How much is your business worth? Not in a literal sense, but in the eyes of consumers? A surprisingly large share of owners and decision-makers don’t know the answer. That’s despite customer perceived value (CPV) being a critical factor in retaining and attracting business.
In this article, we’ll explore a concept that centers around the question everyone asks a company before making a purchase: What’s in it for me? By the end, you should be well-equipped to respond to that key question with your own unique value proposition.
What Is Customer Perceived Value (CPV)?
Customer perceived value (CPV) is the overall assessment of the worth or benefit that a customer believes they will receive from a product or service. It takes into account both tangible and intangible things such as quality, functionality, price, brand reputation, and post-purchase support.
Think of CPV as a representation of the balance between investment and return. Customers are more likely to purchase a product or service if they perceive it as having a higher value compared to its cost.
Customer Perceived Value vs. Product Value
Before going any further, we must take a moment to recognize the difference between customer-perceived value and product value.
|Customer Perceived Value (CPV)
|Built on customer impressions, emotions, and external factors.
|Intrinsic and tangible, based on the product’s attributes and functionality.
|Arises from marketing, branding, and communication strategies.
|Originates from the inherent qualities and features of the product.
|Highly subjective and varies among individuals based on perception.
|Objective and measurable, often standardized for all customers.
|Impact of Marketing
|Significantly influenced by effective marketing and branding efforts.
|Less affected by marketing if the product’s quality is evident.
|Connection to Needs
|Connected to customers’ emotional and perceived needs and aspirations.
|Tied to the practical and functional needs fulfilled by the product.
|Subject to change based on evolving market trends and external influences.
|Relatively stable, as it depends on the enduring features of the product.
The Undeniable Importance of Customer Perceived Value
So, why should you care about customer perceived value? The answer is simple: Because it has the power to make or break a product’s success. Regardless of the market in which it takes place, shopping is always a transactional experience. People hand businesses money with an expectation to get something equally great in return. If those benefits aren’t made obviously clear, they won’t have an incentive to buy.
To that end, perception of value has a big impact on profitability, as well. Consumers are generally more willing to spend money on products when they’ve been framed to reflect premium quality.
How are Framing and Perceived Value Related?
Framing and perceived value are closely intertwined concepts, with framing playing a significant role in shaping an individual’s perception of value. Let’s explore this relationship further.
Firstly, let us understand what is meant by framing. In simple terms, framing is a technique used to influence how people perceive and interpret information. It involves presenting the same information in different ways, with the goal of shaping how individuals understand and respond to it.
Framing has a surprisingly big impact on the decisions people make. In the context of business, consumers might be swayed toward one solution over the other based solely on the way it’s presented to them. This makes framing a fundamental concept in marketing and advertising.
Now, how does framing relate to perceived value? As we’ve already established, perceived value refers to the worth or benefit that an individual believes they will receive from a product or service. It is a subjective evaluation based on personal beliefs and experiences, rather than objective measurements.
Framing can significantly influence how individuals perceive the value of a product or service. For example, let’s say there are two brands of smartphones in the market – Brand A and Brand B. Both have similar features and specifications, but Brand A is priced at $500 while Brand B is priced at $700. On paper, it seems like the two brands are similar in terms of value.
However, if Brand A markets itself as a budget-friendly option for those looking for an affordable yet high-quality smartphone, while Brand B positions itself as a luxury brand with premium features and a higher price point, consumers will perceive the value of each brand differently.
In this scenario, framing has played a significant role in how consumers view the perceived value of the two brands. Brand A may be seen as a better deal and offer more value for money, while Brand B may be perceived as a status symbol and worth the higher price.
Other factors that can affect perceived value include brand reputation, product quality, customer service, and even packaging, which we’ll get into later on.
How to Measure Customer Perceived Value Formula
Customer perceived value can be hard to gauge given the intangible aspects of consumer psychology it considers. Unfortunately, you don’t have the luxury of being able to track the specific reasons behind every one of your customer’s purchases; measuring CPV is an abstract process that requires a combination of both qualitative and quantitative data.
Here are a few helpful practices to consider when attempting to estimate and track customer perceived value:
Surveys are a great way to gather feedback from your customers. You can ask specific questions about what they value most about your product or service, and how it meets their needs. This will give you insights into what aspects of your business are most important to your customers and how they perceive the value that you provide.
Track Customer Behavior
Technology gives brands an incredibly valuable opportunity to track customer behavior. Analyzing data from website visits, click-through rates, and social media engagement can provide insights into what customers are looking for over time.
Monitor Social Media
Social media is a powerful tool for understanding customer opinions and perceptions. Keep an eye on comments, reviews, and discussions about your brand on different social media platforms. You’ll quickly get an idea of the public’s overarching positive and negative sentiments towards your business.
Gather Feedback from Customer Service
Your customer service team is on the front lines, interacting with customers on a daily basis. They are in a unique position to gather feedback and insights into what your customers value most. Encourage them to take note of common compliments, complaints, and suggestions from customers. This can provide valuable insights into what matters most to your target audience.
