Do you sometimes struggle with pricing your products? Sometimes pricing them too high and sometimes too low? While many small-business owners struggle with this, a concept called "customer perceived value" can solve this problem by helping you find a logical price range for your products.
In the simplest form, customer perceived value is total customer value minus total customer cost. Total customer benefit is the total monetary benefit of the product and the total customer cost is the total monetary costs the customer expects to incur in evaluating, obtaining, and using the product. If it’s relevant for your product, disposal costs should be included here, too. It’s important to note that sometimes entrepreneurs mistakenly think that customer perceived value is the same thing as customer lifetime value. These are two different things.
As an example of customer perceived value, assume your business manufactures motorcycles and it costs you $12,000 to make one. Now, assume that your research concludes that the motorcycle is worth $17,000 in the buyer’s eyes. This means that you need to charge at least $12,000 to cover your costs, but if you charge more than $17,000, you potentially price yourself out of the market. There is a potential customer perceived value of $5,000. But your business also needs to make a profit. Assume you charge customers $14,000 per motorcycle. The customer perceived value is then calculated as $17,000 – $14,000, or $3,000.
Customer perceived value is a simple and useful way to make sure your products are priced within a dollar range that makes sense for the customer. With each of your products and pricing strategies, it’s your choice how much of the perceived value you want to capture and how much you want to pass on to the customer.