Discount and Allowance Pricing

Most of the companies adjust their fundamental price to reward customers for sure responses, volume purchases, like early payment of bills, and off-season buying. These price adjustments-called allowances and discounts -can take many forms.

A cash discount is a price reduction to buyers who promptly pay their bills. A typical instance is "2/10, net 30," which means that though payment is due within 30 days, the buyer may deduct 2 % if the bill is paid within 10 days. The discount has to be granted to all buyers meeting these terms. Such discounts are customary in various industries and help to get better the sellers' cash situation and reduce bad debts and credit.

A quantity discount is a price decline to buyers who buy big volumes. A typical instance might be "Rs10 per unit for less than 100 units, Rs9 per unit for 100 or more units." By the means of law, quantity discounts has to be offered equally to all of the customers and ought to not exceed the seller's cost savings connected with selling large quantities. These savings include inventory, lower selling, and transportation expenses. Discounts provide an encouragement to the customer to buy more from one given seller, instead of from many different sources.

A functional discount (also known a trade discount) is offered by the seller to deal channel members who perform sure functions, like storing, selling and record keeping. Producer may offer different type of functional discounts to different type of trade channels because of the varying services they perform, but producer must offer the similar functional discounts within each trade channel.

A seasonal discount is a price reduction to buyers who buy merchandise or services out of season.  For instance, garden and lawn equipment manufacturers offer seasonal discounts to retailers at the time of the fall and winter months to support early ordering in anticipation of the heavy summer and spring selling seasons. Motels, Hotels and airlines will offer discounts as seasonal in their slower selling periods. Seasonal discounts permit the seller to keep production steady during whole year.

Allowances are another type of reduction from the list price. For instance, trade-in allowances are price reductions which are given for turning in an old item while buying a new one. In the automobile industry, trade-in allowances are most common but are also given for other durable goods. Promotional allowances are or price or payments reductions to reward dealers for participating in sales support programs and advertising.