Discounts and allowances - AbsoluteAstronomy.com

Discounts and allowances are reductions to a basic price

Price

-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...

of goods or services.

They can occur anywhere in the distribution channel, modifying either the manufacturer's list price (determined by the manufacturer and often printed on the package), the retail price (set by the retailer and often attached to the product

Product (business)

In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...

with a sticker), or the list price (which is quoted to a potential buyer, usually in written form).

There are many purposes for discounting, including; to increase short-term sales, to move out-of-date stock, to reward valuable customers, to encourage distribution channel

Distribution (business)

Product distribution is one of the four elements of the marketing mix. An organization or set of organizations involved in the process of making a product or service available for use or consumption by a consumer or business user.The other three parts of the marketing mix are product, pricing,...

members to perform a function, or to otherwise reward behaviors that benefit the discount issuer. Some discounts and allowances are forms of sales promotion

Sales promotion

Sales promotion is one of the four aspects of promotional mix. Media and non-media marketing communication are employed for a pre-determined, limited time to increase consumer demand, stimulate market demand or improve product availability...

Prompt payment discount

Trade Discount:Deduction in price given by the wholesaler/manufacturer to the retailer at the list price or catalogue price.
Cash Discount:Reduction in price given by the creditor to the debitor is known as cash discount.
This discount is intended to speed payment and thereby provide liquidity to the firm. They are sometimes used as a promotional

Promotion (marketing)

Promotion is one of the four elements of marketing mix . It is the communication link between sellers and buyers for the purpose of influencing, informing, or persuading a potential buyer's purchasing decision....

device.

Examples

2/10 net 30 - this means the buyer must pay within 30 days of the invoice date, but will receive a 2% discount if they pay within 10 days of the invoice date.
3/7 EOM - this means the buyer will receive a cash discount of 3% if the bill is paid within 7 days after the end of the month indicated on the invoice date. If an invoice is received on or before the 25th day of the month, payment is due on the 7th day of the next calendar month. If a proper invoice is received after the 25th day of the month, payment is due on the 7th day of the second calendar month.
3/7 EOM net 30 - this means the buyer must pay within 30 days of the invoice date, but will receive a 3% discount if they pay within 7 days after the end of the month indicated on the invoice date. If an invoice is received on or before the 25th day of the month, payment is due on the 7th day of the next calendar month. If a proper invoice is received after the 25th day of the month, payment is due on the 7th day of the second calendar month.
2/15 net 40 ROG - this means the buyer must pay within 40 days of receipt of goods, but will receive a 2% discount if paid in 15 days of the invoice date. (ROG is short for "Receipt of goods.")

Preferred payment method discount

Some retailers (particularly small retailers with low margins) offer discounts to customers paying with cash, to avoid paying fees on credit card

Credit card

A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...

transactions.

Partial payment discount

Similar to the Trade discount, this is used when the seller wishes to improve cash flow

Cash flow

Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.Cash flow...

or liquidity, but finds that the buyer typically is unable to meet the desired discount deadline. A partial discount for whatever payment the buyer makes helps the seller's cash flow partially.

Sliding scale

A discount offered based on one's ability to pay. More common with non-profit organizations than with for-profit retail.

Forward dating

This is where the purchaser doesn’t pay for the goods until well after they arrive. The date on the invoice is moved forward - example: purchase goods in November for sale during the December holiday season, but the payment date on the invoice is January 7.

Seasonal discount

These are price reductions given when an order is placed in a slack period (example: purchasing skis in April in the northern hemisphere, or in September in the southern hemisphere). On a shorter time scale, a happy hour

Happy hour

Happy hour is a marketing term for a period of time in which a restaurant or bar offers discounts on alcoholic drinks, such as beer, wine, and cocktails.-Basic information:...

may fall in this category. Generally, this discount is referred to as "X-Dating" or "Ex-Dating". An example of X-Dating would be:

3/7 net 30 extra 10 - this means the buyer must pay within 30 days of the invoice date, but will receive a 3% discount if they pay within 7 days after the end of the month indicated on the invoice date plus an extra 10 days.

