Pricing Allowance - Definition & Meaning
What is Pricing Allowance?
The purpose of giving allowances or discounts is to tackle competitors. However, discounting can be dangerous if not controlled properly.
The types of discounts being offered fall in the categories below:
a) Cash and settlement discounts: Such discounts need to be at least 2 which is 5% per month to have any real effect. The only problem with this type of discount is that customers tend to take all the discounts offered altogether and still don’t pay promptly. The solution is to eliminate these discounts and introduce an efficient credit control system/ change the terms of business. This may lose some business but the good thing is we are able to attract those customers who are willing to pay.
b) Quantity Discounts: Such kind of discounts must be applied very carefully because it is a good thing to start with but in the long term this can spoil the profit margins. Marketers try to keep the quantity discounts small in order to keep something in reserve.
c) Promotional Discounts: This is most special type of discounts because they give the customers the power to be flexible. This is implemented in order to give an extra boost to sales. Offers like “5% extra pack “/seasonal gifts/ buy one get one free fall under this category. Such kind of offers tend to give the customers a part of the benefits.
The role of allowances/ discounts varies from one type of business to another and the ability to minimize the allowances depends on the non-price product features which we offer. The only thing which must be kept in mind is that such discounts/ allowances must be consistent with the overall marketing and pricing strategy.
Hence, this concludes the definition of Pricing Allowance 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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