What is a 'Perceived Value'
Perceived value is the worth that a product or service has in the mind of the consumer. For the most part, consumers are unaware of the true cost of production for the products they buy; instead, they simply have an internal feeling for how much certain products are worth to them. To obtain a higher price for products, producers may pursue marketing strategies to create a higher perceived value for their products.
BREAKING DOWN 'Perceived Value'A consumer's perceived value of a good or service affects the price he is willing to pay. While actual value is a reflection of the true costs of production coupled with the costs associated with the product’s sale, perceived value is based on customer opinion. It reflects the value of a product as assigned by the aforementioned consumer, which may have little to do with the actual monetary value of the product. Customers place value based on the product’s theoretical ability to fulfill a need and provide satisfaction, also referred to as utility.
Consumer utility refers to the amount of satisfaction a product provides and how it relates to demand. Products with higher utility within their sector can achieve higher prices than competitors perceived to have less utility. In regards to perceived value, increased utility may also be perceived, with certain brands appearing to offer higher levels of utility over others even when the product features, associated durability and general usefulness are nearly identical.
Higher utility can also equate to higher demand within the consumer market. Based on the supply and demand model, products that are higher in demand can often charge higher prices in comparison to competitors with lower demand.
Perceived Value and Brand Name
Brand name has the ability to alter perceived value. Products, such as microwaves and coffee makers, have similar production costs from one brand to another, yet consumers are often willing to pay more for certain brands. Through the use of various marketing techniques, often performed over time, companies can increase the perceived value associated with their brand name, allowing them to charge higher retail prices for goods associated with their brand.
Perceived Value and Luxury Goods
The public perception that paying more for an item results in higher quality or longer use is not always accurate. Certain product sectors such as wine, diamonds, luxury cars, anti-aging products, and designer clothing and accessories often have higher perceived values associated with the desirability of the brand. For example, as of July 2016, Tiffany & Co. sells a platinum wedding band from for $1,325 while a comparable ring from Costco costs $399.99.