Customer Perceived Value, often abbreviated as CPV, is a marketing concept that refers to the customer's evaluation of the benefits and costs of one product compared to others.
It breaks down to - what would a customer be happy to pay for a product?
According to Forbes, perceived value is just as significant as the actual value. Customers don't just buy products or services but also the perceived value and experience associated with them. Your brand can increase its value - being all intangibles.
An article on Inc.com underscores that adding value to customer relationships increases loyalty and retention. Businesses can boost their customer perceived value by providing excellent customer service, offering value-added services or products, and continuously improving their offerings based on customer feedback.
A research paper published in the Journal of Retailing and Consumer Services found a strong correlation between customer perceived value and customer satisfaction, suggesting that improving CPV can lead to higher customer satisfaction scores. This makes sense - the better you serve your customers, the more they value your products.
In eCommerce, understanding this concept is key to growth - the higher the perceived value, the more you can charge and the more profit you can make.
Factors that influence CPV
Several factors influence how customers perceive the value of a product.
- The actual price - customers often associate a higher price with better quality. An initial price sets the initial expectation of a product's value.
- The brand's reputation - greatly impacts a customer's willingness to pay for a product. A well-respected brand can often charge more for its products because customers perceive them to be of higher value.
- The experience surrounding the product - the level of customer service, ease of purchase, and post-purchase service - also plays a significant role in the perception of value.
Why CPV is important for eCommerce retailers
Understanding CPV is essential for setting prices and developing promotional strategies for eCommerce retailers. By understanding what customers value, retailers can better align their offerings with customer expectations and increase customer satisfaction, resulting in higher conversion rates.
CPV can also help differentiate an eCommerce retailer from its competitors. A retailer can stand out in an overcrowded market by focusing on factors that increase CPV, such as improving customer service, offering unique products, or enhancing the overall shopping experience.
Measuring CPV
Measuring CPV can be a complex process involving quantitative and qualitative customer perception assessments.
Remember, the objective is to clearly understand what your customers value and how much they value it. The insights gained can then be used to enhance your offerings, improve customer satisfaction, and, ultimately, increase profitability.
Surveys and questionnaires
These straightforward tools can be customized to fit the business needs. They typically consist of questions aimed at understanding a customer's perception of the value of your product or service.
Direct customer feedback
This involves collecting customer feedback through various channels such as social media, emails, or face-to-face interviews.
Net Promoter Score (NPS)
NPS is widely used to measure customer loyalty and satisfaction. It asks customers how likely they are to recommend your product or service to others. A high NPS indicates a high perceived value.
Conjoint analysis
This statistical technique is used in market research to understand how customers value different features that make up an individual product or service.
You can read more on conjoint analysis at Harvard Business School online.
Customer Lifetime Value (CLV)
CLV estimates a customer's total worth to a business over the entirety of their relationship. A high CLV suggests a high perceived value.
Calculating CPV
It’s all about balancing what customers get (the benefits) and what they give up (the costs). Here’s the simple formula:
Customer Perceived Value = Total Customer Benefit - Total Customer Cost
Total Customer Benefit is made up of a few key items:
- Product Benefit: This covers the basics of what you’re selling—think quality, design, functionality, packaging, and those sweet cost savings.
- Services Benefit: It’s not just about the product! Consider the support services that come with it, like delivery, installation, warranties, and customer service. These can make or break the experience.
- Personnel Benefit: Have you ever had a sales rep who knew their stuff? That’s the value added by your team during the sales process, helping to smooth out any bumps along the way.
- Image Benefit: We all want to feel good about our purchases! Perceived value comes from owning and using a product and is often tied to brand reputation. It’s all about that brand equity!
Now, let’s flip the coin to Total Customer Cost, which includes:
- Monetary Cost: The price tag. What your customer pays for the product or service.
- Time Cost: Time is money, right? This is the time spent making decisions, from searching and evaluating to buying and waiting for delivery.
- Energy Cost: How much effort did your customer put in? This includes everything from searching to installing and using the product.
- Psychological Cost: Let’s be real—it is a cost if customers feel frustrated during their buying journey. Dissatisfaction can tank repeat purchases!
How to improve CPV in eCommerce
Improve product descriptions
Clear, detailed, and engaging descriptions can enhance a product's perceived value. Customers value transparency and honesty; well-written product descriptions can help build trust.
Provide excellent customer service
Exceptional customer service can greatly enhance a product's perceived value. This includes prompt responses to queries, easy return policies, and efficient handling of complaints.
Streamline the shopping experience
A seamless, user-friendly, intuitive shopping experience can increase the perceived value of hopping with a particular retailer. Features such as easy navigation, quick load times, and secure payment options can enhance this.
Build a strong brand
Well-known and trusted brands often have a higher perceived value. Building a strong brand involves creating a unique identity, communicating effectively with customers, and delivering on promises.
Create attractive offers
Offers are a powerful tool for boosting customer-perceived value. Discounts, special promotions, or exclusive deals can make customers feel they are getting more for their money, increasing your product's perceived value.
Product bundles
Bundling products together or offering add-ons at a discounted price can also enhance CPV. However, it's important to ensure that these offers genuinely provide added value and are not perceived as gimmicks, as this can damage trust and negatively impact perceived value.
“The customer's perception is your reality.”
Kate Zabriskie
CPV is a key concept for eCommerce retailers
By understanding and enhancing the factors that influence perceived value, they can drive customer satisfaction, differentiate themselves from competitors, and ultimately increase sales. Understanding CPV should be key to any eCommerce retailer's business strategy.
