Price Discounts

Price Discounts

Price Discounts

The definition of discount is reduced prices or something being sold at a price lower than that item is normally sold for. An example of something described as the discount is a purse sold for 50 percent off its normal price or a store that focuses on selling designer items at below-market prices.

Stores will often sell items for a discounted sales price. The store will discount an item for a percent of the original price. For example, an item that originally cost $20 may be discounted by 25%.

  • To find the amount of discount calculates 25% of $20. ($20.00*25/100=$5.00)
  • Subtract the discount from the original price to find the sale price. ($20.00-$5.00=$15.00 sales price).
  • Terms you may see for discounted items are 50% Off; Save 50%; Discounted by 50% etc.

Most Common Types of Price Dis­counts

The following points highlight the six most common types of price discounts. The types are:

  1. Quantity Discounts
  2. Trade Discounts
  3. Promotional Discounts
  4. Seasonal Discounts
  5. Cash Discounts
  6. Geographical Discounts

Quantity Discounts:

The reason for quantity discounts lies in the gen­eral assumption of economies of scale. If a seller of a product can sell more of a product to a given buyer, various cost savings may occur. It can produce more and thus reduce unit costs of production. Distribu­tion and marketing expenses are also reduced.

Trade (or Functional) Discounts:

Trade discounts are normally provided to middle­men for the functions they accomplish in the distribu­tion of commodities. For this purpose, trade dis­counts are often called functional discounts. For example, booksellers in India get such discounts from publishers at the rate of say 20%, 25%, 33V3% on order of say 5-50, 51-100,101 and above, respec­tively. Such successive discounts represent a system of graded incentives.

Promotional Discounts:

Such discounts are given to distributors as “an allowance for the distributors’ efforts to promote the manufacturer’s product through local advertis­ing, special displays, or other promotions. These allowances may take the form of a percentage re­duction in the price or they may be an outright cash payment either to the distributor or to the promo­tional vehicle, e.g., a local newspaper”.

Seasonal Discounts:

Business conditions never run smooth. To the periodic fluctuations in the levels of business activ­ity, the name business cycle is given. And, in reali­ty, industries that are characterized by significant but regular fluctuations in volume may offer a dis­count to consumers who purchase the goods (or ser­vice) at non-peak hours.

Cash Discounts:

A cash discount is a reward for the payment of an invoice or account within a specified time peri­od. For example, the Calcutta Electric Supply Cor­poration provides a discount to all customers who pay their bills on or before a scheduled date. From the seller’s viewpoint, immediate payment is pre­ferred so that the seller can invest the money for the period. Thus, the seller may offer a discount for an immediate cash payment.

Geographical Discounts:

Geographical discount structures introduce to price differentials based on buyers’ (or markets’) loca­tion. They’ are important when transport costs are high relative to the selling price since the manu­facturer can then gain from differences in transport costs due to varying distances between the locations of plants and the customers.


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