Trade Allowance - Explained
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Right. So as marketers we have the tough
decision or the tough
job of setting the price for our product,
and that can be very difficult but
ultimately we end up with a base price,
and then there are different things that
we can use to fine-tune that price
in order to get the sales and the
outcomes that we really need
or want. One way to do that is through
what are called trade allowances.
So what are trade allowances? Well it's a
special type of discount that we give
as a producer to our wholesalers or
in exchange for them promoting and
selling our products,
in other words we want to kind of get
the wholesalers and retailers on our
to help promote and move our products.
How do we do that? Well sometimes we give
in other words we give a discount on our
products in order for them to advertise
our particular products.
We want sometimes for a store to say hey
everybody we've got this product
come and get it. Sometimes to get that
done we have to give them a
advertising allowance. Other times
we want to get a prominent position in
or on their shelves. So what do we do
there we give what's called a stocking
that's a kind of discount we give for
them to carry a certain amount of our
product and for them to display it the
way we want to
want them to display it, that's what a
stocking allowance is.
And lastly if we just purely want to
motivate them to sell our particular
product versus maybe the competition
or other products that are unrelated to
we pay commissions. So that's another
form of trade allowance where we
pay the sales person for each unit that
All of these are effective ways to fine
tune our price
and to make sure that we get the sales
and the market share that we desire.