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Definition: Allowance

Allowance is a type of pricing strategy employed for the promotion a product. Companies typically reward customers for desirable behaviour such as bulk purchase, offseason purchase etc. by allowing discounts and allowances on list price.


Allowances can take many forms.

1. Trade-in allowances are price reductions given for turning in old products in exchange for new products. This is prevalent in many industries such as automobile, electronics etc. This allowance makes the customers loyal to a particular product.

2. Promotional allowances are payments or price reductions given to dealers for participating in sales and support programmes.


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