• to encourage distribution channel members to perform a function
• reward behaviours that benefit the discount issuer
This is not to be confused with trade discounts which is the amount by which the retail price of a product is reduced in order to encourage the retailers to buy more products. Here, the more you buy, the higher is your trade discount. This is done to encourage bulk ordering.
Trade allowances on the other hand give timely discounts to make the retailers push out our products or behave like the discount issuer wants.
Example: when a company wants to launch a new variant of a product, it would like to get rid of all the existing inventory. Here, they offer allowances for such products to push sales for those products to clear inventory. Another example of trade allowance will be when a company, who knows that their product is seasonal, offers discounts to improve sales during off-season periods.