You are on page 1of 9

Discounts and allowances

From Wikipedia, the free encyclopedia

"Senior Discount" redirects here. For the band, see Senior Discount (band).
This article needs additional citations for verification. Please help improve this
article by adding citations to reliable sources. Unsourced material may be challenged and
removed. (February 2010)

Corporate finance

Working capital

Cash conversion cycle

Return on capital

Economic Value Added

Just-in-time

Economic order quantity

Discounts and allowances

Factoring
Sections

Managerial finance

Financial accounting

Management accounting

Mergers and acquisitions

Balance sheet analysis

Business plan

Corporate action
Societal components

Financial market

Financial market participants

Corporate finance

Personal finance

Public finance

Banks and banking

Financial regulation

Clawback

Discounts and allowances are reductions to a basic price of goods or services.


They can occur anywhere in the distribution channel, modifying either the manufacturer's list price
(determined by the manufacturer and often printed on the package), the retail price (set by the
retailer and often attached to the product with a sticker), or the list price (which is quoted to a
potential buyer, usually in written form).
There are many purposes for discounting, including; to increase short-term sales, to move out-ofdate stock, to reward valuable customers, to encourage distribution channel members to perform a
function, or to otherwise reward behaviors that benefit the discount issuer. Some discounts and
allowances are forms of sales promotion.
Contents
[hide]

1 Discount and allowance types


1.1 Discounts and allowances dealing with payment

1.1.1 Prompt payment discount

1.1.1.1 Examples

1.1.2 Preferred payment method discount

1.1.3 Partial payment discount

1.1.4 Sliding scale

1.1.5 Forward dating

1.1.6 Seasonal discount


1.2 Discounts and allowances dealing with trade

1.2.1 Bargaining

1.2.2 Trade discount

1.2.3 Trade rate discount

1.3 Trade-in credit

1.4 Discounts and allowances dealing with quantity

1.4.1 Cumulative quantity discount

1.4.2 Non-cumulative quantity discount

1.4.3 Dependence of price on quantity


1.5 Discounts and allowances dealing with customer characteristics

1.5.1 Disability discount

1.5.2 Educational or student discount

1.5.3 Employee discount

1.5.4 Military discount

1.5.5 Age-related discounts

1.5.5.1 Toddler discount, child discount, kid discount

1.5.5.2 Young person's discount

1.5.5.3 Senior discount

1.5.6 Special prices offered to friends of the seller

1.5.7 Special prices offered to local residents

1.6 Discount card

1.7 Coupons

1.8 Rebates

1.9 Other discounts and allowances

2 See also

3 References

4 Further reading

Discount and allowance types[edit]


The most common types of discounts and allowances are listed below.

Discounts and allowances dealing with payment[edit]


Prompt payment discount [edit]
Trade Discounts are deductions in price given by the wholesaler or manufacturer to the retailer at
the list price or catalogue price. Cash Discounts are reductions in price given by the creditor to the
debitor to motivate the debtor to make payment with in specified time . These discounts are intended
to speed payment and thereby provide liquidity to the firm. They are sometimes used as
a promotional device. we also explain that discount is relaxation in price.
Examples[edit]

2/10 net 30 - this means the buyer must pay within 30 days of the invoice date, but will
receive a 2% discount if they pay within 10 days of the invoice date.

3/7 EOM - this means the buyer will receive a cash discount of 3% if the bill is paid within 7
days after the end of the month indicated on the invoice date. If an invoice is received on or
before the 25th day of the month, payment is due on the 7th day of the next calendar month. If a
proper invoice is received after the 25th day of the month, payment is due on the 7th day of the
second calendar month.

3/7 EOM net 30 - this means the buyer must pay within 30 days of the invoice date, but will
receive a 3% discount if they pay within 7 days after the end of the month indicated on the
invoice date. If an invoice is received on or before the 25th day of the month, payment is due on
the 7th day of the next calendar month. If a proper invoice is received after the 25th day of the
month, payment is due on the 7th day of the second calendar month.

2/15 net 40 ROG - this means the buyer must pay within 40 days of receipt of goods, but will
receive a 2% discount if paid in 15 days of the invoice date. (ROG is short for "Receipt of
goods.")

Preferred payment method discount [edit]


Some retailers (particularly small retailers with low margins) offer discounts to customers paying with
cash, to avoid paying fees on credit card transactions.
Partial payment discount [edit]
Similar to the Trade discount, this is used when the seller wishes to improve cash flow or liquidity,
but finds that the buyer typically is unable to meet the desired discount deadline. A partial discount
for whatever payment the buyer makes helps the seller's cash flow partially.

