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When to Give a Discount

 

Disciplines > MarketingPricing > When to Give a Discount

Order quantity | Total order value | Strategic customer | Keeping customers | Buy now | Cash purchase | Sooner order | Sooner payment | Promotion | Sale | See also

 

When should you offer a discount, or perhaps be ready to enter into a negotiation when a customers asked you to reduce your price?

Note that as a purchaser, you may see situations similar to those below and hence ask for a discount.

Order quantity

Give a discount when the number of items being bought exceeds a given number. Increasing discounts may be given for increasing number breaks.

For example 5% off for 20-49 items, 10% off for 50 items or more.

This encourages customers to buy more products than they perhaps need, particularly if their natural order quantity is not far short of the breakpoint. This fact may be used in determining quantities at which to offer discount, for example, if customers typically buy one item, then discounts may be offered in the two to five range.

If customers only buy from you, then in the long run you may lose out. The only convenience for you in such cases is in dealing with fewer orders.

A typical way that numbers are used here is for wrapped quantities, such as by the case of wine, pallet of bricks, etc.

Total order value

Give a discount when the total price of the order being paid exceeds a certain value. Again, increasing discounts may be given for a set of increasing price points.

For example 5% off orders over $100 and 10% for orders over $200.

This is a direct focus on money, which may suit customers more than a quantity discount. It can also be used to target psychological price points.

A variant on this is to offer extra products for a given price. For example if one item costs $10, then five may be offered for $40.

Strategic customer

When you have a customer who is important to you, then you may offer them a discount in order to gain or sustain their custom.

There may even be a reason to sell to the customer at a loss, for example when you expect an even bigger purchase in the future, or when the customer is well-known and the very fact that they buy from you gives you a worthwhile marketing advantage when selling to other customers.

Keeping customers

When customers are likely to buy elsewhere then you may need to have the latitude in negotiating with them to offer some form of discount in order to make the sale.

Big customers know they are important and may hence expect a bigger discount. They may also negotiate with several suppliers at the same time and you may have to make difficult decision as to whether they are worth the cost to you.

Buy now

Sometimes you may be able to tempt a customer to buy now by offering a short-term discount offer.

For example, you might offer a further 2% if they sign the deal today.

This can be useful for sales which are relatively impulsive and where customers do not really need to make the purchase. It can also be useful when you have a sales target and need to get the sale completed in the short term.

Cash purchase

Sometimes it is more advantageous if you are paid in cash. For such purchases, you may offer a discount.

For example, if a customer uses a credit card, you may well have to pay the credit card company. You may hence negotiate with the customer to pay in cash, offering them a discount for doing this.

A cash purchase also gives you the money immediately, which you can use for short-term purchase, rather than having to wait for an invoice to be paid or to receive the money from the credit card company.

Sooner order

You can offer a discount as a temptation to place the order in the shorter-term rather than let it delay.

For example a sales person may offer discount if the order is placed 'this month'.

This can allow you to get orders that help you achieve sales target or bonus levels. It is also useful of course to capture orders that may delay over a longer term and perhaps never be placed.

Sooner payment

To ensure customers pay invoices sooner rather than later, you may offer a discount for prompt payment.

A typical term in which a discount can be received is if the invoice is paid within 30 day (which is effectively one month).

Many companies use this in business-to-business deals where the customer may try to delay payment for as long as possible in order to help their own cash flow situation.

Promotion

Sometimes a short-term promotion of some sort may be offered with the discount being made up-front.

For example, when a competitor product is being launched or they are having some other kind of promotion, you may offer a discount deal in order to tempt customers away from the competitive offer.

Sale

At certain times of the year, sales are common in retail outlets. This includes 'Black Friday', New Year sales, end-of-season sales and so on.

For example either a given set of products are offered at a lower price or everything may be offered at a blanket '20% off'.

In some sectors or stores sales are an almost permanent feature of how business is done and the 'recommended retail price' is never (or hardly ever) that which is charged.

See also

Discountable Pricing

 

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