Price Adjustments: Quantity Discounts

This adjustment offers buyers an incentive of lower per-unit pricing as more products are purchased. Most quantity or volume discounts are triggered when a buyer reaches certain purchase levels. For instance, a buyer may pay the list price when they purchase between 1-99 units but receive a 5 percent discount off the list price when the purchase exceeds 99 units.

Options for offering price adjustments based on quantity ordered include:

  • Discounts at Time of Purchase – The most common quantity discounts exist when a buyer places an order that exceeds a certain minimum level. While quantity discounts are used by marketers to stimulate higher purchase levels, the rational for using these often rests in the cost of product shipment. Shipping costs tend to decrease per item shipped. Why? Think about a large truck carrying product. In most cases, the expenses (e.g., truck driver expense, fuel, road tolls, etc.) required to move a truck from one point to another does not radically change as more product is shipped in the truck trailer (i.e., container). In other words, the total shipping cost is only a little higher if 1,000 items are carried in the truck (assuming all can fit in a trailer) compared to hauling just 10 items. Consequently, the transportation cost per item drops as more are ordered, thus allowing the supplier to offer lower prices for higher quantity.
  • Discounts on Cumulative Purchases – Under this method, the buyer receives a discount as more products are purchased over time. For instance, if a buyer regularly purchases from a supplier they may see a discount once the buyer has reached predetermined monetary or quantity levels (e.g., once 1,000 units are purchased the price drops on the next purchase). The key reason to use this adjustment is to create an incentive for buyers to remain loyal and purchase again.
Step 3: Set Standard Price Adjustments
Price Adjustments: Trade Allowances