Discount Pricing

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What is Discount Pricing? Meaning.

Discount Pricing (and allowances) is in marketing a type of price adaptation in which products or services are being offered at a reduced price (sometimes items are initially marked up artificially and then offered at a lower price). In any case, the method always involves some lowering of the basic, usual price.

One well-known purpose of such strategy is to attract customers looking for a bargain. However, other purposes of this a price adaptation strategy could be to increase short-term sales, move out-of-date stock, reward valuable customers, and encourage distribution channel members to perform more activities.

Price Adaptation Strategies

Many firms don't just set one single price for a product; rather they rely on price adaptation Strategies that take into account variations such as geographical demand and cost, delivery terms, market-segment requirements, delivery frequencies, etc. They bring down the list price by offering price discounts and allowances down their distribution channel in return for early payment, off-season buying, volume purchasing, etc. Price discounts and allowances are used as a "push strategy" to facilitate the movement of goods through the distribution channel (excluding the customer), whereas promotional pricing is used only to lure the customer via a "pull strategy" (see figure).

The main examples of price adaptation strategies are: Geographical Pricing, Discount Pricing and Allowances, Differentiated Pricing, Promotional Pricing, and Dynamic Pricing.

Different Types of Price Discounts

  • Cash Discounts: A price reduction often used to reward buyers who pay their bills promptly.
  • Quantity Discounts: A price reduction offered to buyers who buy in large volumes.
  • Trade Discounts (also called Functional Discount or Trade Margin): a trade margin offered by manufacturers to a distributor or a wholesaler or a retailer for their performance with regards to selling or stocking or record-keeping.
  • Seasonal Discounts (Synchromarketing): a price reduction method for buyers who buy out of season.
  • Bundle Discounts (See Bundle Pricing): offering 2 products together at a reduced price.

Different Types of Allowances

Allowances are special types of price reduction methods apart from those mentioned above.

  • Promotional Allowances: A price reduction given to the dealers or distributors for performing some promotional activity or participating in an advertising or sales promotion program.
  • Trade-ins: A price reduction on new items in exchange for an old item. Offering more for a trade-in than it is actually worth.
  • Forward Dating: The date on the invoice is moved forward and the buyer doesn’t pay for the goods until well after they arrive.

The biggest advantage of this type of pricing is that it encourages additional sales without lowering the basic price or standard price or list price.

Although price adaptation and/or price discounts often result in additional sales in the short term, care must be taken not to harm the (long term) value of a brand as perceived by customers.

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How to Avoid a Price War? Alternatives

Price Wars, Competitive Strategy, Price Dumping, Lowering Prices, Buying Market Share, Price Cutting (...)
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Overview of Pricing and Pricing Strategies

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Compare with: Marketing Mix  |  Promotional Pricing  |  Competitive Pricing  |  Cost-plus Pricing  |  Standard Cost Pricing  |  Marginal Cost Pricing  |  Penetration Pricing  |  Target Pricing  |  Price Skimming  |  Perceived Value Pricing  |  Psychological Pricing

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