Actual Value vs Perceived Value

Here’s the scenario: You’ve got an amazing paid or free product or service. Everyone who is using it loves it. You know your market is huge! And yet it’s the hardest thing in the world to get a new person to join or buy.

Don’t despair. This scenario is much more common than you think.

The problem is that the actual value people get from using a new product can be very different from the value they thought they would get — what I call its perceived value.

This happens all of the time for some of the most successful products. Almost anyone with an iPhone or Android will tell you that the phone has changed the way they live and they could not imagine living without it. Yet almost everyone except extreme Apple early adopters had hesitations when the first iPhone came out. Ask people who love the iPad and they’ll tell you that they had no real reason to buy it, but they can now not live without it. And it took years for people to realize that getting a Tivo would reduce the amount of time they spent watching TV, not increase it. In all these cases, the product had a huge actual value but a small perceived value.

Products can have a huge perceived value but little actual value as well. Think of all the kitchen appliances you own that you rarely use — the bread-makers, fancy steamers, food dehydrators, etc. If you have a smart phone — how many apps have you download thinking you would use but are now collecting electronic dust? In fact, the angel investment industry runs for the most part on perceived value; each year hundreds of companies get millions in funding based on the hypothesis of a problem they are trying to solve (perception) as opposed to really showing one exists.

Any entrepreneur, product manager, executive involved in launching a new product needs to be acutely aware of your product’s actual and perceived values and if/where there is a discrepancy — keeping in mind that the values could be different for different customers. If you don’t make the distinction, you may end up canceling a product that could be have been the next Facebook, or spending months or millions on a service that is never going to get off the ground.

How do you know if your product has a strong perceived or actual value? Try out the answers to these questions (1-3 address perceived value and 4-6 address actual value):

1) When you describe your service or product to your target audience, what percent are ready to buy / sign up on the spot?

2) When you describe your service or product to your target audience, how do they describe it? Is it “interesting”, “sounds cool”, or “OMG I need this now!”

3) Put up a sign-up page on your website or email people and ask them to buy or sign-up. What % sign up for it?

4) Of the people who are currently using your product and are not friends or family members, what percent would definitely tell friends about it? (You can also use a Net Promoter score here)

5) Of people using your product, what % of them are using it more frequently now than previously 3 months ago? (or 1 month ago if you just started)

6) If your service has ever stopped working, what % of your users complained?

For questions 1-3 , you’ll never get 100% of people ready to buy, but if out of 30+ people, 25+% either sign up or are jumping at the bit, you’ve likely got strong perceived value.

For questions 4-6 , if you get more than 30% to tell friends or use your product on a more frequent basis, you know you have a good foundation of actual value to build upon.

In another post, I’ll talk about tips for success (and things I did early on at Shop It To Me ) for when your product has actual value but little perceived value.

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