What are Discounts and Allowances With Types

Discounts and Allowances

Discounts and Allowances: Allowances and discounts refer to the reduction in the original price services or goods.

They can happen in various fields of the distribution channel. The examples include modification of either production list cost (price determined by the producer and often printed on the parcel), the retail cost (fixed by the retailer and attached with a label on goods), or the list cost (cost in the written form quoted to a potential purchaser).

There are different purposes for a discount on goods such as to elevate the short-term sales, to provide rewards to the reliable consumers, to mode the outdated stock, to inspire the members of a distribution channel to perform work. Some allowance and discounts are in the form of sales promotion, and many are cost discrimination methods (allows the seller to attract some consumer surplus).

Types of Discounts and Allowances

The common types of Discounts and Allowances are listed below:

1. Dealing with payment

a) Prompt Payment Discount: These are the discount deducted on the cost by manufacturer or wholesaler to the retailer at the catalog price or list price. A cash discount is a reduction done on the price to the buyer to inspire him to make payment within a specified interval. They are used as a promotional device and provide cash flow to the company.

b) Preferred Payment Method Discount: Some small retailers having a small margin offer a discount to the consumer paying with cash for avoiding the transaction fee on the credit card.

c) Sliding Scale: It is a reduction based on an individual’s ability to pay. It is more common with no-profit firms than with profit retail.

d) Forward Dating: It is when the buyer does not pay for the service or goods until they arrive.

e) Seasonal Discount: These are reductions provided when an order is placed in a sluggish period. Example: buying skis in September in the region on the southern hemisphere or in April in the northern hemisphere.

2. Dealing with trade

Bargaining– It refers to the situation when the purchaser and seller negotiate on a cost below the actual asking price.

Trade on discount– It is known as the functional discount, refers to the payment to the various members of the distribution channel for carrying out a specific function.

Trade rate discount– It is sometimes referred to as a trade discount and granted by the seller to a purchaser to resell or trade, rather than to a final consumer.

Trade-in credit– It is also known as trade-up credit, is the credit or discount granted for the return of goods or services. The return things may have little market value (monetary) due to the old version or second-hand item.

3. Dealing with quantity

There are various price mitigations offered for bulk purchasing. The motive behind them is to gain economies of scale and give some of its portions to the consumers. In some firms, purchaser groups and co-ops take advantage of this situation. Typically they have two types:

a) Cumulative quantity discount

b) Non-cumulative quantity discount

4. Dependence of price on quantity

An advance form of discount occurs on quantity when the cost does not depend on the size (of quantity) within a range of amount.

  • If you want to buy the minimum amount of quantity, then you have to pay the minimum cost anyway.
  • You will have to pay the higher price if you wish to buy an amount placed between two fix amounts.

5. Dealing with customer characteristics

There are some discounts for some particular characteristic of a customer. These are:

a) Disability discount

b) Educational or student discount

c) Employee discount

d) Military discount

6. Age-related discounts

a) Child discount, toddler discount, kid discount

b) Young person’s discount

c) Senior discount

7. Special prices awarded to acquaintances of the seller

8. Special prices reduction granted to nearby residents