Bargaining

Bargaining or haggling is a type of negotiation in which the buyer and seller of a good or service dispute the price which will be paid and the exact nature of the transaction that will take place, and eventually come to an agreement. Bargaining is an alternative pricing strategy to fixed prices...

is where the seller and the buyer negotiate a price, which the buyer hopes is lower than the marked price.

Trade discount (also called functional discount)

These are payments to distribution channel members for performing some function. Examples of these functions are warehousing and shelf stocking. Trade discounts are often combined to include a series of functions, for example 20/12/5 could indicate a 20% discount for warehousing the product, an additional 12% discount for shipping the product, and an additional 5% discount for keeping the shelves stocked. Trade discounts are most frequent in industries where retailers hold the majority of the power in the distribution channel (referred to as channel captains).

Trade discounts are given to try to increase the volume of sales being made by the supplier .

Trade rate discount

A discount offered by a seller to a buyer in a related industry. For example, a pharmacist might offer a discount for over-the-counter drugs to physicians who are purchasing them for dispensing to the physicians' own patients.

Trade-In credit (also referred as Trade-up credit)

A discount or credit granted for the return of something in turn. The idea from a seller's viewpoint is to offer some discount but have the buyer showing some "counter action" to earn this special discount. Sellers like this as the discount granted is not just "given for free" and makes future price/value negotiations easier. Buyers, in turn, have the advantage of getting some value for some no longer used equipment. Examples can be found in many industries.

Discounts and allowances dealing with quantity

These are price reductions given for large purchases. The rationale behind them is to obtain economies of scale

Economies of scale

Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...

and pass some (or all) of these savings on to the customer. In some industries, buyer groups and co-ops have formed to take advantage of these discounts. Generally there are two types:

Cumulative quantity discount (also called accumulation discounts)

These are price reductions based on the quantity purchased over a set period of time. The expectation is that they will impose an implied switching cost and thereby bond the purchaser to the seller.

Non-cumulative quantity discount

These are price reductions based on the quantity of a single order. The expectation is that they will encourage larger orders, thus reducing billing, order filling, shipping, and sales personal expenses.

Dependence of price on quantity

An extreme form of quantity discount is when, within a quantity range, the price does not depend on quantity:

if one wants less than the minimum amount one has to be pay for the minimum amount anyway
if one wants an amount between two of the fixed amounts on offer, one has to pay for the higher amount

These also apply in the case of a service with "quantity" referring to time. For example, an entrance ticket for a zoo is usually for a day; if one stays shorter, the price is the same. It is a kind of pass

Ticket (admission)

A ticket is a voucher that indicates that one has paid for admission to an event or establishment such as a theatre, movie theater, amusement park, zoo, museum, concert, or other attraction, or permission to travel on a vehicle such as an airliner, train, bus, or boat, typically because one has...

for unlimited use of a service during a day, where one can distinguish whether or not, when leaving and returning, one has to pay again. Similarly a pass can be for another period. In the case of long periods, it is obvious that one can leave and return without paying again.

If one has to buy more than one wants, we can distinguish between the surplus just not being used, or the surplus being a nuisance, e.g. because of having to carry a large container.

Discounts and allowances dealing with customer characteristics

The following discounts have to do with specific characteristic

Characteristic

Characteristic may refer to:In physics and engineering, any characteristic curve that shows the relationship between certain input and output parameters, for example:...

s of the customer.

Disability discount

A discount offered to customers with a disability

Disability

A disability may be physical, cognitive, mental, sensory, emotional, developmental or some combination of these.Many people would rather be referred to as a person with a disability instead of handicapped...

. Depending on the type of business or setting, what is considered a disability

Disability

may vary.

Educational discount (also called student discount)

These are price reductions given to members of educational institutions, usually students but possibly also to educators and to other institution staff. The rationale is to build brand awareness early in a buyer's life, and/or to build product familiarity early so that when a student graduates, he/she is more likely to buy the same product for work at its normal price. Educational discounts are traditionally given by merchants directly, or via a student discount program such as NUS and Studentdiscounts.co.uk in the United Kingdom or Edhance

Edhance

Edhance is an American corporation operating a student discount program. The company allows college students to register up to five existing Visa or Mastercard credit or debit cards and automatically receive discounts when shopping with participating merchants....

in the United States.

