Dave Carlson - December 4, 2008
There are many different types of value an item can have. Two specific values important to marketing are intrinsic value and extrinsic value, or perceived value. “Intrinsic value is what value you may personally place on something” (Pervez, 2007, p. 17). If your customer places the same value on a product or service, you may reasonably expect to sell that product or service at the price you think it is worth. If a company arbitrarily decides a widget is worth $123.95 and a customer agrees with that price, then there is a reasonable possibility to consummate a sale. However, what if the customer thinks the widget is worth only $95.00? What happens then?
When a product’s intrinsic value determined by the company does not match the intrinsic value determined by the customer, the company must change the company’s intrinsic value into a customer’s perceived value. Kotler and Keller (2009) argued that perceived value reflects the price that is “reasonable in relationship to value” (p. 582). “The higher the perceived value, the higher is expected consumer interest” (Kotler & Keller, 2009, p. 582). Basically, the company is challenged to establish a price that the customer perceives to be appropriate for the item being offered for sale. Pervez (2007) reminded his readers that “the world pays for value. The value it pays for…is perceived value, not intrinsic value” (p. 17).
One of the most fundamental principles of marketing is about converting the intrinsic value of a product or service into perceived value. “This creates a compelling reason to buy” (Pervez, 2007, p. 17). Those marketers who are able to create effective marketing alchemy will reap exceptional profits from their labors.
A specific service concept that is priced on perceived value is the wage an employee earns from a company. The general culture of the United States and the culture of many other countries around the world include the concept that everyone is equal. These societies believe that the intrinsic value of each human is relatively the same. However, there is a significant difference between the intrinsic value of a person’s services and the perceived value obviously apparent every payday. The primary reason perceived value strategy works in this case is because some people are able to perform the work better than others. Some specific elements which add to the perceived value of some employees are education, experience, and proven success.
A specific product that failed to change intrinsic value into perceived value was New Coke, described by Pelsmacker, Geuens, and van den Bergh (2007) as one of “the biggest marketing flops in history” (p. 55). Within two weeks after launching New Coke, “sales figures dropped at an unprecedented rate” and the product “disappeared from the market about 18 months after it had been introduced” (Singh, 2006, p. 68). The company was not able to convince consumers that New Coke had the same perceived value as the original Coke.
A primary challenge facing a marketer, when marketing a product or service, is to establish perceived value in the mind of consumers. Usually the effort to produce and deliver a product to market does not have any direct relationship on a product’s price. If the company is successful at meeting or exceeding a consumer’s expectation of value, that company has a high probability of selling its product for the desired perceived value.
Kotler, P. and Keller, K. L. (2009). Marketing management (13th ed.). Upper Saddle River, NJ: Prentice Hall.
Pelsmacker, P., Geuens, M, and van den Bergh, J. (2007). Marketing communications: A European perspective. Harlow, UK: Pearson.
Pervez, A. (2007). Marketing is king. Garden City, NY: Morgan James Publishing.
Singh, D. (2006). Emotional intelligence at work: A professional guide. New Delhi: Sage Publications.