It’s simple: Your offer’s value exists only in a customer’s mind. When you hear the phrase “customer perceived value”, I want you to remember that the “customer perceived” is redundant; there is no other kind of value besides customer-perceived.
Customers only derive value based upon differences. There’s more to it, which we’ll come to in a minute, but let me simplify half a century of consumer choice research for you.
Hueristics: Shortcut Mental Processes
Buyer choices are based upon differences between different offers, which is a mental shortcut, or heuristic (an academic researcher word. Impress your friends). We shortcut a complex set of choices based only on what’s different. Think about buying an automobile, for example. When comparing the options, you don’t go down the list of “what is the same”. Your brain knows that is a waste of mental energy. You won’t even take notice tires, spark plugs, cylinders, steering wheels; every option has the same number, and any differences are unimportant to most buyers. However, you might notice that one option has a comfortable leather-wrapped steering wheel…but really only if the other car doesn’t.
Not all differences are the same (sorry for the pun)
Differences become differentiation (in the consumer choice sense) when two things occur.
First, those differences need to be factored in to a decision process.
Second, they need to be given weight, or value.
For value to “occur” in the customer’s mind, you need to do both. Let’s start with the first.
Differences need to park between your customer’s ears as differentiation before they can grow into value.
Differences are promoted to differentiation (differences that the customer uses in a decision) under a consistent hueristic. Buyer (all personas; not just a purchasing agent) decision-making follows a consistent prioritization of differences which:
Come to mind easily. The buyer psychology term is “ the availability principle”. This means that decision makers default to easy-to-recall differences. Differences that you give to a prospect (especially without confirming conversation) are not as “available” as differences they can describe unprompted. Let’s go back to an auto purchase example: I’ll recite advantages of one of your two “acceptable” finalist options to you. Then, I’ll ask you to explain to me the advantages of the second option. Which one will you end up buying the next day? The reason is the availability principle. Availability is part of why a customer believes what they tell you much more than what you tell them. Use conversation to get a customer to process differences into differentiation.
The customer has to produce themselves. If nobody produces any differences, some buyers will dig deeper to uncover them. This does happen, but you’re leaving things to chance. Differences which don’t enter a customer’s consciousness don’t create differentiation or value. I once learned that a customer valued my company’s responsiveness, and willingly paid a small price premium — which could have been much larger. When there was a “both parties’ fault” problem which shut their production down, we made things right in the way they knew we would…and which we took for granted. This was the exception, not the rule. Because we didn’t uncover it, we never had the option to sell (and possibly price, had the difference been something a little more image-positive).
Price becomes a primary differentiator only when no other differences exist in the prospect’s mind. Note: some procurement/purchasing folks will lead you to believe that your differences (above) are insignificant or nonexistent – purely to drive a price-centric conversation. It is the responsibility of a seller to determine how real this gambit is. If your sellers respond only by discounting, you may have a significant opportunity to improve. I work with sellers to understand how and when to play this game.
Status quo becomes your biggest threat when no differentiators have appeared as your customer goes down this decision pathway. It is a threat almost always, of course, but if not even price seems different between the top two choices, status quo always wins (consumer choice research has established this using dozens of experiments repeated hundreds of times). If status quo is not one of the finalists, customers will produce a differentiator that might seem so frivolous that it feels like they used the dartboard to make their choice. These are frustrating wins…and even more frustrating losses.
When Differentiation becomes Value
I often quote Bob Miller, who pointed out that Customers don’t buy our offers, they buy outcomes. Buyer research shows that people decide based upon differentiation… differentiation they value due to the outcomes that differentiation yields.
How does differentiation turn into value? When a prospect gives it weight by connecting it to an outcome or outcomes. The value/weight of an outcome increases as it progresses through “theoretical”, “possible”, ”likely”, ”probable”, then “assuredly”. It also increases as the desirability of the outcome progresses through “unquantified tie breaker”, to “I’ve visualized the outcome”, to “I’ve visualized myself realizing that outcome” then “I’ve quantified the outcome financially and personally”, and finally, “I’ve also quantified ancillary outcomes”.
The same rules of availability apply to value building. If you build a value case and deliver it to a prospect, it is far less available(and thus less value is built) than if you walk the prospect through the exact same validation/quantification process such that they build it themselves in their own mind.
Buyers (other than purchasing folks) seldom use price as the primary differentiator. Far more frequently, they use your price premium (that’s your price difference, remember?) vs. their own estimate of value. Using an auto purchase example, a consumer might justify whether the leather upholstery option is worth the $1500, quantifying comfort, longevity, prestige, in a way that translates each of these differentiators into a dollar justification.
Bottom Line
If you never help your customer identify your differences, they probably won’t think you have any, and you will never enter the finalist stage.
When you fail to help your customer process differentiation into your (outcome-based) value, they won’t fully appreciate what you offer, and won’t be willing to pay you what you’re really worth.
When you don’t know your value, you’ll never know how to sell or how to price. Your achievable price premium depends on the value of your differences to the customer.
I invite your comments and feedback.
To your success!
