Posted in Marketing and Strategy Terms, Total Reads: 750
Definition: Trade Discount
A trade discount is the amount by which a product manufacturer reduces the retail price of that product when it sells to a reseller (distributor or wholesaler), rather than selling the product to the end customer. The reseller then charges the full retail price from the customers to earn a profit on the difference between the amount at which the manufacturer sold the product to him and the price at which he sells it to the end customers. Or else the seller can also sell the product at a discounted price to the customers in order to gain market share or to clear out excess inventory.
The trade discount offered may increase if the reseller is buying in large quantities or the manufacturing is trying to establish a new distribution channel or if the retailer has greater distribution power hence, more control over the manufacturer. Producers or manufacturers give this discount to wholesalers and retailers to encourage them to purchase their goods or services. These discounts also attract intermediaries to perform tasks like collection of market information, storing goods, keeping records etc. For example- on a Rs.100 product, a 30% trade discount to the distributor would mean he gets to purchase it for Rs.70 and can sell it at his own price ahead.