On Consumer Surplus and Pricing Strategy Essay Example | Topics and Well Written Essays - 500 words

On Consumer Surplus and Pricing Strategy - Essay Example For each commodity marketed, customers assign a certain amount that they are willing to pay. Some business organizations are able to price according to the customers’ perceived value of their offering. However, some may be priced less than what the customers would want to pay for them, thereby robbing the companies of profit potential. Consumer surplus is defined as "the amount that customers benefit by being able to purchase a product for a price that they would be willing to pay" (Economic Surplus 2007). When company prices are less than the amount that buyers are willing to pay for the product, customers will enjoy the consumer surplus in purchasing the product. Thus, companies should be adept in their pricing strategy. They should be able to determine individual consumer surplus and fully expropriate it for their advantage. Identifying the exact value attributed by buyers to a product is a great challenge for a business organization. As individuals are unique, they often h ave different perceptions of the monetary value of an offering. Some price-sensitive customers may find a product too expensive but some may even find it a bargain. One of the things that the company can do is to conduct a survey before releasing the product in order to get an average price that the target market is likely willing to pay. The company can also experiment by raising and lowering the price in the market and monitor the customers' response through product sales and demand. However, all these can be very tedious and can erode the identity and image of the product in the market. It can even bring confusion to the customers.