Discounts Policies refer to reductions from list price that a seller gives to buyers. These buyers either give up some marketing function or provide the function themselves. Discounts can be useful in developing a marketing strategy. Marketers use various types of discounts. Some of them include the following:
Sellers offer quantity discounts Policies to encourage customers to buy more quantities. The seller gets one or more of the advantages such as getting more of customer’s business, shifting some of the storing function to buyers or reducing selling and shipping costs. Cumulative quantity discounts apply to total purchases over a given period of time – such as one year – and the discount increases with the increase in purchase quantity. Cumulative discount encourages customers to repeat purchase and reduces the customer’s cost for additional purchases. This helps build customer relationship and loyalty. A cumulative quantity discount is generally attractive to business buyers who don’t want to increase their inventory costs. Individual orders are smaller but the total quantity purchased during the given period goes up. Non-cumulative discount is applicable to individual orders. This type of discount encourages buyers to buy larger quantities in one go and the buyer is not obliged to repeat purchase from the same seller. Such a discount is usually a price cut, but sometimes it can be in the form of free goods. Seasonal discount encourages customers to purchase earlier than present demand requires. This can help fluctuating sales to stabilize. This type of discounts helps manufacturers to shift storing function further along the channel. Cash discount is a reduction in price and aims to encourage business buyers to pay the bills quickly. A trade or functional discount refers to price reduction given to resellers for the job they are going to perform. Trade discount is offered by manufacturers to wholesalers and/or retailers, and by wholesalers to retailers and is deducted from the suggested retail price to cover their cost for retailing function and their profit margin.
Allowances Policies are like discounts and offered to consumers or channel members either to do something or accept less of something.
Advertising allowance is given to resellers to encourage them to advertise producer’s products in the local market. Stocking allowance (slotting allowance) is offered to resellers to get the shelf space. A producer sometimes offers to push money (SPIFFS) to sales people of a wholesaler or retailer for aggressively selling the company’s particular products. A trade-in (exchange) allowance is given when customers bring in used durable products and buy the company’s similar new products. This is an easy way to reduce the effective list price.