Jeremy Smith Feb 19, 2019 11:30:01 AM 21 min read

How to Decide on Discounts: The Perceived Value Factor

“Perceived value” may not sound like the world’s most exciting feature, but it has far-reaching effects.

In this article, I’m going to share with you some of the conversion-optimizing power of perceived value and explain how it affects discounting in your online marketing.

Perceived value is “the worth that a product or service has in the mind of the consumer.” According to Investopedia, “The consumer's perceived value of a good or service affects the price that he or she is willing to pay for it.”

It’s important to note that perceived value is something that happens in the mind of the customer. Obviously, a customer doesn’t know the exact monetary value of the product. How could they determine cost of materials, labor and other production? They can’t! Thus, they have to guess at the perceived value.

When they look at a product, there are two factors that enter into consideration:

  • The customer evaluates the product's benefits.
  • The customer weighs those benefits against the product’s stated cost.

Percieved cost vs percieved benefit

A mathematical formula would be stated like this:

Value = Benefits / Cost

The perceived value is obviously different from the actual value of the product. That’s why you have to keep this feature in mind when you are setting prices, optimizing for conversions and creating discounts.

The big idea is that you get to create the perceived value.

What factors affect perceived value?

Even though I just explained perceived value as a mathematical formula, it’s a lot fuzzier than that. There are plenty of additional factors that have a direct or indirect bearing upon the customer’s perceived value of a product. Here are some of them:

The Anchoring Effect

The anchoring effect happens when people make a decision based on the first information that they encounter.

For example, if a person looks at a product and then the price tag, the price that they see will be the anchor that helps to define their perception of its value. The plot thickens, however, when we realize that the mind uses even arbitrary numbers as anchors — even numbers that have apparently nothing to do with the product.

In one example, researchers asked subjects to think about the select digits of their Social Security number, and then to guess the price of a random object. Invariably, subjects with higher Social Security number digits guessed that the object was a higher price than did subjects who had lower Social Security number digits.

The mind is indiscriminate when looking for data that can help to shape a decision. The anchoring effect is a cognitive bias, meaning that it skews our ability to make rational decisions. As such, it is a powerful truth to be aware of when discussing perceived value.


Investopedia explains that perfumes are one of the areas in which perceived value is exploited. Here’s their explanation, centering on the subject of perfume:

Perceived value is often used with perfumes, for example. Perfumes tend to be associated with a glamorous celebrity in order to create a mystique and perception of luxury. Alternatively, they may be the subject of elaborate and expensive advertising campaigns to create a strong image for the perfume. Consumers commonly do not realize that the costs of production for perfumes are relatively low. Thus, while the cost of production for perfume may be only a few dollars, the perceived value of a perfume can be far greater.

In the case of perfumes, then, the perceived value is shaped by the advertising. The ads may include celebrities, attractive photos and an aura of high value. Thus, even though 30 milliliters of Clive Christian  No. 1 Women may only cost a few dollars to make, a customer is willing to pay more than $2,000 for the bottle.

clive-christian-no1 ad

When a customer looks at a product, they are relating that product to multiple points of information stored within their mind. If the advertising is strong and prevalent, then they are likely to remember features of that advertising message in their perceived value.

Social Setting

The perceived value of a product is shaped by the cultural and social setting in which the customer currently is situated.

MindHacks explains it like this:

Research suggests that products have important social meanings [and] that much product preference is driven by a need to manage our social appearance and identity.

The point is pretty simple. Products have meanings within a culture. A Bentley suggests status and influence. A Ford Taurus suggests budget and cost-savings. The two products differ in price, not only because of the cost and quality of manufacturing, but because of the cultural messaging surrounding each product.

A Bentley suggests status and influence

Need Fulfillment

A final significant factor affecting perceived value is how bad someone wants it. The need factor varies from person to person. Two people might both want, say, a heavy winter coat. However, one person needs the coat because it’s freezing. They’re willing to pay $580. The other person lives in Miami, and doesn’t plan on traveling to Siberia anytime soon. They’re willing to pay $4. The perceived value, thus, depends on the actual need of the customer.

How do discounts play into perceived value?

A customer will not choose your product unless the discount puts the product strongly within their perceived value range.

Thus, discounts should not be assigned arbitrarily or without thought as to the customer’s perceived value. In fact, in many cases, the discount is not necessary, so long as the perceived value is fair and competitive.

How can you affect perceived value?

The marketer has an ability to affect the perceived value. Here are the general features that I recommend to increase perceived value:

  • Testimonials. If others perceive it as valuable, so will the customer.
  • Social proof. There’s incredible value-increasing power in the decision of the crowd. The more social proof you can compile and present, the higher the perceived value.
  • Guarantee. When a customer sees or reads a strong guarantee, it improves their faith and trust in the product. If a product is guaranteed like that, then it must be good. Perceived value goes up.
  • Create lots of content about the product. Content marketing is anyone’s game today, but in a perceived value world, it means even so much more. As the logic goes, if there’s this much content about a product or service, then it must be good. Each piece of well-written content serves to reinforce the customer’s underlying assumption that this is a high value product. For example, if you’re considering purchasing a SaaS, but see no articles, FAQs, or content about that service, it diminishes your perception of the product's value. If, on the other hand, you have access to tutorials, forums, guides, videos, articles, infographics and other information, then you are more likely to perceive the SaaS as a high-value product.
  • Raise your price. There is a massive amount of psychology behind pricing. Generally speaking, however, the higher the price, the greater the perceived value.
  • Gain strong endorsements. When a well-known individual endorses a product, they import the power of their own presence into the value of that product. As a result, the perceived value of the product increases in everyone else’s minds.
  • Show lots of pictures of the product. Featuring products in photographs in several ways helps to increase both the trust and the perceived value of the product.

