Customer perceived value, CPV

 

Customer perceived value is an important marketing term that affects how marketing professionals advertise and price their goods. Factors like convenience, pricing and reputation can contribute to a customer's perceived value of a product. If you're a marketing professional or you want to become one, you may want to learn more about customer perceived value and how it can affect profits. In this article, we explore what customer perceived value is, why it's important, the different types of perceived value and tips for increasing your perceived value.

What is customer perceived value?

Customer perceived value is a marketing term that refers to the way a consumer views a product. This term attributes the success of a product or service to the perceived value consumers assign to it. Customer perceived value assumes that each customer evaluates their purchases to determine if they meet their wants or needs, then they compare that evaluation to the price they're paying. Sometimes, pricing can also affect perceived value.

Why is customer perceived value important?

Customer perceived value is important because marketing professionals can use the idea to predict how a consumer may view a product. When the perceived value of an item increases, the business or company can price it higher or sell more units, both of which result in higher profits. This means that marketing professionals try to increase the perceived value of goods and services by determining what their customers value most. To do this, they perform market research such as data collection, trials and surveys.

Types of perceived value

These are different perceived value types that may influence how a consumer views a product:

Form

The form of a product or service refers to its design or appearance. Improving the aesthetic qualities of a product can increase perceived value for customers who prioritize the appearance of an item or even a service. For example, some consumers may be more likely to purchase an application or program with a simple interface and clean design than one that may be more functional but has an unappealing appearance.

Task

Increasing the task value of a product or service means improving the item's ability to save consumers energy, time or money. This can include services that replace household duties or errands. For example, a grocery delivery service is an example of a product that offers high task value. House cleaners, subscription services and automated deliveries all reduce the time and effort a person must put in to maintain their daily chores.

Availability

The availability value refers to how quickly and easily a customer can choose your product. For example, a grocery store that stays open all night may increase its availability value. Vending machines, overnight customer service and digital or online products are more examples of items with high availability value.

Emotion

Emotional value refers to how the product or service appeals to the customer on an emotional level. To do this, marketing campaigns can relate products to important holidays or events, or make them a common part of family traditions. Marketing professionals may also donate part of their profits to charity or organize fundraising activities to show ethical action and create an emotional attachment for the customer.

Pricing

Pricing is another aspect of a product or service that can affect a customer's perceived value. This applies to both luxury and budget items, as the price of a product can communicate the quality to the consumer. For example, if a customer is looking for a purse to go with a luxury dress, they may be less likely to purchase a purse that doesn't match the dress in terms of pricing. If the purse is on clearance or doesn't match the dress in price, it may communicate low quality to the customer.

Conversely, some consumers may be more likely to purchase something if the pricing communicates that they're getting more value than what they're paying. Discounts and sales are great tools for creating budget pricing that appeals to customers. A different consumer may see the same purse on clearance and assume they're getting a great deal for the price.

Reputation

The reputation of a company or brand can also impact the customer perceived value. All the other types of perceived value can affect a company's reputation, as well as their policies, operation and how they treat their employees. A store's reputation may rely on cleanliness and organization, while an online vendor may improve their reputation by offering secure check-out and increased connection speeds.

Tips for raising your customer perceived value

If you're a marketing professional or entrepreneur, you may want to increase your customer perceived value and ultimately your profits. These are some helpful tips you can use when raising your customer perceived value:

• Brand partnerships: A brand partnership is when you create a contract with a well-known person, influencer, celebrity or another brand to promote your products. Partnering with individuals who have large followings can improve your perceived value and increase profits.

• Excellent reputation: Creating an excellent reputation for your brand can develop credibility for your consumers and increase your perceived value. If consumers believe you care most about their best interests and always offer them the highest quality products and best customer service, they're more likely to make repeat purchases with you.

• Extra convenience: Offering free shipping, trial periods, phone or tablet apps, subscription services, websites and constant access can increase your convenience and perceived value. Consider sending automated reminders to your customers about items they left in their cart or items they may need to replenish.

• Conscious capitalism: Conscious capitalism is when brands incorporate charity into their business models, and it can increase your perceived value if your consumer base cares about giving back. For example, a company may give a free bottle of water to a person in need each time someone purchases their own.

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Customers will buy from the firm that they see as offering the highest perceived value. Customer perceived value (CPV) is the difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives.

