Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e
- Pricing Objectives and
Policies
Text © The McGraw−Hill
Companies, 2002
498
Cumulative quantity discountsapply to purchases over a given period—such as
a year—and the discount usually increases as the amount purchased increases.
Cumulative discounts are intended to encourage repeatbuying by a single customer
by reducing the customer’s cost for additional purchases. This is a way to develop
closer, ongoing relationships with customers. For example, a Lowe’s lumberyard
might give a cumulative quantity discount to a building contractor who is not able
to buy all of the needed materials at once. Lowe’s wants to reward the contractor’s
patronage and discourage shopping around. The discount is small relative to the
cost of constantly trying to attract new customers.
A cumulative quantity discount is often attractive to business customers who
don’t want to run up their inventory costs. They are rewarded for buying large quan-
tities, even though individual orders may be smaller.
Noncumulative quantity discountsapply only to individual orders. Such discounts
encourage larger orders but do not tie a buyer to the seller after that one purchase.
Lowe’s lumberyard may resell insulation products made by several competing pro-
ducers. Owens-Corning might try to encourage Lowe’s to stock larger quantities of
its pink insulation by offering a noncumulative quantity discount.
While quantity discounts are usually given as price cuts, sometimes they are given
as free or bonus products. Airline frequent flier programs use this approach.
Quantity discounts can be a very useful tool for the marketing manager. Some
customers are eager to get them. But marketing managers must use quantity dis-
counts carefully. In business markets, they must offer such discounts to all customers
on equal terms—to avoid price discrimination.
Noncumulative discounts sometimes produce unexpected results. If the discount
is too big, wholesalers or retailers may buy more than they can possibly sell to their
own customers—to get the low price. Then they sell the excess at a low price to
whoever will buy it—as long as the buyer doesn’t compete in the same market area.
These gray-market channels often take customers away from regular channel mem-
bers, perhaps with a retail price even lower than what most channel members pay.
To avoid these problems, a marketing manager must consider the effect of discounts
on the whole strategy—not just the effect on sales to a given middleman.
Seasonal discountsare discounts offered to encourage buyers to buy earlier than
present demand requires. If used by a manufacturer, this discount tends to shift the
storing function further along in the channel. It also tends to even out sales over
498 Chapter 20
Vietnamese Smugglers Set Prices to Brush off Competition
P&G and Unilever were among the first multina-
tional firms to spend millions to set up factories in
Vietnam. Now the factories are mostly idle. It’s not
because the Vietnamese aren’t buying their brands.
Rather, they’re buying the same products at lower
prices from low-cost smugglers. For example, smug-
glers get crates of Tide detergent and Close-Up
toothpaste produced in a P&G factory in Thailand.
Then they pile them high on bicycles and plod across
the jungle and Cambodia’s border to where Viet-
namese consumers wait.
There is an explanation for this unusual and unau-
thorized channel of distribution. The Thai bhat was
weakened by the Asian economic crisis. By contrast,
the crisis didn’t have much effect on the Vietnamese
dong because the Communist government doesn’t
allow it to be converted into foreign currency. As a
result, the same goods produced in Vietnam now cost
about 35 percent more. The smugglers exploit this
difference. After their “mark up” to cover transporta-
tion and profit, a tube of Close-Up smuggled from the
P&G factory in Thailand sells for about 11,000 Viet-
namese dong (67 cents), while a tube from the
Vietnamese factory sells for about 14,000 dong. In
Vietnam, where annual per capita income is only
about $370, the cheaper tube has an edge. Moreover,
some Vietnamese consumers are so weary of sec-
ond-rate, Communist-made goods that they assume
that anything made in Thailand is better. So at the
market in Ho Chi Minh City, Thai soap is priced higher
and still sells faster.
Smuggling is affecting everything from lipstick to
toilets. It’s still 30 percent of sales for some products,
even though the Vietnamese border patrols have effec-
tively shut down all the dirt paths through the jungle to
Cambodia. Many firms have been discounting prices
to match the smugglers’ prices. Those discounts prob-
ably weren’t in the marketing plan!^17
mhhe.
com/
fourps
Seasonal discounts—
buy sooner
