For consumer behavior, and more specifically, for consumer choice, it is very important to know how much the buyer is willing to pay for a particular product. At the same time, an economic phenomenon arises a consumer surplus. The consumer surplus is the difference between the potential willingness to pay and the amount actually spent. First of all, price discrimination is legal to maximize profits by appropriating this surplus to the consumer.
The second case when price discrimination is legal is the introduction of industrial diversification. When expanding production capacities, the company adheres to saving on innovations. In this case, it does not matter whether the modernization of production is carried out in an extensive or intensive way. In any case, the turnover of products is growing at a minimal cost.
The third situation in which price discrimination is legal is to increase the loyalty of different segments of the target audience. Price discrimination provides an opportunity for middle-class and low-income people to buy a product or service at a cost below the market. In the conditions of a tense economic situation, such a pricing policy will become in demand by a wider part of the population.
The fourth situation in which price discrimination is legal is the ability to easily identify buyers. Thus, it is possible to form a narrow portrait of the target audience, as well as to determine the factors affecting the demand and choice of goods of each subgroup. Then, when working with pricing policy, this data can be used.
The first organization who have used legal price discrimination in its sales and marketing is the licorice stick manufacturing company Trolli. The product was rare, and the usefulness of this product for this particular buyer was very high. Therefore, when licorice sticks first appeared on sale, buyers were willing to pay a very high price for them.
This price, which this buyer was willing to pay, was much higher than the market price. Gradually, more and more such products appear on the market. There was a saturation of the need for this product by the buyer. In this case, it was rational to apply price diversification in relation to new buyers who were not ready to pay more for the goods.
The second organization that has used legal price discrimination in its sales and marketing was the SMARTMED massage clinic. Since massage belongs to the field of services, it was easy for the company to identify customers.
Accordingly, the price of massage services was different depending on the solvency of clients. The third company who have used legal price discrimination in its sales is an expensive watch manufacturing company, LogoTime. Since the poor often buy branded items to assert themselves, the company has lowered the price for this segment of buyers.