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  Understanding Perceived Value in the Marketplace

Abraham Maslow’s Hierarchy of Needs

1. Biological and Physiological needs - air, food, drink, shelter, warmth, sex, sleep, etc.

2. Safety needs - protection from elements, security, order, law, limits, stability, etc.

3. Belongingness and Love needs - work group, family, affection, relationships, etc.

4. Esteem needs - self-esteem, achievement, mastery, independence, status, dominance, prestige, managerial responsibility, etc.

5. Self-Actualization needs - realizing personal potential, self-fulfillment, seeking personal growth and peak experiences.

Maslow proposes that each preceding level must be met in order to move to the next.  Society as a whole has been progressing through these levels (in the United States at least).  With this progression comes a shift in the market to accommodate the newest “needs”.  Farming has been said to be the oldest occupation and this would coincide with the hierarchy (as well as logic).  As this need was met, other occupations formed to provide security such as a military, lawyers, judges,  Construction of shelter and protections, etc.  I now propose another hierarchy of the markets.  This is an adaptation of ideas presented in The Experience Economy by Joseph Pine and James Gilmore :

1.       Self-sustenance

2.       Commodities

3.       Goods

4.       Services

5.       Experiences

6.       Transformations

Each stage does not directly coincide with Maslow’s model but correlations are prominent and obvious.  As each subsequent stage is accomplished and fulfilled, the customer identifies additional needs in order to achieve satisfaction in the next stage.  It is important to understand that obsolescence of the previous stages will not occur as they are crucial foundational pieces; however, as progression occurs, costs and prices will be further directed by the open markets, competition, and commoditization.  Obsolescence does not occur, only a change in the nature of the exchange.    The greatest profit margins and growth often occur in the new markets with new products but it must also be understood that in a declining society, they will be the first to disappear as people fall back to the previous stages.  This can be seen on a small scale during an economic downturn as certain businesses and industries decline such as vacations and travel, cutting-edge technologies and investments, etc.  With this base, we are now able to get into what we will call perceived value.

I would like to begin by identifying what is meant by “need.”  As previously discussed, at each stage exists a different set of needs.  The irony comes in realizing that you do not need any of these!  In realizing that you have survived without them thus far so why do you need them now?  We prefer to clarify that need must be followed by “in order to” which builds the context as to why you need something.  Understanding the necessity of context creates the defining concepts behind one’s perceptions.  What one perceives as valuable may or may not be to the next according to that person’s contextual perceptions.  What do they deem valuable?  For the sake of argument and this article, I will breakdown what I consider perceived value and what I will consider the grassroots exchange.  Every business has a grass roots exchange.  This will be the actual exchange with a customer of core products.  This grassroots exchange typically exists at one level while the perceived value is what exists at the next level, e.g., you buy a cup of coffee from Starbucks for five dollars. Grassroots exchange: the coffee itself, Perceived value: the atmosphere, the people, the newspaper at your table, the selection, etc.  The perceived value often accelerates the impact and solidifies future success as your customer returns again and again, bringing others and sharing their experience.   Perceived value will not actually enhance the performance of the product, only heighten the recognition of value in what they have received.  The coffee doesn’t actually taste better with the atmosphere, service, newspaper present but the person may perceive it so.   The combination of a solid and powerful grassroots exchange with maximum perceived value allows for maximum impact and success.

Perceived value may come in thousands of forms.  Those I define as the most powerful are called Impact Accelerators™.   This will include marketing, positioning strategies, pamphlets, brochures, websites, CDs, DVDs, additional education, tips and tricks, etc.  What is the difference between a $50 pair of jeans and a $300 pair?  Most often it is positioning, branding, and marketing.  The jeans work just as good and often look just as good as well but people still pay for the latter.  Many services organizations can bridge the commodity trap by adding select Impact Accelerators to their business, by building in additional perceived value.  A true impact accelerator requires no on-going human capital or labor.  Once the idea is designed and implemented, it is a matter of execution, such as DVDs or CDs, once recorded they can be reproduced over and over again.   This is important to consider as human capital is often the most expensive resource.  Impact Accelerators leverage knowledge and human capital to allow for repeatable value creation with minimal resources.  This is a primary purpose of perceived value. 

The trickiest piece of the puzzle is measuring perceived value and understanding the right combination of perceived value and grassroots exchange.  If you have too much perceived value and not enough grassroots exchange, you have a product that is all hype and no true performance.  It creates a condition of over-promise and under-deliver in many cases, especially if your price point is higher than your competitors.    People may be inspired, then let down.  Companies with this issue often are success for a time but long-term performance is difficult due to backlash from past customers.

If you have very little perceived value and too much grassroots exchange, you often have a product that is misunderstood, neglected, and undervalued.  Many companies suffer a quick fate due to little buzz, and lack of understanding.  Most people don’t know your product exists and those that do are blind to its true potential in their lives.  Those customers you do obtain will likely neglect the product and never fully utilize it.  They are not likely to be repeat customers, again due to lack of understanding.   This also brings about commoditization as you are lumped in the general market and face stifling competition.  These are the two ends of the spectrum.  The proper combination will be key although not exact thanks to measurement difficulty.  It will always depend on the context through which the customer or client views your product.  One must note that transparency around the product and your company will enhance the likelihood of proper understanding.  Within this spectrum, you have several possible strategies for success.  With more perceived value will likely come faster growth but less stability as you manage the grassroots exchange necessity.  With less perceived value will likely come stronger, more stable growth but at a much slower rate (as long as your grassroots exchange is powerful and truly valuable).  Again Perceived value is necessary at all points on the spectrum, only at differing levels, in order to achieve success and transcend the commoditization dangers of the open markets.   One of the important factors to take into consideration when attempting to measure the perceived value is your key market segments and their characteristics.   

Measuring perceived value can come through market research and individual interviews as well as through feedback systems built into the exchange that allows for continual feedback on results of the offering and its pieces, including the perceived value pieces.  Identifying the Impact Accelerators to be implemented can be much more difficult.  Perceived value is often not sought after therefore becomes difficult to develop based on market research and what “need” you are addressing as it most likely will not come out of this initial research.  It is also difficult to market the perceived value and usually ill-advised.  It must be offered in conjunction with grassroots exchange as the purpose of perceived value is the enhancement of the core exchange.   Without it, you fall into the category described above on the Value Exchange Spectrum, a high-hype product with no true value creation.   A key tool to identification will come by asking the right questions, both of yourself and those customers and people you speak with.  To think with the context set: “How do I give an experience, not just an exchange?   What kind of transformation would I like to see occur?”  Building the context and working through exercises will create more forms of perceived value than you know what to do with.  Then it is a matter of identifying which to actually implement, test, and adjust. 

Perceived Value is a powerful piece that mustn’t be ignored or neglected.  It can be the key to massive success or, if neglected, the stumbling block to mediocrity and often failure.  It is important to build a team that understands this and is capable of implementing the ideas in an efficient and effective manner.  Build your team right and make perceived value  part of your common language.

Billy Bush

Partner and Founder, Business Blueprint™

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