Posted in Marketing and Strategy Terms, Total Reads: 311
When a company or an individual is interested in buying a good or commodity and is allowed to use the item for some time. If the user gets satisfied with that good during that course of time and agrees to buy it and if he is not satisfied with the good he returns the good as he is not committed to purchase it. This type of business arrangement between two parties is known as Sale on Approval. If defined on simple terms a sale on approval is a conditional sale that is made on trial basis.
When a company or an individual wants to push up the sale of a product which is just introduced in the market they tend to give products to customers on sale on approval basis. This is done because a newly introduced product doesn’t have much credibility in the market and people don’t want to take risks. So sale on approval method helps both parties in this kind of situation where the concerned party uses the product first and if satisfied buys it. If the product quality is good and is given to customers on sale on approval basis, sometimes it helps the companies in building a positive word of mouth about the product in the market. The ownership of the product or service is passed only when the buyer whether be it a retailer or a company gives the approval to buy the same.
Sometimes, if the buyer does not return the product within the specific time period then also the ownership of the product passes to the customer and has to keep the product after that. However, the customer does not incur any liability for the risk of damage or loss when the products are merely sent to him for use till he agrees to purchase it. Services are not normally contracted on sale on approval basis and is more common between individual transactions.