Level Selling - Definition, Importance & Example
What is Level Selling?
Level selling is a deal between buyer and seller in which buyer promise or gives his consent for buying a fixed quantity of goods and services during a particular period of time if even given discounts, offers and timely delivery in return. Level selling’s main purpose is to avoid huge changes in demand due to seasonality. Level selling results in converting single transactions into long term relationships and enhancing cordial connections between two.
In level selling, the buyer can be an individual person or an organization that purchase goods and services that has been offered by the supplier. A buyer can be a customer who is buying a product from a shop, can be a manufacturer who is buying raw materials. So the relationship between a buyer and a supplier can be either short term or can be long term based on the frequency of purchase. In level selling, both the relationships either short or long term has its own pros and cons. Short term relations can be beneficial when a buyer wants to switch to a new supplier and it involves high flexibility.
Importance of Level Selling
Level selling is important for a market where the prices of the products are volatile and long term relationships and commitments do not hold. In that case, there is a huge competition for short term agreements where special deals and discounting can be done. But short term deals are also not effective enough as they don’t have order and payment flexibility. Trust building happens in case of long term relationships rather than short term deals where both the parties can rely on each other for timely orders and payments.
In long term contracts, high level of trust and commitment develops which is important for a business for its future performance and accurate forecasting. This in turn results in more stability between the parties. But all these things require selecting right partners, recognizing opportunities which can be beneficial and meeting their requirements. Generally most of the organizations maintain a balance between short term and long term relationships with sellers and buyers which help in reducing risks and increasing sales of a firm. Level selling is important for a business as any kind of incompatibility between the buyer and seller in terms of what the buyer demands and what the seller has to offer can have detrimental effect on the company’s sales.
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Advantages of Level Selling
1. Level selling helps in building trust, commitment and satisfaction.
2. Can leverage on their long term commitments being a loyal buyer to differentiate themselves from other competitors.
3. Helps during seasonal demands.
4. Level selling helps in understanding the current and future needs of the customers and meeting them.
Disadvantages of Level Selling
1. Short term commitments don’t have order and payment flexibility.
2. Sometimes there can be communication gap between the two parties regarding the deals and arrangements.
3. Many times, there is no transparency in the process which can results in formation of gaps between buyer-seller relationships.
Example of Level Selling
Let say, Company A is a buyer of the products and services of Company B. They got into an agreement which is for a period of 4 months which is short term. Here both the parties decided to follow a transparent process and the buyer agrees to purchase whatever the seller is offering at discounted rates. But after some time it is seen that there is non-transparency in the system which led to hamper the relationship between them. So, it can be seen that short term relationship may often led to trust issues and problems. But if there is a long-term commitment between the buyer and the seller, there develop a sense of trust; commitment and satisfaction between both the parties which can help them build a healthy relationship between them which in turn can give fruitful results to the business in the long term.
Hence, this concludes the definition of Level Selling along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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