How to Improve the Perceived Value of Your Product
You can go to a jeweller and buy a diamond ring for $10,000. It is worth $10,000. You can take that ring to a street corner and offer it for sale. If the most you get offered is $10 then you now have a $10 ring. Value is always decided by the market at the point of actual transaction.
Your product is only worth what people will pay for it. People value things based upon their own needs and dreams.
You wouldn't sell your diamond ring for $10 but you might sell it for $8,000 or even $12,000. You might move to another corner, perhaps with more affluent passer-by and try again. If that didn't give you the value you desired then you would take it to several jewellers. This is re-positioning your product physically.
If that didn't work you could either change your value of the ring or you could find a way to make people think it was worth more. A common trick would be to claim that it was the ring Napoleon gave to Josephine before Waterloo. It's a filthy fib but interestingly someone may choose to believe it and give you $12,000 for the $10 ring. This has changed the perceived value.
People will not buy anything unless they believe that the value of the product is at least equal to the asking price. If the perceived value is greater than the asking price then a sale is inevitable as the customer perceives great value.
| Perceived Value | Sticker Price | Sale Achievable |
| $4 | $5 | No |
| $5 | $5 | Possible |
| $6 | $5 | Definite |
It is the job of sales and marketing to manage perceived value for their products.
Lowering Price
The average salesman believes that to make more money he needs to sell more product. And to sell more product the price needs to be reduced. In certain situations this is correct but for most businesses this is not only wrong but it is dangerous.
Even a price reduction (sale) without a strong reason to separate normal stock from discounted stock will reduce perceived value long term.
Most often when you reduce the price of your product you are also reducing the perceived value. Simply put, if someone perceives value of a product to be $4 and the sticker is $5 reducing the price to $4 in hope of a sale will often result in the customer revising their perceived value to $3.
This is why in proper sales theory a discount should only ever be offered as part of a mutual agreement. The salesman establishes that the customer only wants to pay $4 for the $5 item so he asks, "If I can sell you this for $4 will you buy it right now?" The customer should either say yes or no. Any other reply is in reality a no.
If the price is reduced within this mutual agreement then it will have little to no adverse effect on long-term pricing. If the price is reduced outside of a mutual agreement i.e. if the customer simply says, "What's your lowest price?" or "Would you do it for less?" without commitment then the perceived value of that product is now at the lower price regardless of what the sticker says.
Don't ever do this |
A common method is simply to raise the sticker price and then discount back to the perceived value but that does a lot of damage to trust which reduces perceived value even more. This is exactly the damage done to both buyers and sellers in the car industry, and similar, businesses.
Simply put: you cannot reliably increase perceived value by reducing price.
Raising Perceived Value
The average business actually needs to raise it's prices not lower them. This is actually achievable with some care. If you raise perceived value for your $5 product to $6 then you will sell easily to your kind of customer (psychographics not demographics).
If you differentiate your product then immediately you separate yourself from the perceived value of similar products. Apple computers are more costly, with slower chips than PC machines yet they are a growing market.
BMW cars have a greater perceived value because they are safer, technologically superior and better featured than the average car.
Lamborghini cars have a greater perceived value because they are exclusive and wildly sporty super-cars.
A bank can have a greater perceived value to a customer because they are larger and more secure. Another person can perceive reduced value in the same bank because they are large and less personal. Perceived value is in the eyes of the individual so don't try to please everyone at once.
Freud differentiated himself from many other doctors by writing books and papers on why people behaved as they did. This is a case of making himself into an expert. He increased the desire for people who were unhappy to visit him over other doctors (probably increased his fees for these people too, to pay for his 'research' clients).
In all of the above cases the product or sevcice is differentiated and made more complete and special by the extra effort put into the design, build and execution of the sales strategy. The customers who desire that extra live value you build into your products will be easy, in love customers who will be happy to pay the premium.
The Web is a great place to show expertise and differentiation. You can offer vast amounts of supporting information on your product that helps people to see how your product fits their dream better than a competitor's. Sadly many people abuse this method of differentiation by either recycling other articles as their own expertise or using 'white papers' of no value as bait for 'prospect management' techniques. These hard-sell tricks simply reduce perceived value so please don't be tempted.
The costs of increasing your perceived value are in understanding your desired customers and then putting the full and correct process into action. Any part that you shirk or short-cut will reduce your perceived value and therefore your profits.
I found this interesting approach to increasing perceived value in lower priced products in the Inside Influence Report - The Costs of Ignoring Opportunity Costs. The psychology in price-comparison is interesting and unexpected (on the surface at least).
If you want me to work with your business then please visit BRM Web Consulting