Factors Influencing Customer Perceived Value
Customer perceived value can be influenced by many different things, as not every buyer’s purchase is driven by the same values or needs. It ultimately comes down to the type of product at hand and what individual consumers care about most. Below, we go over a few examples of factors that commonly affect CPV.
It’s no surprise that quality is a significant factor in customer perceived value. Buyers want to feel confident that the product they are purchasing is well-made and will meet their expectations. If a product has a high level of quality, it’s more likely to be seen as valuable by customers. This could include factors such as durability, reliability, and functionality.
Although it may seem kind of counterintuitive – considering perceived and actual product value are different things – price often plays a big role in how consumers frame products in their minds. It’s generally assumed that the more expensive something is, the higher its quality, and the more value it will bring to the purchaser. While this isn’t always true, it’s still a common perception that can influence customer perceived value.
Marketing and Presentation
First impressions aren’t just important in person-to-person contexts – they’re also crucial in determining consumers’ buying decisions. From the initial point of contact someone has with a product, they’re already forming opinions. Marketing campaigns, packaging, and other aspects of public presentation can be defining elements in how positively or negatively someone views a brand and what it has to offer.
A company’s reputation and image can also significantly impact how valuable its products are seen by customers. If a brand has a strong positive reputation, people will be more likely to associate their products with value, even if they aren’t necessarily the best quality or priced highly. This ties to the influence credibility and loyalty can also have on individuals’ buying decisions.
Ease of Use
Most relevant to functional products like software and appliances, ease of use is a big consideration in CPV. People generally see redundancies and inefficiencies as intangible costs to them – the more there are in a given product, the less value they’re getting for their money.
Understanding the Foundational Types of CPV
Garnering a strong customer perception of value isn’t always easy. It can be best described as a science – one that considers both the conscious and subconscious elements behind consumer buying behaviors. Boiled down, they can all be put into one of three categories. We’ll explain the economic, functional, and psychological elements of CPV below.
Economic Perceived Value
Economic factors are those that are directly related to the cost and benefits of a product or service. This includes things like price, discounts, payment options, and overall affordability. The average consumer holds cost as a major deciding factor when making purchases, especially for non-essential items. Brands need to find a balance between product prices that reflect the literal value of what they have to offer and prices that make sense for their specific market.
Of course, there are cases where the other two elements we’re about to cover, functional and psychological perceived value, outweigh economics. If a consumer truly believes something will change their life emotionally, cognitively, or functionally – they may be willing to spend above and beyond their perceived budget.
Functional Perceived Value
For a product or service to be successful, it must effectively fulfill the specific wants and desires of its target consumers. This is where functional factors come into play – the tangible benefits and features of a product that make it stand out from competitors. These can include things like quality, durability, ease of use, functionality, and convenience. By highlighting these functional elements, brands can appeal to the logical side of consumers and establish trust and loyalty. This is especially effective in cases where the product at hand aims to solve a specific problem, like a cleaning product or a tool.
Functionality can also work against a brand if it is not executed properly. For example, if a product is marketed as high-quality and durable but ends up breaking or malfunctioning quickly, it can lead to negative reviews and damage the brand’s reputation. Brands must ensure that their products’ functional value matches their marketing claims to maintain a positive perception among consumers.
Psychological Perceived Value
As social beings, we humans are prone to care about what others think. Is my purchase well-regarded by others? How will it make me look? The psychological element of CPV is all about how a product makes us feel, and how it reflects on our personal image. For example, buying a luxury car can not only satisfy the functional need for transportation but also fulfill the desire for status and social validation. Brands that can tap into these psychological needs and create a strong emotional connection with their customers are often able to command a higher perceived value.
Nowadays, this is largely done through branding and marketing efforts. Social media influencers, celebrity endorsements, and carefully crafted advertisements all play a role in shaping a brand’s image and influencing consumer perception. A strong brand can create an emotional attachment with its customers, leading them to pay more for products that align with their desired self-image.
Examples of Strong Customer Perceived Value In Action
Take a look at the world’s biggest businesses and you’ll notice something in common – they all know how to create customer-perceived value. And that’s across practically every industry. From tech to bottled water, there’s always a brand out there that can sell its product for more than its literal worth.
Let’s go over some real-world examples of companies that do a great job of promoting the perceived value of their products despite economic, functional, and psychological reasoning:
When it comes to perceived value, Apple is a master at creating a strong brand image and convincing customers to pay premium prices for their products. From the sleek design and advanced technology to the exclusive Apple ecosystem, customers are willing to pay more for an iPhone or Macbook because of its perceived value as a high-end, must-have item.
The stores themselves have a clean and modern aesthetic that matches the brand’s image, and their customer service is known to be top-notch. On top of that, Apple constantly strives to be among the first in its market to release new and innovative products, further solidifying their perceived value as a leader in the tech industry.
In what world is spending $30,000 on a handbag justifiable? That of luxury fashion house Louis Vuitton, which quite literally makes its dollar off the concept of exclusivity. Most sensible people would agree that there’s no substantial difference in the quality of LV totes, yet the brand’s association with wealth proves to be enough of a reason for consumers to pay a premium price.