None of these are unusual or ground-breaking in the world of conversion optimization. What might be new, however, is the idea that these features of a website help to increase perceived value.

The basic idea is the more emphasis you place on a product or service — content, pictures, guarantees, pricing, testimonials, etc. — the greater the value of that product in the mind of the user.

And the greater the perceived value, the more likely they are to buy it.

Even though perceived value is one of those under-the-hood psychological issues, it has a direct bearing upon conversion optimization. Unless the user has the mental assurance that a product or service is within her perceived value range, she won’t buy it.

The more you can do to increase perceived value, the greater the chance of a conversion.

How can you create a compelling discount?

Now, let’s circle back to discounts. How can you create a compelling discount based on the perceived value factor?

There’s a three-step basic process that you need to follow:

  1. Start with a high price.
  2. Increase the perceived value.
  3. Lower the price appropriately.

Let me settle in on each of those points:

Start with a high price.

No doubt, you’ve given a lot of thought to your ideal price point. I encourage you to keep your prices high. Not only will you increase your profit margin, but you will also have a lot more flexibility to create compelling discounts.

There's an additional benefit to high prices mentioned earlier. A higher price translates into a higher perceived value. When a customer sees a steep price tag, they assume that there is a reason that the product is that valuable, even if it’s not immediately apparent.

When you increase your perceived value, as I discuss in the point below, it corroborates their assumption, creating a strong reassurance and assent to your selected price point.

Increase the perceived value.

Carefully review your site or product for ways to increase the value. Adding high quality images, creating benefit lists, generating more content, posting testimonials, etc., will all aid in increasing the perceived value.

Lower the price appropriately.

The preceding two steps converge on this final point: Lower the price.

You can create whatever level of discount you deem appropriate. Generally, discounts in the 15-40% range are best. Anything more than 40%, and you generate skepticism (or loss of profit). Anything less than 15%, and you risk indifference on the part of customers.

A customer’s confidence level grows as they experience the increase in perceived value. When they encounter a discount, it automatically creates a sense of urgency. They are far more likely to convert.



Fotolia sells royalty-free stock photography. They use a variety of pricing approaches based on yearly, monthly and daily subscription rates. Here is a 20% discount that they offer, along with a variety of value-increasing features:


  • The crossed-out number is the anchor, and it helps you see how much you save.
  • The benefits list in the right column is also a great way to add value. Each of those headlines gives the user the sense that they are getting a great deal.


The clothing and accessories provider, Nordstrom, puts some perceived value into their discounting. Check it out.

Nordstrom pricing


The perceived value issues aren’t as overt onsite, but they do possess some value. For example, they feature the price anchor in this way:

1)     Was: $95.00

2)    Now:  $59.90

They also create social proof with the star rating, and use high quality photos. Additional features on the product pages increase the perceived value, and make the discount point more appealing.

Nordstrom product pricing



Earlier in this article, I mentioned that perfume is one of the areas where manufacturers can develop a low-cost product and create a high-perceived value. Here is an example of an e-commerce site that sells the expensive perfume I mentioned.

bad-product-pricing page

Let me start out by saying that the site is abysmal. From almost all aspects of conversion optimization, the site is failing miserably. Problems aside, I want to focus on a couple features of the perceived value that they are doing right:

  • The image is classy and glamorous.
  • Gold, silver and black are obvious luxury signals.
  • The product description uses the following value-heavy words: “expensive and complicated,” “confidence,” “extravagant and sophisticated,” “exotic and powerful,” “sacred.”
  • The product description uses several nouns that are culturally associated with high cost: “Bergamot,” “mandarin,” “vitessence,” “Indian jasmine,” “Rosa centifolia,” “santala album” and “sandalwood.” Whether these are high-cost items doesn’t really matter. They sound like it.
  • Look at that number in red: $2,060.00. The fact that this number is red and all the other text is black helps to draw your eye to it. That’s on purpose. Remember the anchor discussion? If you see that the perfume costs two grand first, that will position your mental anchor at a high point. Noticing that the actual sale price is only half of that makes you think you’re getting a huge value. (Who cares that you’re still paying over a thousand bucks to smell like a jacked up flower?)

What you’re left with is a product that sounds like it was created for a queen. Who knows. Maybe it was. Who is “Clive” anyway? Sounds like he’s quite the Don Juan.



Perceived value is a powerful force in marketing and conversion optimization. Here’s the thing, though. It’s so important.

When you really grasp the idea of perceived value, you find out that it affects price points, page layout, discounts, sales and many other issues.

This is one bit of knowledge worth taking some action on.





Jeremy Smith

Digital marketer with a penchant for dance; helping clients see the light through the jungle of tweets since before Twitter was cool.