Total customer value is the perceived monetary value of the bundle or economic, functional, and psychological benefits customers expect from a given market offering.

Total customer cost is the bundle of costs customers expect to incur in evaluating, obtaining , using, and disposing of the given marketing offering.

Customer perceived value

An example will help here. Suppose the buyer for a large construction company wants to buy a tractor from Caterpillar or Komatsu. The competing salespeople carefully describe their respective offers. The buyer wants to use the tractor in residential construction work. He would like the tractor to deliver certain levels of reliability, durability,  performance, and resolve value. He evaluates the tractors and decides that Caterpillar has a higher product value based on perceived reliability, durability, performance, and resale value.  He also perceives differences in the accompanying services – delivery, training, and maintenance – and decides that Caterpillar provides better service and more knowledgeable and responsive personnel. Finally, he places higher value on Caterpillar’s corporate image. He adds up all the values from these four sources – product, services, personnel, and image – and perceives Caterpillar as delivering greater customer value.

Does he buy the Caterpillar tractor? Not necessarily. He also examines his total cost of transacting with Caterpillar versus Komalsu, which consists of more than the money. As Adam Smith observed over two centuries ago, “The real price of anything is the toil and trouble of acquiring it. “Total customer cost includes the buyer’s time, energy, and psychic costs. The buyer evaluates these elements together with the monetary cost to form a total customer cost. Then the buyer considers whether Caterpillar’s total customer cost is too high in relation to the total customer value Caterpillar delivers. If it is, the buyer might choose the Komatsu tractor. The buyer will buy from whichever source he thinks delivers the highest perceived customer value.

Now let us use this decision-making theory to help Caterpillar succeed in selling to this buyer. Caterpillar can improve its offer in three ways. First, it can increase total customer value by improving product, services, personnel, and / or image benefits. Second, it can reduce the buyer’s no monetary costs by reducing the time, energy, and psychic costs. Third, it can reduce its product’s monetary cost to the buyer Suppose Caterpillar concludes that the buyer sees its offer as worth $20,000. Further, suppose Caterpillar’s cost of producing the tractor is $14,000. This means that Caterpillar’s offer potentially generates $6,000 over the company’s cost so Caterpillar needs to charge a price between $14,000 and $20,000. If it charges less than $14,000, it won’t cover its costs; if it charges more than $20,000, it will price itself out of the market. The price Carterpillar charges will determine how much value will be delivered to the buyer and how much will flow to Caterpillar.

For example, if Caterpillar charges $19,000, it is creating $1,000 of customer perceived value and keeping $5,000 for itself. The lower Caterpillar sets its price, the higher the customer perceived value and, therefore, the higher the customer’s incentive to purchase. To win the sale, Caterpillar must offer more customer perceived value than Komatsu does.

Some marketers might argue that the process we have described is too rational. Suppose the customer chose the Komatsu tractor. How can we explain this choice? Here are three possibilities:

1. The buyer might be under orders to buy at the lowest price. The Caterpillar salesperson’s task is to convince the buyer’s manager that buying on price alone will result in lower longterm profits.
2. The buyer will retire before the company realizes that the Komatsu tractor is more expensive to operate. The buyer will look good in the short run; he is maximizing personal benefit. The Caterpillar salesperson’s task is to convince other  people in the customer company that Caterpillar delivers geater customer value.
3. The buyer enjoys a long-term friendship with te Komatsu salesperson. In this case, aterpillar’s salesperson needs to show the buyer that the Komatsu tractor will draw complaints from the tractor operators when they discover its high fuel cost and need for frequent repairs.

The point of these examples is clear: Buyers operate under various constraints and occasionally make choices that give more weight to their personal benefit than to the company’s benefit. However, customer perceived value is a useful framework that applies to many situations and yields rich insights. Here are its implications:

First, the seller must assess the total customer value and total customer cost associated with each competitor’s offer in order to know how his or her offer rates in the buyer’s mind.

Second, the seller who is at a customer perceived value disadvantage has two alternatives: to increase total customer value or to decrease total customer cost. The former calls for strengthening or augmenting the offer’s product, services,  personnel, and image benefits. The latter calls for reducing the buyer’s product, services, personnel, and image benefits. The latter calls for reducing the buyer’s costs by reducing the price, simplifying the ordering and delivery process, or absorbing some buyer risk by offering a warranty.

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