Volume Discount

Posted in Marketing and Strategy Terms, Total Reads: 806
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Definition: Volume Discount

It is the discount offered by the producer to individuals or businesses who buy in large quantities. The simple logic behind volume discount is that the producer gets to sell more, sell quickly, reduce his transaction cost, reduce his inventory cost for the hit he takes on his profit margin by offering discounts. The buyer gets the discount but in exchange he has to incur higher inventory cost and may incur loss if he can’t use all he has bought.

 

Volume discount is offered two ways – simple and tiered.

 

Let’s say

There is a 10% discount for no. of items bought ranging from 10 to 15

There is a 20% discount for no. of items bought ranging from 16 to 20

There is a 30% discount for no. of items bought ranging from 21 and above

 

If a customer buys 22 SKUs, under normal volume discounting, he will get 30% discount on all 22 purchases.

Under tiered discounting, he will get no discount for purchases from 0 to 9, 10% for purchases from 10 to 15, 20% for purchases from 16 to 20 and 30% for purchases 21 and 22.

 

Hence, this concludes the definition of Volume Discount along with its overview.

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