The Psychology Behind Perceived Value

Do you know the perceived value of your offerings? Most customers probably purchase them because of the end result (or the benefit) your products or services will deliver, not just because of the function.

Value comes from the intersection of perceived benefits and cost.

For example, companies selling software as a service (SaaS) should be focused on solutions. Customers are paying for software, but ultimately, they are investing in a long-term solution that provides time-saving efficiencies, automates tasks and invoicing, enhances customer service, etc. Time is more valuable than money. Customers don’t always assume direct value from money, rather they derive it from the things that money buys.

The perceived value that your customer has is usually determined by the correlation between perceived benefits and perceived costs – although price is certainly not the most important thing in determining perceived value.

Simply put, when your customer attaches a high level of perceived credibility to your company or your offerings, he or she is more likely to do business with you. Apple has proved for quite some time that consumers are willing to pay more for a brand with a reputation of quality.

When price determines value

On the contrary, in markets where consumers aren’t sure how to access the product quality, they do use price to guide them. People assume that higher priced goods are top quality because, many times, it’s true.

In one study conducted by Stanford University, researchers asked 11 wine-drinking graduate students to participate in a taste test of what they were told were five different Cabernet Sauvignons. The catch was only three different wines were sampled, as two were presented twice.

For one of the samples, the $5 real price was replaced with a fake $45 price, in effect increasing the enjoyment. The tasters said they could taste five different wines, even though only three were given; they added, “The wines marked as more expensive tasted better.” This proved that increasing the price of a bottle also increased the actual and the perceived enjoyment the tasters got from testing each one.

Basically, the part of the brain that experiences pleasure became more active when these participants thought they were enjoying a more upscale bottle.

Improving perceived values

Use these tips to improve your “credibility score.”

  • Provide free limited-time trials to eliminate perceived risks.
  • Include customer testimonials on your website.
  • Try partnering with other high-valued companies with similar values.
  • There is much emotion tied to the value of time, and time sells!
  • Appeal to customer emotions or values.
  • Tap into your local market. People want to support their local community like never before, and spending money there will help them feel like they are doing their part.
  • Removing dollar signs from prices has been found to increase sales because the more time people spend reading, the more sensitive they become to spending money.
  • Give bonuses before discounts.  Studies show consumers would rather “buy one month to get another free” instead of receiving 50% off of two months (which are of course equal!)

If you are in the print industry like me, try this tip: Pay close attention to the typography your customers choose when designing direct mail, or printing a sign, as it can evoke a certain mood.

A study conducted by marketing professors at Clark University and The University of Connecticut found that the “physical magnitude is related to the numerical magnitude,” which means that consumers perceive sale prices to be a better value when the price is actually in a smaller font versus a larger, bold typeface. Hmm….

I always watch out for my clients to ensure the typeface they use matches their intended messaging. You’d be surprised to see how even small details like these can have an impact on your conversion rates. The psychology behind perceived value is truly fascinating stuff – want to discuss the psychology of your business? Send me a note.