Discounts and allowances are quite common in businesses. Travel companies give cash discounts, Airlines provide free miles or upgrade under frequent fliers programmes. These result into lowering the final price. Companies segment by price sensitivity.
Discounts and allowances may include the following:
1. Quantity Discounts:
Quantity discounts may be cumulative and non-cumulative. Cumulative discount (patronage dividend) means discount given on purchase quantity during a specified period. This type of discount compels the customer to be loyal with the marketer and buy more. Most of the airlines and hotels provide this facility.
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The non-cumulative discounts mean the discount is based upon the individual order. Bigger the order is more the discount is offered. A departmental store offers a pack of three pairs of socks at a lower rate than just one piece. To the manufacturer there is saving in time to order processing, warehousing and transportation.
2. Trade Discounts:
Trade discounts, known as functional discounts, mean giving more for lesser amount for performing marketing services. Suppose, a customer buys for Rs 10,000 and gets a trade discount of 10%, he will be paying only Rs 9,000. Or he may be given 10% units without charging for them. In case of wholesalers they might be given 30%+10% trade discount. The 10% discount is to be passed on to retailers.
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3. Cash Discounts:
Cash discount is granted to motivate the customers for instant payment or payment before it is due. The discount is calculated on total amount to be paid. In Indian terminology cash discount is called ‘muddat’.
4. Other Discounts and Allowances:
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There are other ways to reduce price. One such system is called the coupon system. A dentist advertises in a local directory information, that anyone who will bring this ad copy need not pay consultation charges. Another is a mail-in rebate, wherein the customer gives proof of purchase and fills form and sends it to the manufacturer, he is entitled to a specified rebate cheque very soon.
Third form of rebates may be off-season discount, which pharmaceutical companies in India do offer during healthy season, i.e., winter season. Fourth form of discount may be price reductions to the dealers or distributors who show the marketer’s product on prominent place or do promotion for that particular brand. Cooperative advertising is also a form of promotional allowances. Fifth, the allowance given to brokers is known as brokerage allowance which is given for their brokerage services.