What separates a Hermès Birkin bag from a high-quality leather handbag you could buy anywhere?
A label, a fancy charm, and about $22,000. But unlike the tangible qualities of a purchase, like the grade of leather used or the fact that the utterly useless bag charm is 14 karat gold, the perception of value is what really separates one bag from the other.
One bag contains social cachet and the ability to draw envy from other women – intangible benefits so valuable; it justifies the raised price. The nameless bag, however, has its own set of benefits for a different shopper – people who pride themselves on having an eye for quality, rather than shopping based on labels.
That pride is part of how they feel about the purchase, and also alters perceived value.
Perceived value doesn’t depend on brand names or celebrity endorsements (though both of those can be effectively used). It’s often free and easy to alter. And for conversion rate optimization specialists, the perception of value is just as – and sometimes more – important than the actual value of the product itself.
You too can manipulate the perceived value of your product to raise conversion rates. It’s actually really fun.
The Fun-damentals of Perceived Value
“Perceived” value is what consumers think the product is worth to them.
Don’t worry – we’re not talking about anything shady. This isn’t a con-man trick. There’s no over-promising and under-delivering here, because at the end of the day, your customer has to be delighted with your product so your business can grow. Ethics and transparency are important – in this increasingly connected online world, the truth will always come out. And more often than not, it will come out publicly.
Perceived value is more about helping customers feel good about their purchases, good about themselves, and confident that they’ve made the best possible decision to buy something that meets their emotional and practical needs. After all, when they feel good about their purchase, they’ll come back and bring their friends.
So what is perception, exactly? One dictionary definition is “a way of regarding, understanding, or interpreting something; a mental impression.”
Perception is influenced by life experience, personality, past interactions with your brand and your competitors, and associations with public figures, movies, music, and so much more. And it’s a very individual thing. Beauty is in the eye of the beholder; one man’s trash is another’s treasure; one person’s “cheap” is another’s “smart value.”
The way in which you present your product should key into the perceptions, assumptions, and aspirations of your target audience, which means discovering their positive associations, their negative associations, their idols and icons, and who they trust.
“Real” value, on the other hand, is specific and non-negotiable. By definition, it’s the relationship between the actual manufacturing cost and the retail price of the product. It’s the quality of the leather and the 14K bag charm, rather than the social cachet of the “Hermès” logo.
The Bizarre Ways This Works in Real Life
In 2013, Aston Martin created a near copy of Toyota’s Scion iQ, a small frumpy car ideal for parallel parking in crowded European streets. It was an identical model, made in the same factory, by the same factory workers, but it retailed for $45,000 with the Aston Martin brand on it (the Scion iQ retailed for $17,000). The car industry does this all the time. It’s called “badge engineering.” (Incidentally, this specific case of badge engineering was a flop, but more often than not, it works.)
Brand cachet is one way to alter perception, but most of us aren’t Aston Martin or Hermès. That’s okay. We can just raise the price.
Raising the Price Increases Perceived Pleasure
In the TED Talk Life Lessons from an Ad Man, Rory Sutherland builds a case for perceived value being just as satisfying as what we consider “real” value, citing studies that even support the idea that we get more pleasure from higher-priced goods – based solely on price.
One such study from researchers at Stanford GSB and the California Institute of Technology went like this:
Participants were told they were tasting two different wines — one selling for $5 and the other priced at $45. But, they were actually tasting the same wine. Researchers found that the part of the brain that experiences pleasure became more active when the drinkers thought they were tasting the pricier wine.
Price is intangible, but holds genuine value – at least in the mind.
Ultimately, a customer’s opinion of a product’s value depends on the product’s ability to satisfy his or her needs or requirements. Those needs are, very often, emotional (rather than purely practical).
Cracking the Emotional Code to Perceived Value & Conversion
In the 2010 book Money Makers: Inside the New World of Finance and Business, authors David Snider and Dr. Chris Howard summed up the issue in this way: When the benefits outweigh perceived costs, your prospect will take action.
Decrease the costs (not always the price), and increased perceived benefits, and you’ll crack the code for conversion.
Costs and benefits are both a matter of perception and emotion, more often than not.
What do we want?
We want to feel smart and clever, like we do when we get a real bargain. “I bought it for $3 at the thrift store!” We brag about those deals for years, half the time to perfect strangers.
Or, we want to feel like we have something in common with people we admire, which is why one might be tempted to buy the Poinsettia Flower Pot Cake for $165 that Oprah recommended as one of her “favorite things.”
We all want to live lives that are slightly better than our own, which is why visual advertising that sells an aspiration is so effective.
Bargains. Celebrity endorsements. Selling the aspiration. All of these are ways of altering the perceived value of a product by increasing its benefits.
Now let’s look at a few ways to reduce perceived costs.
1. Undercutting Perceived Value
You’ll see this in the sale section in Modcloth all the time. Apparel items that get a review like “This material feels cheap. I wouldn’t pay $150 for it,” routinely go on sale for less – and sell. It’s not that the customer doesn’t want the item; it’s that they don’t perceive the value of the item to be in line with its full price. Lowering the price fixes the issue. But it’s not the only way, or even the best way, to fix the issue.
2. Leveraging Assumptions
People make assumptions about value. They assume, for example, that higher priced items are of better quality. They assume that larger packages contain greater value. They assume that Oprah Winfrey and Beyoncé only promote the very best. They assume customer reviews are more trustworthy than ads or product descriptions, and that a website featuring real customer reviews is also more trustworthy. They assume that a sleek, modern, functional website that runs quickly and smoothly translates to the value of the goods it’s selling (and often, they’re right). You can use these assumptions to present your product in a way that increases its perceived value.
