Discounts and allowances.
Price reductions in the distribution channel either at manufacturer , a retailer or a buyer level for paying the bill promptly is called discount.
Level of discounts:
Manufacturer level: Manufacturer provides price reduction on the list price printed on the package.
Retailer level: A retailer offers price reductions on Maximum retail Price(MRP). D-mart, a retail store offers 10% off on selected merchandise in its stores.
Buyer level: Discounts offered to customers for paying through credit cards, company loyalty cards, or discount coupons.
Objectives of Discounting
Sales executives offer discounts to close sales in a supply chain. Similarly, companies with over capacity discount products for immediate sales. In addition to this, discounting offered to clear the sales in the supply chain. Additionally, discounting is used as a motivational tool for distribution channels members performing excellently. Apart from this, discounting is a reward mechanism for customers who buy large quantities or buy regularly or buy through new payment systems. Lastly, discounting attracts customers to buy more products of a manufacturer.
Discount types
Payment discounts
i) Trade discounts; Discounts offered by a wholesaler, stockists, distributor or a manufacturer to retailer at the list price
2/10 net 30 rule: A company manufactures Ragi malt and sells it to a distributor worth say Rs 1 lakh on 1st january 2021. The distributor is having 30days time to clear the bill of the manufacturer. If the distributor makes payment within 10 days i.1. 10 january 2021, a manufacturer offers 2% discount i.e. Rs 2000 on Rs 1 lakh.
3/7 EOM: A distributor sells Jeer Soda to a retailer on 15th February 2021. He raised an invoice on 25th February 2021 and asked the retailer to pay by 7th March 2021. After this, if a retailer pays an amount within 7days from 15th February 2021 3% discounts will be offered.
3/7 EOM net 30: Unlike 3/7 EOM, this method has a 30 days time on invoice date for time. If an intermediary pay the bill within 7 days from the invoice date will get a 3% discount.
2/15 net 40 ROG: A stockist of cotton sarees sends goods to a retailer on say 1st March 2021 and provides time till 9th April for payments(40 days). If the retailer pays the amount by 15th march( 15 days) the stockist will offer 2% discounts.
ii. Cash discounts: The discount offered by intermediaries to customers for paying bills, through cash, It avoids credit cards due to payment charges.
iii. Partial payment discount: A wholesaler of lamp oil provides Rs 1 lakh worth of oil and provides 30 days credit time. A wholesaler also offers a 2% discount to the retailer who pays within 10 days. However, a retailer pays only 50% of payments within 10 days and the wholesaler offers 1% discount.
iv. Sliding scale: The discount offered to charitable organizations or economically poor customers by supply chain members of the organization.
v. Seasonal discount: Discounts given in a slack period. A Jaljeera manufacturer offers discounts in the winter to increase sales.
Supply chain Discounts.
i. Performance discounts; Discounts offered by a company to its wholesaler for sti-ocking , shipping or shelving. The rule 20/12/5/ says that 20% discount for warehousing, 15% for shipment, and 5% discount on shelving.
ii. Trade in credit discounts: manufacturer sells 3G mobile handsets to retailers. However, a retailer could not sell 3G handsets. These retailers return the product to the manufacturer. Here, manufacturers may sell this on ecommerce or at refurbishment market, For these performances a company offers discounts to retailers.
Quantity discounts; Encouraging trade partners to buy more products such as a company can reduce the price via economies of scale.
i. Cumulative quantity discounts: A manufacturer of kerosene stoves offers 5% discount on purchase of 100 stoves in a month. Now a retailer purchases 60 stoves on 10th of March and another 60 stoves on 25th of march. Both orders do not have required order quantities of 100 to avail discount. However, a retailer;s cumulative purchase is 120 stoves and eligible for discount.
ii. Non cumulative quantity discounts; In this quantity discounts, a manufacturer provides a discount for a single large order in a particular time period.
Characteristics discounts
Disability discounts: People with differently abled get discounts on a product. For example karnataka State road transport corporation(KSRTC) offers bus passes with concession to differently abled people.
Student discount: Personal computer companies offer extra discounts to students.
Professional discounts: organizations offering extra discounts teachers, doctors, government servants and lawyers. Indian overseas banks offer special interest for teachers.
Employee discount: Organizations offering extra discounts to its employees. Bigbazaar offers extra discounts to its employees as an example.
Army employee discounts: Defence personnel availing extra discounts at defence canteen stores.
Age discounts: A few organizations offer extra discounts to senior citizens, For example Apollo pharmacy offers 5% extra discount to senior citizens.
Social discounts: A special discount to friends, colleagues, school mates or neighbours of a particular location.
Allowances:
These are usually paid to supply chain members for promoting the company's products and services. Further, allowances are also paid for faulty products.
Rebates: company allows price reduction through coupons, receipts or barcodes.
Coupons; a voucher given by a customer to get discounts while purchasing a product.
Promotional allowances; A manufacturer provides promotional allowance to a retailer to conduct local promotions. Nagashanti Motors gets allowances for promoting Hero motocorp bikes in Belagavi.
