When pricing a product or service, you can do the cold, hard math to deduce your cost. But that may leave some serious cash on the table. Add customer perceived value to the equation and you’ll increase your earnings by a prominent margin. Here’s why perceived value can up the ante on your income — and how to implement perceived value the right way.
What Is Perceived Value?
The monetary value of your product or service is objective (based on the cost of manufacturing and production, as well as the time it takes to craft it from start to finish). However, perceived value goes further by taking into consideration what the customer thinks of your offering.
For example, a t-shirt at Walmart costs $4.
Meanwhile, a t-shirt at Urban Outfitters costs $29.
While the Urban Outfitters shirt costs 525% more than the Walmart alternative, the reason for this difference likely has nothing to do with the cost of materials and production. Rather, it’s a belief that Urban Outfitters is trendier than Walmart, so anything it has to offer — even a plain t-shirt — is of a greater value. As a result, people are more willing to spend a higher dollar value at Urban Outfitters.
The Proof of Perceived Value Is In the Data
We can go on and on about the merits of perceived value pricing, but the reality is that it really does boost your bottom line.
According to a 2016 scientific study, consumer perceived value (CPV) increases how much someone is willing to pay for a product or service.
The study also tells us two interesting facts:
- “The consumer forms an opinion on the product value immediately before buying.”
- “The consumer forms a renewed product value that affects the re-purchase behavior.”
Overall, buyers determine CPV based on subjective comparison. In other words, it’s all malleable, which means you can increase perceived value for your offerings to boost your bottom line.
Perceived Value Pricing: How to Charge More for Your Products
We’re going to go through 7 unique tactics you can implement to boost perceived value and charge more for your products or services:
- Promote a sense of exclusivity.
- Hone in on your target audience.
- Make your customers feel good about their purchase.
- Increase value while decreasing risk.
- Show evidence.
- When it comes to choices, less is more.
- Limit discounts.
Now let’s dive into each one.
Make Your Offering Exclusive
Way back in the day, Cornell University scholars studied the effects of scarcity on a product’s desirability. In short, they found out that consumers viewed a more scarce — or exclusive — wine as finer, and therefore more expensive.
These findings align with the psychology of persuasion, which lists scarcity as one of the six pillars to persuading someone of your (or your offering’s) worth.
You can implement scarcity in two ways:
- Limited quantity
- Limited time
Both of these tactics pose constraints on your product or service. You can see the effects of limited quantity with the 2021 Toyota Corolla Apex Edition. Toyota is only producing 6,000 units of this limited-edition trim. That’s one of the only reasons it costs thousands more than your typical Corolla (I mean, it has the same powertrain with just a few aesthetic alterations).
The Corolla Apex is going to be limited to only 6,000 units. Of those 6,000, only 120 will come with a manual transmission. #Corolla #Apex #2020Corolla pic.twitter.com/WrRpsTM7G2
— Town Toyota (@TownToyota) September 28, 2020
Niche Down On Your Audience
Honing in on your target audience is key to increasing revenue. You can do this through the content creation process and through ad targeting. After all, not everyone will bite your perceived value, but your primary base will.
Take Charles Schwab for example. The bank has two Prime Money Funds. One has a minimum initial investment of $0, while the other has a minimum of $1 million.
Obviously, these two funds are for very different consumers. One targets millionaires while the other targets people looking for a place to keep their spare money liquid.
While your product or service may only adhere to one sector of wealth rather than both ends of the spectrum, this example just goes to show how different two offerings can be.
Incorporate Social Value
Tell your customers what you’re giving to the world by offering your product or service. Do you donate a portion of your profit to a non-profit? How do you source your materials or labor? Transparency boosts value from the get-go.
Fair trade products are a great example of social value. One such company bases its entire marketing schema on social goodness: Equal Exchange.
One of Equal Exchange’s main offerings is chocolate.
People are willing to spend about $6 on a 12-ounce container of hot cocoa when you can buy the same amount of Nestle hot chocolate for a fraction of that price. The difference is that Equal Exchange works on the premise of social and environmental equity — something that Nestle doesn’t advertise.
Minimize Purchasing Risk
With every purchase comes risk. Sometimes, it’s small — like the time I bought a $15 pet hair removing broom that I saw on an advertisement (spoiler alert: it works like a charm). I figured, why not try it out? It’s only a few bucks.
But sometimes a purchase is much bigger, like buying a new Tesla or BMW. Those purchases come with the risk of longevity (or lack thereof). Buying pre-owned only increases the risk that you’ll be left with costly problems down the line.
One way to reduce purchasing risk (and ultimately boost perceived value pricing) is to offer a warranty for your offering. A warranty proves that you’re confident in your product. It also tells the buyer that your business is made up of fallible humans who are willing to right their wrongs.
You can also offer free shipping (extra costs like shipping fees are the top reason e-commerce shoppers abandon their carts) as well as free and simple returns.
You’d be surprised what buyers are willing to invest in when you mitigate their risk as much as possible.
Show Proof of Your Product’s Awesomeness
Show evidence that you’re disrupting the market. Social media is the perfect place for this kind of humble bragging. Share reviews and — better yet — personal, authentic customer testimonials.
User-generated content (UGC) is a great way to show proof of real people really loving your goods. Oddbird Company is a loungewear line that often shares UGC on their Instagram feed.
If that doesn’t make you want to snag a set for yourself, maybe nothing will. And clearly, this tactic of sharing UGC is working for Oddbird — they have 51.5k followers, and counting.
Don’t Give So Many Choices
Exclusivity through a limited offer isn’t the only way to produce a heightened perceived value. You can also give your customers less choices. Sure, it sounds like the opposite of what you’d think — but trust me when I say it works.
Take The Bendy as an example. This shoe is produced by a company called Ashbury Skies, and it’s the only one in the line. They offer a range of color options, but only one style. They price their shoes at $149.95 a pair.
Why is there only one type of shoe? Well, the Bendy is built as an environmentally friendly, orthopedically approved shoe. The brand has figured out a way to do it right, and they don’t want to stray from their goals.
As a result, buyers get to choose from about 11 different colors, but only one style. For Ashbury Skies, limited choices work.
Keep Discounts to a Minimum
When you raise your prices, you may experience a bout of imposter syndrome, which may make you want to offer discounts to make people more comfortable. We’ve all been there.
But offering discounts to counteract your price increase just invites the wrong kind of clientele. Or it may not invite clientele at all, because sales have a habit of reducing customer perceived value.
The Hermés Avalon Throw Blanket broke the internet this year. It costs $1,550, and it has never been on sale.
The blanket may not be your style, but knowing that it’s luxurious, trendy and valuable could be enough to make you splurge.
Your Pricing Is Just That: Yours
I just want to reiterate the importance of understanding customer value perceptions when setting prices. If you stick with the objective approach, your company is never going to grow the way you want it to.
But if you emphasize perceived value — or how your product or service impacts your consumers’ lives on a holistic level — you’ll see your conversion metrics blossom and your revenue skyrocket. Trust me, your bottom line will thank you.