Adapting the Price 227
Cash Discounts: Acash discountis a price reduction to buyers who pay their
bills promptly.A typical example is “2/10, net 20,” which means
that payment is due within 30 days and that the buyer can
deduct 2 percent by paying the bill within 10 days. Such
discounts are customary in many industries.Quantity Discounts: Aquantity discountis a price reduction to those buyers who
buy large volumes.A typical example is “$10 per unit for less
than 100 units; $9 per unit for 100 or more units.” Quantity
discounts must be offered equally to all customers and must
not exceed the cost savings to the seller associated with
selling large quantities.They can be offered on a
noncumulative basis (on each order placed) or a cumulative
basis (on the number of units ordered over a given period).Functional Discounts: Functional discounts(also called trade discounts) are offered by a
manufacturer to trade-channel members if they will perform
certain functions, such as selling, storing, and record keeping.
Manufacturers may offer different functional discounts to
different trade channels but must offer the same functional
discounts within each channel.Seasonal Discounts: Aseasonal discountis a price reduction to buyers who buy
merchandise or services out of season. Ski manufacturers will
offer seasonal discounts to retailers in the spring and summer
to encourage early ordering. Hotels, motels, and airlines will
offer seasonal discounts in slow selling periods.Allowances: Allowancesare extra payments designed to gain reseller
participation in special programs.Trade-in allowancesare price
reductions granted for turning in an old item when buying a
new one.Trade-in allowances are most common in durable-
goods categories.Promotional allowancesare payments or price
reductions to reward dealers for participating in advertising
and sales support programs.Table 4.4 Price Discounts and Allowances
Promotional Pricing
Companies can use any of seven promotional pricing techniques to stimulate early
purchase (see Table 4.5). However, smart marketers recognize that promotional-pric-
ing strategies are often a zero-sum game. If they work, competitors copy them and
they lose their effectiveness. If they do not work, they waste company money that
could have been put into longer impact marketing tools, such as building up product
quality and service or strengthening product image through advertising.