Perceived Value
by Dan Furman on July 22, 2009
I got to thinking about perceived value today.
What got me thinking was a news story about some gas station where they were selling gas for 28 cents a gallon (or something like that) for some promotion. And people lined up for blocks, a several hour wait, to get some.
Are they morons?
Well, maybe that’s a little strong, but they are definitely blinded by perceived value.
Ok, let’s say the normal price is $2.78. So this little promotion saves you $2.50 a gallon. Figure that most cars have, at best, a 20 gallon tank (and that’s only on the larger cars and trucks - most vehicles seem to have a 10-12 gallon tank.)
A little math says that if you were bone dry with a 20-gallon tank, you saved yourself fifty bucks. But it’s unlikely anyone was bone dry, so, factoring in the smaller tanks, say the average person got ten gallons. So they saved 25 bucks. They waited SEVERAL HOURS to save 25 bucks.
I was right the first time - they are morons.
But that’s what “perceived value” does to people. It clouds their judgment. And compels them to spend their non-working hours in a line of cars for what amounts to barely above minimum wage. Because they perceive gas at 28 cents a gallon as an incredible value.
It’s handy to know the perceived value of your products and services. It might shock you too, because in many cases, it’s probably lower than you think it is. Sadly, we all don’t sell gasoline.
For example, for my own business (writing) the perceived value is seen as somewhat low by beginning businesspeople. That’s because we can all write on a basic level. So a business person just starting out comes to me as a time-saver more than anything, and is shocked that I charge “professional” rates.
They only see the value in my service with experience. I have no problem getting my rate from professional businesspeople. But the layperson says “you’re only writing”, which is akin to saying “you’re only connecting wires” to an electrician.
But fair or not, this is how things are perceived by some. Instead of fighting this, I embrace it, and work extra hard on my website to show a real value for my services. And I think I do a pretty good job.
So what’s your value to others? Are you really honest about how others perceive you?
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Dan Furman is a professional writer, author, entrepreneur, business consultant, and all around good guy (so they say.)
July 23rd, 2009 at 3:29 am
I ran into a similar situation with the FastPass type system in San Diego.
My old boss paid about $5.00 a day for the toll road and avoided two hours of freeway traffic (if not more).
When he offered the suggestion to his workers, they didn’t want to “waste” the money.
Never mind that their time is more valuable to say nothing of the gas that’s wasting while you’re idling in traffic.
And these were people making $20.00 plus an hour, so they couldn’t work for 15 minutes to avoid two hours of traffic?
July 23rd, 2009 at 8:16 am
In the book Influence, Robert Cialdini describes six major psychological factors that affect decisions. Two of them, Scarcity and Social Proof seem to be at work here.
$0.28/gallon gas is scarce. It won’t be around for long, so you better get it while you can.
The long line of customers provides social proof that the offer is for real.
Those two factors cause the competitive instinct to kick in. If you don’t act now, you lose out as other people grab all of this scarce commodity.
July 24th, 2009 at 7:02 pm
This post is so funny because it’s true. People will go out of their way to save $1.37 on a bar of soap that is usually $3.00. But they will not go out of their way to save $1.37 on an item of expensive clothing that is usually $75.00. It’s illogical. Every decision is an emotional decision.
July 25th, 2009 at 2:42 am
I try and treat everything that isn’t social as an IPA (Income Producing Activity) Waiting for 2.5 hrs for gas is not one of those.
Knowing your perceived value also comes in handy when arguing with your internet/phone providers. When your service sucks and you have to phone in and waste time make sure to mention that, tell them that they wasted 2 hours of your time, and it’s worth $300 and ask them what they are going to do to restore your customer confidence. Usually you will end up with lots of freebies. This turns a thing you would have to do into a IPA.
I think I might be a little evil….