Volume - Based Incentive

Posted in Marketing and Strategy Terms, Total Reads: 1127
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Definition: Volume - Based Incentive

Volume incentive is an extra commission offered by a company/ distributor to a sales representative to increase sales. These incentives typically involve rebates of cash that are redeemable only if the seller completes a specified number of sales transactions. Under these incentive programs, the Company estimates the anticipated rebate to be paid and allocates a portion of the estimated cost of the rebate to each underlying sales transaction with the customer. The Company includes these amounts in the determination of net sales. It is also given by the company to the high volume clients or distributors to reward them. These incentives boost sales volumes for the company, thereby increasing market share and achieving economies of scale.


The programs may include benefits such as purchasing rebates, free freight and insurance packages. The clients will see an immediate impact on their costs.


By designing effective incentive programs, companies can create more predictable patterns of demand, which can allow a company to better capture cost savings across its supply chain.


Unfortunately if these programs are designed wrongly, these incentive programs will create loss and havoc on the company’s supply chain by causing unpredictable highs and lows in product demand.


The Hockey-Stick Phenomenon: Often there won’t be much sales during the incentive program period but when the program comes to an end rush of orders come in which will create sudden demand . This phenomenon is called hockey-stick phenomenon.


Different programs are Programs are the various events and series of activities planned for the marketing

 

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