What is 'Perceived Value'

Perceived value is the worth or merits a customer ascribes to a product or service. Usually, customers are unaware of the factors involved in pricing a product or service, such as the actual or estimated costs of production. Customers rely on the emotional appeal of the product or service and their evaluation of the benefits they believe they will receive. 

BREAKING DOWN 'Perceived Value'

A consumer's perceived value translates to the price they are willing to pay for a good or service. Customers place value based on the product’s analytical ability to fulfill a need and provide satisfaction.  The work of the marketing professionals is to shape and increase a consumer's perceived value for the goods and services they are selling.

Perceived Utility Value

Utility refers to the benefits and values a consumer receives from the use of a product. Consumers demand products and services that are useful and offer the benefits not satisfied by other available products.  Although many products and services provide similar benefits, their perceived utility varies among consumers.  High utility translates into increased demand and higher prices. There are five types of utilities that companies create through marketing campaigns to entice consumers.

  1. Form utility refers to when the physical design or form of a product appeals to the consumer or delivers an aesthetic value. An example of form utility would be in hiring the services of an interior decorator to furnish a room. The designer provides artistic beauty through a considered plan of furnishings.
  2. Task utility refers to when performance, usually through delivered services, provides value to a customer. Here an example can be seen in a customer receiving car detailing.
  3. Time utility refers to value from the availability of a service or product such as a 24-hour pharmacy versus a 9-5 pharmacy.
  4. Place utility applies to value from the convenience of the location like a neighborhood grocery versus one 30 miles away.
  5. Possession utility refers to the ease of acquiring a product. Examples are stores that feature online shopping with secure and straightforward ordering capabilities.

Perceived Value of Brand and Luxury Goods

A company's brand communicates a set of expectations associated with its products and services. A well-established brand commands higher prices than its generic equivalents. With the use of marketing strategies, brand image, which is the driving force of brand equity, is established. The value of the product equates to how well the brand meets the consumer's expectations. For example, expectations may include higher quality, increased utility, ease of access, and an enhanced consumer image.

A luxury good is one whose demand increases as consumer incomes increase. Naturally, people with more substantial incomes devote more of their income to purchasing luxury goods and services, which are relatively expensive to obtain.  Luxury goods and services make the lives of consumers more enjoyable and enhance their status and prestige.  The highest value is with owning or consuming them, not in their functionality.  For example, the value in owning a standard non-luxury watch is based on its functionality.  The value of owning a Rolex watch is not based solely on its functionality but is connected with the level of prestige that owning and wearing it brings.

RELATED TERMS
  1. Demand Theory

    Demand theory is a principle relating to the relationship between ...
  2. Law Of Diminishing Marginal Utility

    The Law Of Diminishing Marginal Utility states that all else ...
  3. Consumer Goods

    Consumer goods are the products purchased by the average consumer. ...
  4. Customer

    A customer is an individual or business that purchases the goods ...
  5. Brand

    A brand is an identifying symbol, mark, logo, name, word and/or ...
  6. Expected Utility

    Expected utility is an economic term summarizing the utility ...
Related Articles
  1. Investing

    Utility Funds: A Bright Choice In Bear And Bull Markets

    Gas, electric and water companies' non-cyclical nature can power strong gains in any portfolio.
  2. Insights

    Trust In Utilities

    Even in times of economic turmoil, utilities can be a good investment.
  3. Investing

    5 Popular Utilities ETFs in 2016 (XLU, NEE)

    Discover how the five most popular utilities ETFs for 2016 can add growth and income to your portfolio. Four of these utilities ETFs outperformed the S&P 500.
  4. Investing

    The Top 5 Utility Mutual Funds for 2016

    Understand how utilities equities play a role in asset allocation, and discover the best utilities mutual funds to consider for 2016.
  5. Personal Finance

    The Psychology Behind Why People Buy Luxury Goods

    Luxury goods are a great example of how irrational we can be; a decent and sturdy handbag can be purchased for $50, yet people will still spend thousands to buy a brand name. Why?
  6. Investing

    Utilities ETFs to Date 2016 Performance Review (UPW, FXU)

    Discover the best and worst performing exchange-traded funds (ETFs) within the domestic and international utilities sector year-to-date.
  7. Investing

    How Utilities ETFs Deal With Rising Rates

    Utilities stocks and ETFs may be vulnerable to rising interest rates, but there are other factors to consider.
RELATED FAQS
  1. What is the utility function and how is it calculated?

    Economists measure utility in revealed preferences by observing consumer choices and ordering consumption baskets from least ... Read Answer >>
  2. How does marginal utility and marginal benefit differ?

    Learn about the different implications of marginal benefit and marginal utility in economics. Find out about the law of diminishing ... Read Answer >>
  3. What is the downside of investing in the utility sector?

    Learn about the pros and cons of investing in the utility sector, and determine whether the steady dividend income possibility ... Read Answer >>
  4. What price-to-earnings ratio is average in the utilities sector?

    Explore the utilities sector, and discover how it compares to other market sectors when evaluated using the popular price-to-earnings ... Read Answer >>
  5. What are examples of economic values in use today?

    Learn some examples of economic values in use today as the global marketplace expands and new theories emerge to explain ... Read Answer >>
  6. Why do utility stocks pay high dividends?

    Learn why utility stocks pay high dividends and how government-produced monopoly protects privileged utility companies from ... Read Answer >>
Trading Center