Sliding scale[edit]
Main article: Sliding scale fees
A discount offered based on one's ability to pay. More common with non-profit organizations than
with for-profit retail.
Forward dating [edit]
This is where the purchaser doesnt pay for the goods until well after they arrive. The date on the
invoice is moved forward - example: purchase goods in November for sale during the December
holiday season, but the payment date on the invoice is January 27.
Seasonal discount [edit]
These are price reductions given when an order is placed in a slack period (example: purchasing
skis in April in the northern hemisphere, or in September in the southern hemisphere). On a shorter
time scale, a happy hour may fall in this category. Generally, this discount is referred to as "X-Dating"
or "Ex-Dating". An example of X-Dating would be:

3/7 net 30 extra 10 - this means the buyer must pay within 30 days of the invoice date, but
will receive a 3% discount if they pay within 7 days after the end of the month indicated on the
invoice date plus an extra 10 days.

Discounts and allowances dealing with trade[edit]


Bargaining[edit]
Main article: Bargaining
Bargaining is where the seller and the buyer negotiate a price below the original asking price.
Trade discount[edit]
Trade discounts, also called functional discounts, are payments to distribution channel members for
performing some function. Examples of these functions are warehousing and shelf stocking. Trade
discounts are often combined to include a series of functions, for example 20/12/5 could indicate a
20% discount for warehousing the product, an additional 12% discount for shipping the product, and
an additional 5% discount for keeping the shelves stocked. Trade discounts are most frequent in
industries where retailers hold the majority of the power in the distribution channel (referred to as
channel captains).
Trade discounts are given to try to increase the volume of sales being made by the supplier.
The discount described as trade rate discount is sometimes called "trade discount".
Trade rate discount [edit]
A trade rate discount, sometimes also called "trade discount", is offered by a seller to a buyer for
purposes of trade or reselling, rather than to an end user. For example, a pharmacist might offer a
discount for over-the-counter drugs to physicians who are purchasing them for dispensing to the
physicians' own patients.[1] A seller supplying both trade or resellers, and the general public will have
a general list price for anybody, and will offer a trade discount to bona-fide trade customers.

Trade-in credit[edit]
Trade-in credit, also called trade-up credit, is a discount or credit granted for the return of something.
The returned item may have little monetary value, as an old version of newer item being bought, or
may be worth reselling as second-hand. The idea from a seller's viewpoint is to offer some discount
but have the buyer showing some "counter action" to earn this special discount. Sellers like this as
the discount granted is not just "given for free" and makes future price/value negotiations easier.

Buyers have the advantage of getting some value for something no longer used. Examples can be
found in many industries.[2]

Discounts and allowances dealing with quantity[edit]


These are price reductions given for large purchases. The rationale behind them is to
obtain economies of scale and pass some (or all) of these savings on to the customer. In some
industries, buyer groups and co-ops have formed to take advantage of these discounts. Generally
there are two types:
Cumulative quantity discount[edit]
Cumulative quantity discounts, also called accumulation discounts, are price reductions based on
the quantity purchased over a set period of time. The expectation is that they will impose an implied
switching cost and thereby bond the purchaser to the seller.
Non-cumulative quantity discount [edit]
These are price reductions based on the quantity of a single order. The expectation is that they will
encourage larger orders, thus reducing billing, order filling, shipping, and sales personnel expenses.
Dependence of price on quantity [edit]
An extreme form of quantity discount is when, within a quantity range, the price does not depend on
quantity:

if one wants less than the minimum amount one has to be pay for the minimum amount
anyway

if one wants an amount between two of the fixed amounts on offer, one has to pay for the
higher amount

These also apply in the case of a service with "quantity" referring to time. For example, an entrance
ticket for a zoo is usually for a day; if one stays shorter, the price is the same. It is a kind of pass for
unlimited use of a service during a day, where one can distinguish whether or not, when leaving and
returning, one has to pay again. Similarly a pass can be for another period. In the case of long
periods, it is obvious that one can leave and return without paying again.
If one has to buy more than one wants, we can distinguish between the surplus just not being used,
or the surplus being a nuisance, e.g. because of having to carry a large container.

Discounts and allowances dealing with customer characteristics [edit]


The following discounts have to do with specific characteristics of the customer.
Disability discount [edit]
A discount offered to customers with what is considered to be a disability.
Educational or student discount[edit]
These are price reductions given to members of educational institutions, usually students but
possibly also to educators and to other institution staff. The provider's purpose is to build brand
awareness early in a buyer's life, or build product familiarity so that after graduation the holder is
likely to buy the same product, for own use or for an employer, at its normal price. Providers also
offer student discounts as means of offering a product within the budget of a student, which would
otherwise be too expensive, thus gaining extra sales. Educational discounts may be given by
merchants directly, or via a student discount program, such as CollegeBudget in the United States or
NUS and Studentdiscounts.co.uk in the United Kingdom.

