Discounts and Allowance Pricing
Most companies adjust their basic price to reward customers for certain responses, such as early payment of bills, volume purchases and off-season buying. These price adjustments – called discounts and allowances.
Cash Discounts
A cash discount is a price reduction to buyers who pay their bills promptly, A typical example is ‘2/10, net 30’. which means that although payment is due within 30 days, the buyer can deduct 2 per cent if the hill is paid within 10 days.
Quantity Discounts
A quantity discount is a price reduction to buyers who buy large volumes. A typical example might be ‘K10 per unit for less than 100 units, $9 per unit for 100 or more units’. Wine merchants often give ‘twelve for the price of eleven’ and Makro, the trade warehouse, automatically gives discounts on any product bought in bulk.
Functional or Trade Discounts
A trade discount (also called a functional discount) is offered by the seller to trade channel members that perform certain functions, such as selling, storing and record keeping. Manufacturers may offer different functional discounts to different trade channels because of the varying services they perform
Seasonal Discounts
A seasonal discount is a price discount to buyers who buy merchandise or services out of season. For example, lawn and garden equipment manufacturers will offer seasonal discounts to retailers during the autumn and winter to encourage early ordering in anticipation of the heavy spring and summer selling seasons.
Allowances
Allowances are another type of reduction from the list price.
Trade-in allowances are price reductions given for turning in an old item when buying a new one. Trade-in allowances are most common in the car industry, but are also given for other durable goods.
Promotional allowances are payments or price reductions to reward dealers for participating in advertising and sales-support programs