Perceived Value, Definitions, Concepts and its Importance in Consumer Behavior and Marketing
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Introduction
Perceived value is the basis upon which all marketing is conducted. By influencing consumer behavior, perceived value is important for the long-term survival of a company and its bottom line. This essay looks at the concept of perceived value and its relationship to marketing and consumer behavior. Several practical examples are provided to illustrate the relationships.
Perceived Value: Definitions and Concepts
Various definitions of perceived value exist in literature. According to Zeithaml (1988), perceived value is the total evaluation of a product’s utility by a customer based on the customer’s opinion of the benefits received and costs incurred. Based on the definitions of Holbrook (1994) perceived value is the difference between the gains and costs that a potential consumer thinks he or she will obtain or incur when purchasing a product or service relative to the expected gains or costs associated with a different product or service. It is the association between the consumer’s expected gains relative to the expected costs associated with obtaining the said gains. Thus, there is a tradeoff between what the consumer supposes he or she will obtain in return for the cost of the benefit obtained. The expectation is borne out of the consumer incurring costs in order to derive some benefits (Holbrook, 1994).
According to Kotler and Bliemel (2001), the concept of perceived value is anchored in the principle of voluntary exchange in the marketplace where consumers choose the offerings that promise to provide the highest expected benefits in value and leave those that do not appear to provide as much great value relative to the costs involved. Therefore, perceived value is a subjective rather than an objective entity since it is solely based on the customer’s judgment (Kotler & Biemel, 2001).
Besides being subjective, perceived cost is also relational. The relational nature of perceived cost means that the derived gains and incurred costs are all explicit values. Perceived value is relativistic and may be situational, personal, or comparative preference (Holbrook, 1994). Another characteristic of perceived value is that it is experiential and depends largely on the consumer’s previous interaction with some object, which may be a service, idea, event, place, person, or thing (Holbrook, 1994).
Apart from monetary gains, perceived value can be in various forms. The different types of value or benefits attained from the use of a product or service include spirituality, efficiency, aesthetics, play, status, esteem, and ethics (Graf & Maas, 2008). However, other researchers categorize value into five forms and these are conditional, functional, emotional, social, and epistemic. Perceived value can also be classified as either transaction value or acquisition value. A practical example relating to this point is that a young customer may buy Pepsi Cola soda, not because he is thirsty or needs a drink, but because he saw an advertisement of the soda, where The One Direction Band and the Saints Quarterback Brees were featured. His perception is that the soda is associated with celebrities and drinking it makes him part of the crown that “is in”. Thus, the soda fulfills some emotional need in him. Despite fulfillment of this emotional need, the customer may pass an overall judgment on the Pepsi Cola soda based on its quality features such as taste and flavor and other attributes such as cost.
Perceived value is important in creating a competitive edge and there is a strong link between perceived value and profit. Perceived value is also essential for the long-term survival and success of business organizations (Porter, 1996)
Relationship between Perceived Value and Consumer Behavior
Perceived value is of great help in the identification of value for consumers and in the management of consumer behavior (Graf & Maas, 2008). Several models mapping the relationship between perceived value and consumer behavior exist in literature. These models are summarized in figure 1 below.
Figure 1: models mapping the relationship between perceived value (CV) and consumer behavior. Source: Graf & Maas (2008)
The first model states that there exists a direct relationship between perceived value and consumer behavior. This model does not however show the importance of customer satisfaction in the relationship. In other words, this model posits that perceived value is the only principal determinant of consumer behavior (Zeithaml, 1998).The second model however states that the relationship between perceived value and consumer behavior is indirect. This model avers that consumer satisfaction is an intervening variable between perceived value and consumer behavior and that it moderates perceived value and consumer satisfaction. Proponents of this model opine that consumer satisfaction is a much stronger gauge of consumer behavior and that its impact on cognitive variables such as recommendation and repurchasing behavior is much more pronounced than the construct of perceived value, which is held to be cognitive (Graf & Maas, 2008).
The third model supports the elemental assumptions of the second model. However, this model posits that perceived value is a whole entity composed of several distinct components that are value dimensions and directly influence customer satisfaction. Thus, it is supposed that there is a direct association between each individual value dimension and consumer satisfaction. Consumer satisfaction is then supposed to moderate the value dimensions and the consumer behavior much in the same way as happens in the second model (Graf & Maas, 2008).
The fourth model states that there is a direct relationship between perceived value and customer satisfaction and that these two constructs directly influence consumer behavior (Liu, Leach and Bernhardt, 2005). However, studies show that whereas this model holds true for long-term business relationships, customer value dimension is the only important factor in short-term business relationships and that perceived value and customer satisfaction do not really matter (Liu, Leach and Bernhardt, 2005).
Finally, the fifth model explains that consumer behavior is directly influenced by product or service quality. Product or service price and quality are shown to influence perceived value directly. In turn, perceived value has a direct relationship with consumer satisfaction and consumer behavior. Thus, perceived value depends on product price and quality and influences consumer behavior and consumer satisfaction. Consumer satisfaction is also shown to have a direct relationship with consumer behavior (Cronin, Brady and Hult, 2000).
Relationship between Perceived Value and Consumer Behavior
As already mentioned, perceived value is the basis upon which all marketing activity is conducted (Holbrook, 1994). The relationship between perceived value and marketing is based on the two marketing constructs of quality and customer satisfaction (Graf & Maas, 2008). On quality, extensive research shows that perceived quality precedes consumer perceptions of a product or service and is thus a vital component of perceived value. A practical example can help to illustrate this point. For instance, a consumer has to make a choice between buying a refrigerator manufactured by LG Electronics and one manufactured in China by a company that is not very well known. The price of the Chinese-made refrigerator is lower than that of LG. Even though the consumer may not have heard of the Chinese company, it does not mean that the Chinese-made refrigerator is of lower quality. However, the consumer will most likely go for the costlier LG fridge because he perceives that it is of higher quality than the unknown Chinese brand while in fact the Chinese brand may be of a much higher quality.
The second marketing construct that illustrates the relationship between perceived value and marketing is that of consumer satisfaction. The relationship between perceived value and customer satisfaction is that perceived value precedes customer satisfaction. This is a reasonable assumption, as perceived value is a cognitive construct while customer satisfaction is an affective-cognitive construct. For example, a customer who has never drunk Pepsi Cola soda before may not say whether he is satisfied with the product unless he has some preconceived perceptions about the soda.
Conclusion
This essay explored the concept of perceived value and its relationship to marketing and consumer behavior. Perceived value was defined as the difference between the gains and costs that a potential consumer thinks he or she will obtain or incur when purchasing a product or service relative to the expected gains or costs associated with a different product or service. Four models explain the relationship between perceived value and consumer behavior. The first model ascribes a direct relationship between these two variables while the second model states that this relationship is indirect and moderated by consumer satisfaction. The third model posits that perceived value is a whole entity composed of several distinct components that are value dimensions and directly influence customer satisfaction. The fourth model states that there is a direct relationship between perceived value and customer satisfaction and that these two constructs directly influence consumer behavior. Finally, the fifth model explains that consumer behavior is directly influenced by product or service quality. Consumers will be willing to purchase a certain product if it is of high quality regardless of the cost. This means that the quality of the products should be improved regularly to remain competitive for the tastes and preferences of consumers to be catered for. Regarding marketing, quality and customer satisfaction are antecedent to perceived value.