By Paul Reilly
It’s a hot, sunny day on the beach. You only have ice water to drink, but you’d love an ice-cold beer. Your friend has to make a phone call and offers to buy your favorite beer on the way back. However, the only place to buy beer is a small, rundown grocery store. He asks you for some money because he said it may be expensive. How much money would you give your friend?
Think a moment before moving on… How much money would you pay?
Richard Thaler, the pioneering behavioral economist, conducted this experiment with MBA students. In the above situation, MBA students would give, on average, $4.10.
But what if your friend had to buy the beer from a fancy hotel instead of a small, run-down grocery store? Would that affect how much money you give to buy the beer? Before answering that question, consider these facts:
- The beer is the same brand regardless of where you buy it.
- The beer will taste the same regardless of where you buy it.
- The beer arrives at the same time regardless of where you buy it.
How much would you pay?
As you likely guessed, Thaler asked a different group of students the same question only he switched the location to a fancy hotel. On average, students would pay $7.25 for the same beer from a fancy hotel.
In this experiment, Thaler concluded that the “perceived quality of the deal” influenced the price points. In Value-Added Selling, we also conclude that the “perceived value of the deal” influences the price point. The beer sold at the “fancy hotel” had higher perceived value, so, customers were willing to pay more.
Perceived value positions your solution as the front-runner. Enhancing your customer experience with perceived value establishes your solution as the benchmark from which other alternatives are measured. A higher perceived value establishes a high expectation, oftentimes setting the bar just high enough so that it’s out of your competitor’s reach. You’re setting an expectation only you can meet.
Perceived value is determined (in part) by your price. In the absence of all additional information, price is the greatest indicator of quality and performance. In that vein, it’s better to be higher priced than lower priced. Higher-priced products have a higher expectation of performance. Consider the diminishing effects of discounting. The lower your price, the lower the perceived value.
Build perceived value with a better presentation and marketing material. Put your best foot forward. How do your materials look? Do they have instant visual impact? How well do you use color and graphics to communicate your message? The quality of what you present to buyers must parallel the quality of your solution. If you present a message that your company is the value-added partner, your materials must reflect that image. If they fail to mirror that image, you create cognitive dissonance; as a result, the buyer rejects your offer because it doesn’t feel right.
Every seller has the opportunity to enhance the perceived value of their solution. Perceived value positions your solution as the front-runner. Maximizing your perceived value is a quick way to make a positive impact on your presentation. Perceived value is how something looks, feels, and sounds to the buyer. Does it pop? Does it have splash? Does it make the buyer’s blood race? The higher your perceived value, the fewer price objections you’ll experience. That’s the power of perceived value!