13 Volume-discounting pricing strategy Volume discounting means offering customers a lower price per unit if they purchase a particular quantity (volume) of product. It takes two main forms:
§ Quantity discounts – for customers that order large quantities.www.examw.com
§ Cumulative quantity discounts – the discount increases as the cumulative total ordered increases. This may appeal to those who do not wish to place large individual orders but who purchase large quantities over time.
The volume discounter may enjoy the following benefits from this strategy:
§ Increased customer loyalty – cumulative quantity discounts ‘lock in’ the customer since further purchases can be made at a lower cost per unit.
§ Attracting new customers – an exceptional level of discount can be offered to new customers on a one-off basis, enabling the supplier to ‘get his foot in the door’.
§ Lower sales processing costs – an increased proportion of his sales take the form of bulk orders.
§ Lower purchasing costs – his increased sales volumes enable him to enjoy discounts from his suppliers, creating a virtuous circle.
§ Discounts help to sell items that are bought primarily on price.
§ Competitive advantage – the discounts encouraging customers to concentrate their orders rather than thy out new suppliers.
§ Clearance of surplus stock – the discount level can be increased to clear unpopular items.
§ Increased use of off-peak capacity – discounts are geared to particular off-peak periods.