Tuesday, November 19, 2013

Perceived Value

We all know the difference between conformance quality and 'grade' quality. A Chevrolet can be a good Chevrolet and have high conformance quality but it will never have the 'grade' quality of a Cadillac. We sometimes speak of Cadillac quality because of a brand's extra functions and features. It's more prestige than anything else. It's a feeling of value that comes from using the product even though, in this case, all cars have four wheels and get you to your destination.

Recently, I heard a story that was similar to what I've heard before. I was talking to a cafe owner who said they couldn't sell spiced honey at all. They were ready to send it back to the supplier. One of her staff suggested they raise the price...substantially...nearly 50%. Now they can't keep them on the shelves. It's the same stuff. It's the perceived value of the product. Not only that but they've raised the prestige of the brand.

There can be real value: the ratio of a product's or service's quality, delivery, technology (features and functions) and accompanying service with its price. We're all familiar with this calculation. We estimate it every time we make a purchase. Changes in price will change our perceived value, however. It's an irrational phenomenon that has been well documented. Just as in the car example and using different brands, how does Ford justify the full price differential between its Ford-branded vehicles and the Mercury-branded ones? There's a bit of feature differential. Is it enough to rationalize the total price difference? People buy Mercury brand cars at a premium because they don't want to drive a Ford. They want the quality and technology but they want the extra prestige and that comes at a premium.

Just like Perrier versus Dasani versus faucet-filled bottled water. It feels different to say, "I drink Perrier" than it does to say, "I filled my own bottle." You still quench your thirst with good water.

As you think about how you price and sell your products and services, don't forget to seek the prestige and perceived value of your offering in its price.

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