The Beauty of Perceived Value

Think over what you’ve bought in the last month. What was actually ‘worth’ what you paid and what was ridiculously marked up… some things may jump out at you like that Louis Vuitton purse or an iPod Touch, but somewhere deep down you think defensively ‘well it is really well made or has extreme technological advances’. Here is the answer though, EVERYTHING you bought in the last month was ridiculously marked up!! And if you can understand why and harness that power for yourself you’ll come to see the beauty of perceived value.

Today I was at Borders looking for a moleskin “the legendary notebook of Van Gogh, Picasso and Chatwin“ and on the sale shelf something caught my eye, something that looked exactly like my beloved moleskin yet was a steal for $5.99. How could this be I thought, surprised at my good fortune… but a look closer at the notebook showed it was really a “Piccadilly”, a company that makes notebooks worldwide and I guess thought it would be a good idea to challenge the original moleskin’s by making ‘knock offs’ and selling them for half price.

As you can see, things that end up on the bargain bin usually aren’t big hits. When is the last time you saw Jimmy Choo, Lexus or Gucci having a half off sale? So why did Piccadilly’s replicas fail and Moleskin’s incredibly high priced notebooks ($16.99 for a basic, ya know, notebook) succeed? Perceived value my friend, it is all in how you feel about the product, and people just weren’t feelin’ Piccadilly.

Was it the name? Maybe, but the better guess is that people felt ‘scammed’ by the blatant knock off and made a series of excuses in their head why they just had to have the Moleskin. It’s better quality (it’s not, I checked both back to back and they are pratically identical save for a made in China stamp on the Piccadilly)  I just like Moleskin better (that is like saying you think one identical twin is hotter than the other, come on) or maybe the buyer assumed that since Moleskin was priced higher it was better made and worth more… thus going with it instead of it’s identical twin priced at half the cost.

This is bad news for consumers, but good news if you are an entrepreneur, start up fiend or interested in escaping the 9 to 5 by replacing your income via selling something.

5 lessons I’ve learned from perceived value

1. Branding is vital. A highly recognizable branded item or service can go for as much as 100x the price of it’s competition because people will equate the brand with quality and thus are more likely to buy it vs. it’s cheaper counterpart. Example: MAC vs. Acer computers (argue me on quality, but when it comes down to it you buy the MACbook because it ‘feels’ right).
2. Go higher, not lower. Often when small businesses start up they have competition, usually this means the entrepreneur cuts prices on their item to make it more ‘appealing’ what they don’t realize though is often that’s  the worst kind of sabotage. First off it makes it harder to turn a profit and stay in business and secondly their market may indeed mistrust them for their steep discounts instead of giving the new business their loyalty.
3. When you go higher it is a win win… usually. From the moment I started out I over priced my products, services, etc. At least over priced in the sense of I had no experience and was kind of just swinging wildly hoping to hit on something. So was it a risk? Absolutely, but one thing it taught me – a huge lesson – was that when someone believed in me and paid me above what deep down I felt I was worth it made me worth more and preform better. So if you are selling a widget and your two choices are sell it for below market standards or above I say go high, then make the product that much better to justify the price.
4. Always be ready with your story. Sometimes people will call you out on a high priced item, but if you have a killer story behind it and reason WHY it is priced like it is 9 times out of ten you win. I have had countless people challenge me on my prices, to that I give them a long winded, incredibly detailed explanation of why, what and how I do what I do. This “story” is so well crafted and repeated that it is compelling enough to usually turn even my strongest critic into an ally and it wins their business because I have a WHY behind me asking them to ‘buy’.
5. Perceived value usually goes up the longer you are in business. This is not across the board but it is a generalization, people trust company’s who have been in business for years hence why banks have ‘serving you since 1968 engraved in stone outside their headquarters. So the longer you stay in business the more perceived value you can rake in if you are savvy. Look at Chanel, do you think Coco immediately started out selling $1000 bags and charging a premium? No, she started out with a great stride, charging more than the stuff was ‘worth’ technically but as she grew her brand her prices skyrocketed as well, in turn skyrocketing the brand and the perceived value. This circular logic may get confusing but does work, time and time again.

So how can you use perceived value?

Firstly, honestly look at your product and/or services? Do you REALLY think it is worth what you charge for, if you think its below par then make it better, if you think it is above then charge more. Regardless figure out way to be the Bentley of your market via the Kia.

Secondly, when you buy for yourself remind your emotional brain that dropping $500 for Champagne is just silly, then if you like go ahead and do it… but be sure to off set that ridiculous expense with some perceived value upping of your own.