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Pricing

10.5 Volume discounting pricing

Volume discounting means offering customers a lower price per unit if
they purchase a particular quantity of a product. It takes two main
forms:

 Quantity discounts – for customers that order large quantities.

 Cumulative quantity discounts – the discount increases as the cumulative total
ordered increases. This may appeal to those who do not wish to place large
individual orders but who purchase large quantities over time.

Benefits

 Increased customer loyalty – cumulative quantity discounts ‘lock in’ the
customer since further purchases can be made at a lower cost per unit.

 Attracting new customers – an exceptional level of discount can be offered to
new customers on a one-off basis, enabling the supplier to ‘get his foot in the
door’.

 Lower sales processing costs – an increased proportion of his sales take the
form of bulk orders.

 Lower purchasing costs – high sales volumes enable the business to enjoy
discounts from their suppliers, creating a virtuous circle.

 Discounts help to sell items that are bought primarily on price.

 Clearance of surplus stock or unpopular item through the use of discounts.

 Discounts can be geared to particular off-peak periods.

 Sales margin is substantial allowing profits to be made even after discounting.

 The product is bought on price and it is difficult to distinguish it from competing
products.

 Products with a limited shelf life (for example, fashion items) may be discounted
to shift them.

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