This outdoor clothing and gear company has built its brand around environmental sustainability and social responsibility. They use high-quality materials and ethical manufacturing processes to justify a higher price point for their products. Patagonia enjoys strong brand loyalty from customers who align with its values and perceive the brand as not just a clothing company, but a lifestyle choice.
Recent investments in social and environmental initiatives have only further enhanced the brand’s perceived value in the eyes of consumers; shopping at Patagonia now means supporting a larger cause. Who wouldn’t want to do that? It would certainly make you feel good about yourself.
Starbucks has managed to make itself a staple of the coffee shop world by creating a perceived value around its brand and products. They emphasize the quality of their coffee beans, offer a variety of customization options, and provide an inviting atmosphere at their stores. This convinces customers that they are getting more than just a cup of coffee but rather an experience with added value.
Despite being a relatively new player in the automotive industry, Tesla has created a strong brand and perceived value around their electric cars quite quickly. This is due in part to the company’s founder, Elon Musk, who leverages his own innovative and futuristic image when promoting the brand. Tesla’s focus on sustainability and cutting-edge technology also adds value to its products, making customers willing to pay a premium for them.
How to Improve Customer Perceived Value
Now that we’re abundantly clear on what customer perceived value is and the crucial role it has in business success, it’s time to put the concept into practice. What tangible steps can you take to improve the impressions people have of your brand? This section will share a few best practices that can be applied in virtually every industry.
Understand Your Target Audience
Before you can effectively communicate the value of your product or service, you need to have a clear understanding of who will be using it. Beyond demographics. What do these people actually look like? What do they care about most? What are their biggest ambitions, fears, and motivators? A lot of this can be found when creating buyer personas, so you may already have some answers in mind. But it’s still worth diving deeper through the lens of product value. Look for connections between your target audience’s needs and desires, and how your product can fulfill them. Surveys, focus groups, and market research are all great methods of obtaining specific and valuable insights into how they think and make decisions.
Know Your Competitors
Customers are one thing, but knowing your competition is just as critical in shaping brand perception. Take the time to analyze your competitors’ branding efforts, and determine how you can differentiate yourself from them. What do their customers like or dislike about their products? How does your product compare in terms of quality, pricing, and features? You might notice things that others are doing well, and even more importantly, things they’re not doing at all. Use this information to your advantage and create a unique selling proposition that sets you apart from the rest.
Refine Your Brand Voice and Messaging
Your brand voice should align with the values and personality of your target audience, which, again, is why it’s important to have a good understanding of who they are from the get-go. Are you targeting millennials who value authenticity and social responsibility? Then your brand voice should be relatable, transparent, and socially conscious. On the other hand, if your target audience is corporate executives, a more professional tone might be more appropriate.
Make a Compelling Argument
In a world overflowing with businesses, products, and services, it’s safe to say that the everyday consumer should have no trouble finding a solution to any of their given needs. Individual brands have the challenge of proving why they’re different. They need to outline the specific benefits they bring to the table and tie those back to how they’ll help solve their customers’ problems.
Consider Offering Something Extra
The best way to stand out is by offering something extra. This could be in the form of 24/7 customer support, a loyalty program, or even just a personal touch in your interactions with customers. Going the extra mile can make all the difference in creating loyal and satisfied customers who will continue to choose your brand over others.
Put Social Proof to Work
Even with compelling reasons to buy, competitive prices, and great service, some consumers will still feel some degree of hesitation when considering buying a new product. They want more than tangible value from their purchase – they need to be able to trust the promises they’ve been given. Social proof can be a big help here.
Reviews, testimonials, and recommendations from past customers give weary shoppers a real-life example of the positive experience they can expect from your brand. Anyone can make a promise, but not everyone can validate their claims. Doing so builds credibility with potential customers, and in turn, the perceived value of your brand increases.
As the marketplaces become more crowded and competitive, offering good products isn’t enough. Staying afloat – or better yet, getting ahead – is a matter of standing out with unique value. This article has run through several ways to do just that, although it’s just the beginning.
Keep in mind that customer-perceived value is an ongoing process, not a one-time task. Regularly review and assess your value proposition to ensure it stays relevant and resonates with your target audience. And remember, actions speak louder than words – make sure you deliver on your promise of value to truly make an impact in the minds of your customers.
Frequently Asked Questions
Customer perceived value (CPV) is the worth of a product or service in the eyes of the customer. It is the balance between the benefits of the product and its cost. A good example of CPV is the experiment where subjects were given two bottles of wine—one costing $5 and the other $45. Surprisingly, most picked the pricier one, not realizing both bottles had the same wine.
The four types of customer value include functional value (performance and features), monetary value (price), social value (status and reputation), and psychological value (emotional well-being).
Customer perception is crucial as it influences purchasing decisions. Positive perceptions build brand loyalty, while negative perceptions can deter customers, impacting a company’s success.
Perceived value directly influences customer satisfaction. When customers believe they receive significant value for their investment, satisfaction increases, fostering brand loyalty and positive word-of-mouth.
Information presentation or framing significantly affects consumers’ perceived value. Clear communication emphasizing benefits and value-added features enhances perceived value, positively influencing consumers’ willingness to engage with a product or service.