What is the difference between a value and a perceived value?

Your business could fail if you do not have an understanding of the difference between these two terms. Understanding the difference between these two terms is also critical to having successful advertising for your business.

What is the difference and why is it important to your business?

The difference between value and perceived value is who is experiencing the thought. You see as a business owner, you may know that your product or service has a value. You invested cash in the purchase of the raw materials. Your purchased labor to make those raw materials into a product and to package that product or service so that a consumer could purchase it. But, the perception of value has to be in the eyes of the consumer in order for them to want to purchase your product or service.

As I work with businesses every day I explain that an incentive offer is only good if the consumer perceives the value for the offer. I talk about perceived value because that is the only value that will make the phone ring or the cash register “cha ching”.

Do you agree with me?

Let’s talk about some examples:

Example ONE: A dry cleaner wants to offer a discount to bring in new customers, however he does not want to bother with customers that just bring in small orders. He wants the offer to have a minimum purchase of $30. He sends out a coupon with a 20% discount and consumers response is very low. Why? Because the average person looking into their closet does not think what they have will add up to $30 and therefore the coupon has NO PERCEIVED VALUE to that customer. It is a true value of 20% Off with any order over $30, but the perceived value is $0 in the eyes of many consumers. On the other hand, another dry cleaner offers the same incentive offer with no minimum purchase. Results for him are outstanding. Many, many people bring in the coupon with their dry cleaning and surprise, the average ticket is over $30. Consumers perceived the value of the coupon and went to their closets because they knew they needed a couple things cleaned. While they were looking in their closet, the grabbed two of three more things they saw to take advantage of the real value being offered. They brought in a bundle of clothes to be cleaned and because the value was perceived by many the business results were powerful.

Example 2: An incentive offer is presented in an ad by a carpet cleaner. In this case it is a price point offer for cleaning 5 areas in your home. It is the lowest price in the publication so the business owner assumes that he will get the best results of anyone. Other factors come into play however. When the consumer calls, the person on the other end of the phone treats them poorly and just seems rude. Not only that, but a friend had this service in the past and was sorely disappointed in the cleaning that was done. In no time the perception of value in the lowest priced offer is nill, nothing, no value whatsoever, or even a negative perceived value among consumers who have been disappointed one to many times by purchasing the lowest cost service provider in a particular category of business.

Example 3: Same idea except this is a restaurant. The restaurant wants to offer a desert at no charge, however I explain that this will have a low perceived value among consumers because they don’t know if they will want desert before they eat their meal. Even though the desert has a higher value, $5 OFF each dinner will have a stronger perceived value. The restaurant runs the offer for $10 Off dinner for two. The consumers come in with a happy attitude because they know they will get $10 Off so they go ahead an buy a bottle of wine and an appetizer before ordering their dinner. When they finish, they go ahead with the desert purchase as well. The service and the food was excellent and they recommend the place to their friends.

Example 4: Another restaurant offers $10 Off dinner for two, however word has gotten around that the food is okay, but the service is bad and servers treat people with incentive offers like second class citizens. Response to this offer is very low because consumers perceive the value based on what they already know about this establishment.

So, you see, perceived value of an incentive offer from a business is critical to the response from consumers because the perception is something that happens inside their heads not yours. As the business owner, you might think that a $7.99 desert has more value than $5 Off, but the value that happens inside the heads of consumers is more important that what you may think.

Your job as a business owner is to offer a value that is perceived and responded to by consumers so that they will come and buy your service or product.

How do you do that? Well sometimes it takes experimentation. Sometimes it takes talking with your customers and asking them questions about your product or service. Some businesses never figure this out and they just continue to lower their prices until they can no longer offer good service. They continue to lower their price because they think if they are lowest price, then consumers will buy from them instead of higher priced alternatives, but they miss out because consumers have a different perception and the business owner ignores this.

Peter DeMott • REACH Magazine • pdemott@reachusa.com • 937-478-6222 • Dayton, Ohio