flaunt the reviews 

Whenever you have a great review or testimonial from a customer, flaunt it! Frequent positive reviews show a pattern of good customer service from your business as well as a product that isn't wavering.  

Sharing these on your social media channels is a great way to remind people to shop with you or show people who haven't begun shopping with you yet that your company and product are as great as you say they are. 

Tap into influencers 

Social media influencers are a great way to boost your products. The key is aligning the influencer with your product and location. 

Sell across the globe? Great, pick an influencer that aligns with this. If you only sell locally, you'll want to find a hometown hero to speak on your behalf. In this same mindset, you don't want to get a global beauty influencer to speak about how great your new spreadsheet software is. Align, align, align!

Consider raising the price 

Don't be hesitant to raise that price point. Raising a price point can team up with other aspects, such as a promotional campaign and influencers. The key is to not raise it too much or too fast, as this could create a backlash from consumers.

Consider a markdown

Conversely, you can consider a markdown in price. There are some products where it’s easier to sell 1,000 items with a lower profit margin than 500 items with a higher profit margin. Creating a money-saving promotion can also boost your profits during a sale and create a higher customer perceived value.

One example of perceived value vs. actual value is a software package that has always sold for $25 but is marked $50 on sale for 50% off. Even though its actual value has always been $25, customers will have a perceived value of $50 on the software just through this promotional trick.

An example of perceived value pricing is where customers understand that some things cost differently depending on the location and event. They understand that a $1 bottle of water may be $3 at a movie or $5 at a concert. The perceived value is fluid depending on the changing geographical location of the marketplace.

Customer value can be sorted into four main categories: functional value, social value, monetary value, and psychological value. Depending on the item purchased and the customer, the value type can change. For example, an influencer may find more value in things that heighten social media clout (social value) than things that are a good deal (monetary value).

People in marketing can use customer perceived value to gauge interest or predict how the user will respond to a product or item. As the customer perceived value rises, that product or service can then be sold for more money.