How Do Consumers Perceive Value?

How Do Consumers Perceive Value?

Many many text books have been written on the concepts of “perceived value” or “Value benefits” or “Perceived quality”. One quick google search lands you with enough websites for you to write a thesis. So why is so much importance given to this seemingly complex subject? ………………The answer is price.

Ask any product/brand/marketing manager they will all tell you that choosing the right price for their product is what gives them sleepless nights. So many questions exist, “should I price my product at a premium?” or “Should I under-cut the market?” Or “Am I a ‘me too’ if I price it the same as my competition”. All very valid concerns.

I personally find the best technical definition of value is

Value increases if:

  1. The perceived benefit increases & the perceived price stays the same
  2. The perceived price decreases & the perceived benefit stays the same
  3. When the price moves to zero, the value is equal to infinity (hence the attraction towards freebies)

Value Decreases if:

  1. The perceived benefit decreases & the perceived price stays the same
  2. The perceived price increases & the perceived benefit stays the same

This definition however does not deal with the irrational mind of our lovely consumer; where we see a strange phenomenon. Once the price of a product drops beyond a point he stops seeing value in it. Why? Many factors, the most common explanation being it is now too cheap, hence the quality is questionable.

It’s a fascinating theory and you can read more about it here : Van Westendorp’s Price Sensitivity Model

Significantly, after spending over a decade understanding consumers and using both the above theories. I have arrived at one all important conclusion:

It is a simple thought that ties in all the various theories of perceived value etc.

The consumer looks at a product and asks himself “Does this make sense?“. All these evaluation techniques ultimately boil down to that one question “Does this make sense?”.

Why did the modern trade model (Malls, supermarkets) not grow as fast in India, cause it did not make sense.

  • Drive for 30 minutes spend another hour shopping and then 30 minutes driving back, not to forget wrestling all those groceries yourself. The discounts and offers were not large enough to make this a routine, when the nearest mom and pop store had everything you needed and would deliver it home.

Why Fogg the deodorant brand became an overnight success, toppling AXE to become the number 1 Deo in India

  • Because FOGG made sense, why should a consumer spend his money on a product where half the product he uses is wasted?

If the answer to the question is a “yes it does make sense” then there is no reason a consumer will not want to pick up the product.

This simple question of “does this make sense?” should be on every brand/marketing/product managers lips….

Well only on the lips of those who truly love their consumers….

Dilip Menda

Driving ads growth at Disney+ Hotstar

8y

Often in business as in many other things, it is about asking the right question! You proved it right again with "Does it make sense?"

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Bhavesh Singhi

Investments • Strategy • Business Development • ISB

9y

Very well & simply put across

Harsh Taneja

Data & Analytics Insight Enablement Consultant @ Britvic PLC ! Performance Marketing Business Analytics

9y

Well put , perceived benefit is a key driver and differentiator ; if brands , products and services focus to continue to drive this up by meaningful insight generation, value will increase ... business growth

Arjun Khanna, CFA, FRM

Equities at Kotak Mahindra Asset Management Company

9y

Well articulated. Often the most difficult questions have mundane answers. "does this make sense?" well... made sense.

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