Discount pricing

Discount pricing is a strategy by which the company, using a lower initial price of the goods or services, can sell them in large quantities. The primary purpose of discount pricing is to increase customer traffic, remove old inventory from the company and increase the company's turnover. The discount can be offered for immediate cash discount or for trade discount. Discount pricing is provided in order to allow the seller to increase sales and, consequently, achieve economies of scale, or are used as a trick to gain "loyalty" to the customer, or are available at the request of a large and influential buyer.

Usage

A discount pricing strategy is used in selling to achieve the following benefits to the company :

1. the maximum possible increase in their income for full reimbursement of all costs associated with the production and sale of goods. In addition, the company is trying to compensate for various non-transfer costs associated with the loss of product quality when it is damaged, transported and sold due to shrinkage, evaporation, leakage and other normal losses. It also takes into account losses due to changes in market conditions, changes in demand and consumer requirements, an increase in the vitromistness of products for reasons beyond the company's control (for example, an increase in tariffs or other force majeure situations, government decisions, etc.) factors;
2. effects on the sale price, and not only upwards, but downwards. The main goal is to improve the material situation of the company, to achieve its steady state, reducing debt, eliminating surplus production and inventories, increasing asset turnover. With a decrease in low-liquid production and inventories, as well as the production of finished products and an increase in its sales, they will turn into highly liquid cash assets. With a decrease in prices due to the provision of various discounts, an enterprise increases the sales of goods and reduces the amount of financial resources required to ensure a single turnover.

Types of the price discounts

The main types of discount, which are used in discount pricing:

1. Quantity discount
2. Seasonal discount
3. Cash discount
4. Trade discount
5. Promotial discount
6. Geographical discount

Quantity discount

Quantity discounts are usually set when buying a large consignment of goods. They are the same for all customers, and their value depends on the number of purchased goods. At the same time, such a value can be established for one single purchase or be equal to the sum of the volumes of deliveries for a certain period. The use of quantity discounts encourages buyers to make purchases from the same pro-seller, which has a positive impact on the implementation of the distribution policy of the company.

Seasonal discount

Seasonal discounts are made to promote more intensive sales of goods at certain time intervals. These are primarily discounts:

1. Еstablished when the new goods are bringing to the market;
2. Contributing to a decrease in seasonal fluctuations in sales volumes;
3. Contributing to the rapid sale of obsolete products.

Using of temporary discounts allows enterprises to maintain their uniform release for a specified period of time.  Many travel companies, hotels set preferential prices in the off-season to ensure a uniform influx of customers.

Trade discount

Reduced retail prices for goods and services offered by regular wholesale customers. The difference between the retail price and the discounted price allows the retailer to pay overhead and make a profit. Order price often depends on the size of the order. Thus, a network of supermarkets, purchasing goods in very large quantities, can count on a larger trade discount, a delicate little shop that purchases small wholesale consignments of goods. All we can offer is trade offers; for example, there are discounts on commercial prices that are usually provided by retailers.

Promotional discount

The discount offered by the producer to the seller in order to secure funds for local advertising of a given product. It is an effective way to ensure effective marketing of a given product, by providing the seller with additional funds for advertising in the local newspaper, large screens, etc.

Geographical discount

This is applicable when shipping costs are high compared to the selling price, because the manufacturer can benefit from differences in shipping costs due to differences in the location of factories and customers.

Footnotes

Discount pricing — recommended articles

Trade discount — Special offering — Forward buying — Net purchases — Group sale — Price control — Flexible pricing — Low cost strategy — Segmented pricing

References

• Armstrong M. (2017), Discount Pricing, MPRA Paper No. 76681,
• Lamb C. W. (2010), MKTG, Canadian Edition, Nelson Education, p. 355
• Rachlin R. (1997), Return on investment Manual. Tools and Applications for Managing Financial Results. Sharpe Professional. , Sharpe Professional, p. 87-92
• Shimp T. A. (2010), Advertising, promotion and other aspects of integrated marketing communication, Cengage Learning, p. 525
• Discounting strategies , ER Services, (2019)
• Trade discount, Accounting Tools (2017)

Author: Aleksander Szafraniec