Economics in Daily Life—-Consumer Surplus and Sales Strategies

Economics in Daily Life----Consumer Surplus and Sales Strategies

Consumer Surplus (CS) An economic measure of consumer satisfaction Difference between what consumers are willing to pay for a good or service relative to its market price

CS occurs when…… consumers are willing to pay more for a given good than the current market price CS is actually…… the psychological feeling but not the actual payment to consumers

This concept was introduced by Alfred Marshall, a British economist Introduced to remind how the producers latch on consumers Producers usually provide discounts to attract the consumers The more the CS that can be provided to consumers, the more they want to buy.

Sales Strategy---Psychological Pricing Based on theory that certain prices have a psychological impact Retail prices are often expressed as “odd prices ” Consumers tend to perceive odd prices as being significantly lower than they actually are Tending round to the next lowest monetary unit

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Sales Strategy---Price Skimming A pricing strategy in which a seller sets a relatively high price for a product or service at first , then lowers the price over time To recover its sunk costs quickly before competition steps in and lowers the market price

Sales Strategy---Price Skimming Examples: • new models of smart phones, • new sport shoes

Sales Strategy---Tie-in-Sale A marketing arrangement in which a supplier of an in-demand good or service sells it on the basis that the buyers also buy a certain amount of another products

Sales Strategy---Tie-in-Sale Example: • Games given along with the game consoles consumer purchased

Sales Strategy---Penetration pricing A marketing strategy used by firms to attract customers to a new product or service Practice of offering a low price for a new product or service during its initial offering Attract customers away from competitors

Sales Strategy---Penetration pricing Reason why this strategy is adopted…… • Customers will buy and become aware of the new product due to its lower price in the marketplace relative to its rivals • Firm can have a larger market share and thus can expand its scale

Conclusion Consumer Surplus (CS) • MENTAL SATISFACTION of consumers only • DOES NOT equal to the actual gain Sale Strategies • sellers will apply different sale strategies in order to capture a part of consumer surplus We should consider the actual value of the products before the purchase instead of buying on impulse or simply attracted by the discounts provided !!!