Explain Perceived value pricing method

In perceived value pricing method, price is set based on the customer willingness to pay and what he thinks about the product. The value is decided on factors like product experience, support to service, warranty, reputation, trustworthiness etc.

Company explains its customers about their offerings, product aspects, services and asks them to evaluate the price. This method measures accurate market perception.

Formula

The formula for perceived value pricing method is as follows −

PP = PV * K

Here PP = Product value, PV = Product Perceived value, K = Adjustment factor

• Case − 1 − If product value is very low to customer expectations, customers will doubt the quality of product.
• Case − 2 − If product value is very high to customer expectations, customer may not pay the price.
• Case − 3 − If product value is almost/equal to customer expectations, purchase probability is high.

Advantages

The advantages of the perceived value pricing method are as follows −

• More realistic method.
• Consider competitors' offers (indirectly).
• Customer orientation.
• Base is perceived value.

Disadvantages

The disadvantages of the perceived value pricing method are as follows −

• Sometimes perception may mislead.
• Difficult to understand.
• Possibility of bias.
• Based on trust.

Examples

• Function − Customers can accomplish with firms or organizations with their product/service. Let's say, a product of an accounting service firm removes the customer's administrative burden (related to taxes).

• Features − functions are implemented. Let's say, an accounting service firm provides a service which helps small businesses in generating monthly reports and estimates quarterly or annual taxes.

• Visual Appeal − visual impact of product/services. Let's say, a visual of a newly launched mobile phone.