Employee discount

A discount offered internally to the employees of a company that sell goods and/or services. This is used to entice more people interested in the goods and/or services of the company to work for the company to receive the discount, and then for the hired employees to put their wages right back into the company by purchasing the goods and/or services. Other perceived benefits of this discount include:

reaching out to potential employees that could be knowledgeable in the goods and/or services the company offers by offering a discount on what they like.
reduce employee theft
Theft
In common usage, theft is the illegal taking of another person's property without that person's permission or consent. The word is also used as an informal shorthand term for some crimes against property, such as burglary, embezzlement, larceny, looting, robbery, shoplifting and fraud...

by making the hired employees feel they are already getting the items at a great price.
keep current employees from leaving
Termination of employment
-Involuntary termination:Involuntary termination is the employee's departure at the hands of the employer. There are two basic types of involuntary termination, known often as being "fired" and "laid off." To be fired, as opposed to being laid off, is generally thought of to be the employee's...

if they cannot also leave the discount they are receiving behind.

In 2005, the American automakers marketed an employee discount for all promotional campaign in order to entice buyers, which saw some success.

Military discount

A discount offered to customers who are and/or were enlisted in military services. The rationale may be that the servicemember is assumed to be on a limited budget, or it may be a way for the retailer to show support for members of the military.

Senior discount

A discount offered to customers who are above a certain age, typically 50, 55, or 60; the exact age varies with the business or setting. The rationale for a senior discount is that the customer is assumed to be retired, and/or have a limited income, and/or living on a budget.

Toddler discount (also known as a child discount, kid discount)

A discount offered to children younger than a certain age, very common with regard to admission fees to entertainments and attractions. Another form of this discount is a "kids eat free" type of promotion. Often there is a requirement that the child must be accompanied by an adult paying full price.

Special prices offered to friends of the seller

A discounted price offered to friends of the salesperson, an attitude which is parodied in the stereotype of a salesman saying "It costs such-and such, but for you..." In Australia

Australia

Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...

and New Zealand

New Zealand

New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...

, discounts to friends are known as "mates' rates." In French this discount is known as prix d'ami.

Special prices offered to local residents

Common in tourist destinations, this discount is intended to promote local patronage. In Hawai'i, for example, many tourist attractions, hotels, and restaurants charge a deeply discounted price to someone who shows a Hawai'i drivers license or other proof that they live in Hawai'i; this is known as a "Kama'aina

Kama'aina

Kamaʻāina is the Hawaiian language word for a long-term resident of the Hawaiian Islands. Literally "child of the land," it derives from the words "kama", meaning "child", and "ʻāina", meaning 'land'...

discount," after the Hawaiian word for an old-timer or native.

Coupons

A discount, either of a certain specified amount or a percentage to the holder of a voucher

Voucher

A voucher is a bond which is worth a certain monetary value and which may be spent only for specific reasons or on specific goods. Examples include housing, travel, and food vouchers...

, usually with certain terms. Commonly, the terms involve the terms of other discounts on this page, such as being valid only if a certain quantity is bought or only if the customer is a senior. Coupons can be distributed in places like newspapers, brochures, and the internet. See coupon

Coupon

In marketing, a coupon is a ticket or document that can be exchanged for a financial discount or rebate when purchasing a product. Customarily, coupons are issued by manufacturers of consumer packaged goods or by retailers, to be used in retail stores as a part of sales promotions...

Rebates

A refund of part of sometimes the full price of the product following purchase, though some rebates are offered at the time of purchase. See rebate

Rebate (marketing)

A rebate is an amount paid by way of reduction, return, or refund on what has already been paid or contributed. It is a type of sales promotion marketers use primarily as incentives or supplements to product sales. The mail-in rebate is the most common...

Other discounts and allowances

Promotional allowances - These are price reductions given to the buyer for performing some promotional activity. These include an allowance for creating and maintaining an in-store display or a co-op advertising allowance.Brokerage allowance - From the point of view of the manufacturer, any brokerage fee paid is similar to a promotional allowance. It is usually based on a percentage of the sales generated by the broker.