When negotiating prices, buyers often try to lower them by asking for discounts. Suppliers commonly offer five types of discounts: trade promotions, quantity, volume, seasonal, and cash.
Trade Promotion
Buyers are sometimes given a discount as compensation for performing marketing functions for the seller. These discounts are usually tied to a promotion that has an expiration date. They are commonly offered as a series of individual discounts, such as 25%, 10%, and 5%, and referred to as series discounts. Buyers typically prefer dealing directly with the producer instead of intermediaries downstream who may offer only part of the original trade discount. This type of discount is prevalent in the consumer packaged-goods industry.
Quantity Discounts
If you’re planning to make a big purchase, you may be eligible for a quantity discount. This type of discount is based on the total value of your order or the number of items you’re purchasing. It’s designed to save you money by taking advantage of economies of scale in production. If you frequently make large orders, it’s worth considering whether a quantity discount could benefit you.
Volume Discounts
This type of discount, also referred to as a cumulative discount, operates on the same principle as a quantity discount. It is based on the cost savings that come from producing in larger quantities. However, the difference lies in the fact that a volume-based discount is determined by the total amount or quantity purchased within a specific time frame.
Seasonal Discounts
One way to get a discount on goods or services is by buying them during their off-season. This type of discount is dependent on the seasonal nature of the item, and buyers may be able to purchase it at a reduced price.
Cash Discounts
This discount is based on the payment terms agreed between the buyer and supplier. Usually, a percentage discount is offered on the total invoice value if the buyer pays within a specific time period. For instance, if the buyer pays within 10 days of receiving the invoice, the supplier will reduce the invoice cost by 2%.