How to quantify the value your customers perceive?

Although one option may seem clearly superior to another—like a BMW compared to an economy sedan—not all customers have the ability or willingness to pay for it. Therefore, in addition to perceiving value, the customer must also have low price sensitivity to choose the more expensive option. Both concepts—perceived value and price sensitivity—are key to understanding the purchase decision.

Total Economic Value and Total Perceived Value
To quantify the value perceived by a customer, there are two complementary methodologies: Total Economic Value (TEV) and Total Perceived Value (TPV).

TEV applies when the product’s attributes can be objectively quantified in economic terms, such as efficiency, durability, or resistance. On the other hand, TPV is used when attributes cannot be objectively quantified, such as design, scent, or brand, or when the valuation of those attributes varies from one customer to another.

A practical example
A young man offered a product called Ahorra Agua Plus, which, when applied to the toilet, colored the water and released a pleasant scent. His proposal was that by avoiding flushing, one could save water. A bottle cost $4.50 and provided 250 applications. In a home where each flush uses 6 liters and water costs 0.2 cents per liter, the total savings per bottle was $3.

Since it did not offer any additional economic advantages, those savings represented its total economic value. However, since the price was $4.50—higher than the TEV—the product was not attractive from an economic standpoint.

The seller then suggested considering other benefits, such as the pleasant scent or the positive environmental impact. Since these benefits were not easy to quantify, the analysis of Total Perceived Value was used.

Perceived value comparison
To assess these subjective attributes, the product was compared to the household’s usual disinfectant. Ratings from 1 to 3 were assigned to attributes such as brand, ease of use, scent, disinfection, and sustainability. The disinfectant obtained a weighted score of 2.8, and Ahorra Agua Plus scored 2.0.

If the disinfectant cost $1.75, then the fair price of the new product, considering its lower perceived value, would be $1.25. By combining this perceived value with the economic value of the water savings, the maximum willingness to pay was $4.25. Since the actual price was $4.50, the decision not to buy was confirmed.

Attributes that influence perceived value
To correctly quantify perceived value, it is necessary to consider three types of attributes. Functional attributes are related to the performance of the product or service. Emotional attributes are tied to the brand and the emotions it evokes in the customer. Finally, relational attributes refer to the complementary services that accompany the main solution.

The importance of each of these attributes varies depending on the consumption occasion. As the customer’s needs change, their perception of value also changes, which affects willingness to pay and, therefore, price setting.

Beyond value: price sensitivity
Understanding how perceived value is quantified makes it possible to estimate the maximum price a customer would be willing to pay. However, the final purchase decision also depends on their price sensitivity, a factor that will be explored in greater detail later on.