The ratio of perceived benefits to price is referred to as value, and marketers often use this metric to measure product performance. It is an essential ingredient in any effective marketing strategy.
A product's perceived value consists of three components: function, benefit, and cost. It is this combination of these elements that determines whether a customer will purchase a product or service and how much they will pay for it.
Product Benefits
Consumers don't buy products primarily for their functions; they buy them because of what they will gain from using the product. This includes physical benefits (i.e., keeping warm), logical benefits (i.e., a new job), and emotional benefits (i.e., saving money or getting out of an embarrassing situation).
Product Costs
The costs of a product or service are the cost to produce and market it. These costs include the cost of materials and labor, as well as the cost of advertising, distribution, and sales.
Perceived Value
Customer perception of a product's value depends on the tradeoff between benefits and cost, as well as customer opinions about the quality and features of the product. This tradeoff can be analyzed by applying a tool called a value map.
The map shows how benefits and costs vary across markets, as well as which competitors have higher or lower values. The map also helps assess the relative importance of each attribute to consumers' decisions.