3. Re-Framing Costs
Cost re-framing works like this: When people are told the price in a smaller unit, their routine thought process is disrupted, and the price seems like more of a bargain than it actually is. In the study, the researchers went door to door selling note cards for charity. In the first pitch, they sold it as “$3 for 8 cards.” That worked 40% of the time. Their second pitch was “300 pennies for 8 cards,” which worked 80% of the time.
Another example we’ve all seen runs something like this: “For the cost of just one coffee a day, you can save a child.” That sounds much more doable than asking people to give $1277 a year as a charitable donation (which is the cost of my favorite local latte, if I were to indulge daily).
Car dealerships do this every day with lease deals, “Just $199 per month!” (for the next ten years).
More Ways To Alter Perceived Value
A twist on cost re-framing is “valued at.” This is one of the simplest ways to increase perceived value. Who does this “valuing”? Often, nobody knows! But just by placing the higher number next to your product that you’re selling for less, you’re building a perception in the consumer of getting more for his or her money.
Of course, that wedding isn’t really free – you’ve just gotten 10-20 of your nearest and dearest to book rooms at their hotel, and plenty of blackout dates apply. But that “Valued at” sure grabs attention.
*This tip is too often used and abused, to the point where a lot of consumers aren’t even interested in getting ‘free’ junk. To make “Valued at” work, you’ll have to prove your offer’s worth and gain your customers’ trust.
Show Your Craftsmanship
Anyone can post a picture of a product. Better online retailers make sure that picture is professional and make it possible to enlarge it to show finer detail. But few online retailers let us peek behind the curtain to see how the product is made. Those that do are raising our perceived value and differentiating themselves in the process. Check out this video Hyundai produced specifically to differentiate its Elantra from the Honda Civic.
Diction, or word choice, is a powerful tool for altering perception. To do this well, you’ll need to understand your target client’s desired outcome, and find the appropriate word to describe the product. For example, the man looking at purchasing a Montblanc pen is looking for something subtle that sends a message. Is that message “expensive”? Or “exclusive”?
The mother shopping for school clothes for her kids doesn’t want to buy “cheap,” but does want “great value!”
It’s almost turning a negative into a positive. Horse traders have been doing this for years – “spirited” means the horse will buck you off, “kid-safe” means its 40 years old and sway-backed, “bombproof” means it’s deaf… you get the idea. Yes, you can use your powers of diction for good or evil, but always remember: Your user reviews won’t lie!
Ever wonder why every deal offered on television is $X.99? Researchers at MIT and the University of Chicago found that prices ending in 9 increase customer demand for product. People (at least in the West) read from left to right, and are biased towards the first number they see – so by the time they reach the .99, their perception is that the value is closer to the first number which, in a convoluted say, makes them feel like they’re getting a better deal.
Scarcity enhances perceptions of expensiveness and desirability, and it’s also one of Cialdini’s 6 Principles of Influence. No matter what the price, people are more likely to purchase the very last available product, or jump on the soon-to-expire deal. Call it “scarcity” or call it FOMO (Fear of Missing Out) – it works.
Amazon, Modcloth, Anthropologie, and many more ecommerce sites show when their stock is getting low, showing on the product page and in the cart “Only 5 left!”
You don’t need a physical product to use scarcity. Offer a time-limited deal that expires in 48 hours and watch the conversions roll in.
Feel Good Value
Feeling good about doing good is a core human trait, and that ‘feeling good’ has real monetary value. AmazonSmile promises to donate .5% of a shopper’s total purchase towards his or her designated nonprofit – which is brilliant/diabolical cost re-framing (it’s a whopping $5 out of every $1000, to put it in perspective, but it seems like more). It’s also priceless advertising, an added incentive to shop at Amazon, it makes consumers feel good, and you can bet it boosts conversion rates (Amazon has not been forthcoming with its Smile stats).
Giving a percentage to charity is the quick-and-easy route to appealing to philanthropic consumers. But an increasing number of companies are reinventing the way they do business to source sustainably and support the communities that make their products. These companies, like People Tree in the UK or Theo Chocolate in Seattle, charge a premium for their products, which people are genuinely happy to pay.
Define Your Own Value
Purple mattress came up with an ingenious way to differentiate itself from their online mattress competitors and increase perceived value. First off, they show how their mattress is made in great detail. Then they devised a test that is as brilliant as it is absurd.
“What’s a super easy way to tell that your bed is awful? The raw egg test.”
This campaign went viral when people began doing the egg test with Purple mattresses at home, and filming them. This 5-minute user-created Youtube video is what finally sold one of my friends on this mattress (start watching at 4:40).
Does this prove that Purple is comfortable? No. It proves that it would make a terrific egg crate. But did it succeed in altering the perceived value of their mattress? Absolutely.
Perceived Value & CRO
Perceived value is an important tool in conversion rate optimization, and like so many factors that affect conversions, it’s grounded in emotion. It doesn’t matter whether you’re selling paperclips or cars. Conversion only happens when people feel safe in buying from you, when they feel like they’re getting a good deal, and when they feel like your product will lead to living better lives, or becoming better selves.
About the Author: Edin Sabanovic is a senior CRO consultant working for Objeqt. At Objeqt, we help grow e-commerce stores by improving conversion rates through scientific research and A/B testing. If you like this article, you should subscribe to our How to Conduct A/B Tests for E-Commerce Growth Email Course. You can also follow Edin on Twitter.