Employee discount [edit]


A discount offered by a company to employees who buy its products.
In 2005, the American automakers ran an "employee discount" for all customers promotional
campaign in order to entice buyers, with some success.
Military discount [edit]
A discount offered to customers who are or were members of a military service. A discount is the
value that deduct from a service or from goods. Types of military discounts include discounts for
active duty military, veterans, retired military personnel, and military spouses or dependents. In the
United States, military discounts frequently require proof of ID to show eligibility such as a DD Form
214, DD Form 215, or DD Form 217 from any branch of the Armed Forces, TRICARE Cards,
Veterans Affairs Cards Uniformed Services Privilege and Identification Cards (USPIC) or other
official documentation. Eligibility for military discounts can also be verified online or via mobile by
verification companies like SheerID. Companies such as AutoAccessoriesGarage.com offer
discounts to military personnel once they verify. In the case of AutoAccessoriesGarage that could
mean up to 20% off parts and accessories. For a list of companies offering military discounts in your
area, try GruntRoll.com.
Age-related discounts[edit]
Toddler discount, child discount, kid discount[edit]
A discount, or free service, offered to children younger than a certain age, commonly for admission
to entertainments and attractions, restaurants, and hotels. There may be a requirement that the child
be accompanied by an adult paying full price. Small children often travel free on public transport, and
older ones may pay a substantially discounted price; proof of age may be required.
Young person's discount[edit]
Discounts are sometimes offered to young people below a certain age who are neither children nor
in education.[3]
Senior discount[edit]
"senior discount" redirects here. For the band, see Senior Discount (band).
A discount offered to customers who are above a certain relatively advanced age, typically a round
number such as 50, 55, 60, 65, 70, and 75; the exact age varies in different cases. The rationale for
a senior discount offered by companies is that the customer is assumed to be retired and living on a
limited income, and unlikely to be willing to pay full price; sales at reduced price are better than no
sales. Non-commercial organizations may offer concessionary prices as a matter of social policy.
[4]
Free or reduced-rate travel is often available to older people (see, for example, Freedom Pass).
Special prices offered to friends of the seller[edit]
A discounted price offered to friends of the salesperson, an attitude which is parodied in the
stereotype of a salesman saying "It costs [such-and such], but for you..." In Australia,New Zealand,
and the UK, discounts to friends are known as "mates' rates."[5][6] In French this discount is known
as prix d'ami.[7] In Spain this is known as "precio de amigo" in Spanish, or "preu d'amic" in Catalan. In
German the term "Freundschaftspreis" is commonly used.
Special prices offered to local residents[edit]
Discounts are common in tourist destinations. In Hawai'i, for example, many tourist attractions,
hotels, and restaurants charge a deeply discounted price to someone who shows proof that they live
in Hawai'i; this is known as a "Kama'aina discount," after the Hawaiian word for an old-timer or
native.[8]

Discount card[edit]
Main article: Discount card
Sometimes a document, typically a plastic card similar to a payment card, is issued as proof of
eligibility for discounts. In other cases, existing documents proving status (as student, disabled,
resident, etc.) are accepted. Documentation may not be required, for example, for people who are
obviously young or old enough to qualify for age-related discounts. In some cases, the card may be
issued to anyone who asks.

Coupons[edit]
Main article: Coupon
A discount, either of a certain specified amount or a percentage to the holder of a voucher, usually
with certain terms. Commonly, the terms involve the terms of other discounts on this page, such as
being valid only if a certain quantity is bought or only if the customer is older than a specified age.
Coupons are often printed in newspapers, brochures, and magazines, or can be downloaded and
printed from Worldwide Web pages that can be accessed via the Internet.

Rebates[edit]
Main article: Rebate (marketing)
A refund of part of sometimes the full price of the product following purchase, though some rebates
are offered at the time of purchase. A particular case is the promise of a refund in full if applied for in
a restricted date range some years in the future; the hope is that the promise will lure customers and
increase sales, but that the majority will fail to meet the conditions for a valid claim.

Other discounts and allowances[edit]

Promotional allowances - These are price reductions given to the buyer for performing
some promotional activity. These include an allowance for creating and maintaining an in-store
display or a co-op advertising allowance.

Brokerage allowance - From the point of view of the manufacturer, any brokerage fee paid
is similar to a promotional allowance. It is usually based on a percentage of the sales generated
by the broker.

See also[edit]

Net 30

Multi-use tickets for public transport

Ticket systems

References[edit]
1.

Jump up^ "Business glossary". All Business. Retrieved 2009-02-07.

2.

Jump up^ "Example for Trade-In offerings in the Test- and Measurement Industry". All
Business. Retrieved 2011-05-23.

3.

Jump up^ Example of young person's discount: UK 16-25 railcard offering 1/3 discount on rail
travel, and other discounts, for an annual fee

4.

Jump up^ Example of government concession: UK residents over 75 are entitled to a


free television licence

5.

Jump up^ Mates' rates program at Intercontinental Hotels

6.

Jump up^ Kwik Fit 'mates rates' by DDB UK

7.

Jump up^ prix d'ami (alternative to mates rates). Proz.com.[unreliable source?]

8.

Jump up^ Honolulu Magazine, June 2009

Further reading[edit]

Shell, Ellen Ruppel, Cheap: The High Cost of Discount Culture, New York : Penguin Press,
2009. ISBN 978-1-59420-215-5
Categories:
Pricing