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The theory of consumer value helps to answer the question “Which product is the consumer most likely to buy, and why?”. The theory is based on the hypothesis that buyers choose the product that has the greatest value for them – which is why it is often called perceived value pricing.
Consumers always have their own personal idea of the real value of a product, which comprises several parameters: the product’s characteristics and appearance, level of service, brand image, staff competence and the risk of making the wrong purchase.
UNIVERSAL FORMULA
The formula for determining the perceived value of a product is:
Perceived value is the difference between the value of a product and the total costs incurred by the consumer when buying it. The value of the product is the sum of all the benefits the buyer receives from the purchase; the costs of consumption are the risks the consumer expects to bear when buying and using the company’s product.
The value of the product includes its characteristics (quality, set of functions, reliability, service life, attractiveness), warranty or after-sales service conditions, quality of service, staff competence, delivery terms and quality, and the company’s overall corporate image.
When assessing the costs of consumption, the consumer considers time costs, financial costs, emotional costs, the risk of making the wrong purchase and the risk of the purchase not being accepted by the reference group.
Perceived value and company strategy.According to the theory of perceived value, a company must reduce the costs of consumption and increase the value of its product in the eyes of the consumer until its product has the highest value compared with competitors. If the perceived value is lower than that of a competitor, the price of the product must also be lower than the competitor’s until the product’s characteristics and image become superior.
How to reduce consumption costs?Consumption costs should be reduced by minimising the risks the consumer bears when buying and using products, for example:– Offer the opportunity to test the product before purchase or reduce prices for the first purchase – such measures reduce the buyer’s financial risks (the risk of wasting money and buying a low-quality product);– Simplify the purchase process and reduce its duration – such measures reduce the client’s time costs and make the purchase more pleasant;– Provide complete, clear information about the product;– Invest in building brand awareness to increase confidence in the product, inform consumers about its characteristics and reduce the risk of making the wrong purchase.
How to increase the perceived value of the product?Increasing the perceived value of a purchase means creating an attractive product and forming the right first impression of it, for example:– Improving the product’s appearance and creating beautiful, attractive packaging;– Giving the product image characteristics that are valuable to the target audience;– Improving product quality and adding functions;– Using persuasive texts that sell the product;– Running an advertising campaign to improve the product’s image and raise awareness of it.
Assessment of perceived value.There are 2 ways to assess and determine perceived value: a survey and comparative analysis. A survey: simply ask consumers how much, in their opinion, a product from Brand X with a set of XX characteristics might cost, and compare the price with a competitor’s.The second method is a more complex comparative analysis of the company’s products against competing products:– Carry out a comparative analysis of all the product’s characteristics against competitors (the analysis should include all parameters and values of the products);– Carry out a comparative analysis of all product costs against competitors;– For each parameter included in the analysis, assign a level of importance (from 1 to 5, although any scale can be used);– Compare the total score with competing products.
IMPORTANT:
We often use the theory of customer value to set a competitive price for a product. When setting prices, manufacturers pay attention to the difference between the perceived value and the real value of the product:– If the PV (perceived value) is higher than the real value, the product will be attractive to consumers;– If the PV is lower than the real value of the product, the product will make consumers wary;– A product with a greater difference between PV and real value is more likely to be purchased by the target audience.
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