What are Product Discounts? 

Setting the price of a product often happens in stages. Often, we set a base price and then we figure out different ways to adjust the price. One way we can adjust our prices with what we call discounts. A discount is a temporary price reduction in a product. 

So, why do we adjust a price when we could just set the price there to begin with? Well we use discounts to motivate certain behaviors. All of the discounts discussed below are ways that we can fine tune our price to achieve the sales and the outcome that we want.

Bulk Discounts

When we give discounts to consumers we want to motivate them to buy either more in the case of volume discounts. For example, if the customer will buy five of these products, we'll give you a lower price for each product. Buy one get one free is another sort of way of doing that. The idea is to get people to buy more.

Time-Based (Seasonal) Discounts

Another reason we might give a discount is to get people to buy at a certain time of year. That's what we call seasonal discounts. So either the item is coming into season or it's past season or out of season.

Those are different times we might give seasonal discounts to encourage people to buy then.

Cash-Based Discounts

Another reason we might give a discount is to encourage people to buy with cash. If we want to make sure we collect our revenue now instead of later - which is what happens when we give or extend people credit. Also, we may want to avoid having to use a third-party processor (like a credit card company) to collect our revenue. This takes time and there is generally a service charge for this service. As such, we'll give a discount if you pay the cash price.

Time-Based Discounts

Sometimes we just want to get people to buy now. That's when we use discounts like sales or coupons or rebates. There are a lot of different reasons we might do this. Maybe we have too much inventory. Maybe we know we've got more inventory coming soon, and we want a clear space. Whatever the reason sales coupons and rebates are motivation for people to buy in the present moment. It creates a fear of missing out on the current price before the sale ends of the coupon expires. 

Trade Allowances

The last type of discount I want to talk about are what are called trade allowances. These are discounts that we give not to the consumer or the person buying the product. Instead the discount is for our intermediaries or wholesalers and retailers who sell our product. When we give them a discount in order to get them to buy. 

Related Topics

• What is the Right Price for a Product?
• Competition-Driven Pricing
• Profit-Oriented Pricing Strategy
• Sales-Oriented Pricing Strategy
• Status Quo Pricing Strategy
• Value-Based Pricing Strategy
• Penetration Pricing Strategy
• Manufacturers Suggested Retail Price (MSRP) Definition
• Markdown
• Price Skimming
• Why Give Discounts?
• Trade Allowances
• Charging for Product Transportation
• Legal Issues with Pricing
• What is Product Dumping?
• What is Price Fixing? 
• Why is Price Fixing Harmful?
• What is Price Discrimination?
• Why Pricing Discrimination is Harmful