Determining the price of a product or service is extremely difficult. It’s not as straight forward as most people would think, in fact, it has baffled and has been the achilles heel of economists’ for years. Value is in the eye of the beholder and what people will pay for something is down to what they feel it is worth at that particular time in that particular place.
This brings us to the topics of perceived value and some examples that you can have a think about and how to incorporate it into your own business.
Investopedia defines “perceived value” as the worth that a product or service has in the mind of the consumer. This concept is a tool that is used often in marketing and advertising to help prospects understand how and why a product or service can help them. The perceived value has to be more than the customer is willing to pay for the item, because if it is not worth the money in their eyes, they will either put the purchase off, buy it elsewhere at a better price or not buy it at all.
The catch-22 about perceived value is that people have varying ways of defining value. Since value is subjective, it is a slippery concept for marketers to present. Therefore, it is important that marketers truly understand the buyer persona that they are targeting with their campaigns. Taking the time to really dig deeply to obtain that understanding is an investment well worth a marketer’s time.
Examining Examples of Perceived Value
1. Buying a Diamond
DeBeers‘ slogan is “A diamond is forever.” DeBeers has chosen to market this facet of perceived value because diamonds are expensive. In fact, diamond ‘experts’ (ie salespeople hehe) suggest that a diamond engagement ring should cost approximately three month’s salary.
Three months salary is money that can alternately be spent on basic needs such as food, clothing and shelter, but young couples tend to spend it on a piece of jewelry.
You can see that buying a diamond for an engagement ring has become a standard because the diamond is symbolic of the marriage. This symbol is one that a woman can wear for her entire life, because it is “forever.” Diamonds lend themselves to this concept well because they are so enduring physically. While the gold or silver ring may become scratched or dented, the diamond itself is very difficult to damage. Diamonds are used to cut other substances in industry and gemology.
You know what the crazy thing is? Diamonds being rare is a complete myth! They are not that rare and in fact the only reason we pay so much for them is because of a great marketing effort by DeBeers. They do a great job of creative perceived scarcity effectively forcing people to pay way more than that little rock is worth.
2. Drinking Fine Wines
According to a study by the Cornell University of Hotel Administration, scarcity effects perceived value of many items. We can see this concept in action when items come up for auction after the death of a celebrity or vintage items are sold that are hard to find. Products and services that are difficult to obtain and are highly desired go up in price.
Wine connoisseurs go to extreme lengths to find and invest in specific wines because of their rarity and where they were manufactured. The wine itself does not change from the other bottles in the same batch. It is only the fact that it is one of the few uncorked that can make it more expensive. However, wine has other factors that change the perceived value. For instance, the perceived value of the exclusive restaurant where a wine is served will also raise its perceived value even though most people cannot tell the difference between a bottle of $5 wine and $45 wine in blind taste studies.
3. Egg McMuffin
A classic example of perceived value can be seen by the famous breakfast sandwich sold by McDonald’s, the Egg McMuffin. For years, McDonald’s has been promoting the Egg McMuffin as a high-quality premium product, as close to the perfect breakfast as anything can possibly be. It is clear to most people who have ever been to a McDonald’s restaurant that their main claim to popularity is cheap fast food that tastes pretty good.
They do not sell expensive cuts of meat or freshly-baked bread, nor do they score many points for healthy foods (although they have been working to introduce healthier foods recently). Certainly, the Egg McMuffin is not really the perfect breakfast. However, to someone on the run who is about to sit in traffic for the next hour while they stress about getting to their meeting on time (and not hungry) the Egg McMuffin has a high perceived value! It is easy to hold in your hand, is hot, filling and comforting and can be eaten quickly on your way to work. That’s where the value is.
4. Bottle of Water
A good example to examine the perceived value of an item is a plastic bottle of water sold just about everywhere these days. There are many reasons that a pre-packaged bottle of water is desirable. It is convenient, water is good for everyone and it is cheap. However, what makes two bottles of water that hold the same amount different prices.
For instance, what makes an Evian bottle of water cost more than a bottle of local spring water. Evian has created a perceived value of their water as being more wholesome, better for your skin and healthier than other waters for drinking. In reality, most fresh water that is free from contamination is pretty much the same. Your body doesn’t differentiate between sources of water but your mind likes the fact that it comes in a sexier bottle, has a French name and surely, water from those big French alps is better than another source? right?
5. Crate and Barrel
One of the ways that Crate and Barrel increases the perceived value of their products has nothing to do with the products themselves. Crate and Barrel uses corporate philanthropy to raise their products’ perceived value. The company spends part of their advertising dollars to buy gift certificates for customers to spend on DonorsChoose for any charity they want.
People who donate money to DonorsChoose are more likely to shop at Crate and Barrel for products that they can buy in more than one place. In a case study regarding Crate and Barrel’s corporate philanthropy, 82 percent said they would consider Crate and Barrel for their next home furnishing purchase over 79 percent of the control group and 86 percent perceived Crate and Barrel as a high-quality company compared to 76 percent of the control group.
In this case study, the perceived value had nothing to do with the products at all. Instead, it was related only the actions of the company.
Perception is Up to the Beholder
Ultimately, perception is up to the perceiver. You can tell someone that one product or service is better than another and give them 20 reasons why with statistics to back them up, but if that person perceives a higher value in a different product, they will stay true to that product. Perceived value can often go beyond what most people would consider common sense. For instance, many people will stand in long lines to get a free doughnut while they could spend under $1.00 and buy it in just a few minutes. The fact that the doughnut is free makes it worth more in the mind of the perceiver. On the other hand, if the same person believes that their time has more perceived value than a free doughnut, they will not be willing to stand in the long line and wait for it. Perhaps if the free doughnut didn’t require a long wait, they might change their mind.
Perceived Value for Marketers
Ultimately, a marketer’s job is to increase the perceived value of the product, service or company that they are marketing. Brand marketing effectively increases the perceived value of that brand to a target market. Product or service marketing campaigns work to increase the perceived value of those items. Understanding what a buyer persona values is the key to improving perceived value of what you are marketing.
As you develop the buyer persona(s) for your company, dig deeply into the persona’s beliefs and values to learn where you can influence them to buy your product. It is not really good enough just to know surface information about the persona. You need to understand what makes them into the person they are right now. What has meaning for them and what will induce them to spend money on your products. This concept works for B2C and B2B companies, however in the case of B2B companies; you may need to look at a team of buyers instead of one single buyer.
If you can market to the perceived value of your prospects and/or raise the perceived value in their eyes, then you will achieve more conversions, revenues and sales on an ongoing basis going forward.