When would it be beneficial to choose one discount instead of the other? (Single trade discount versus trade discount series)
I am trying to do a Discussion board post for class and need to post at least three paragraphs
If you're looking at this from the point of view of the seller, the best reason to do a discount series is because it looks like a better deal than it really is. You can say that there will be discounts of, say 25%, 15% and 10% and you might make your buyers think that it is a straight 50% discount. Of course, it will not be because the second and third discounts will be taken on a lower starting price.
As the seller, it may be better to do a single trade discount because it is so much simpler. The computation of price in such a discount is much easier and so there is much less likelihood of errors.
The advantages or disadvantages of trade discounts will be different for the buyers. I will discuss here theses benefits and limitations of the two types of discounts from he viewpoint of the seller.
The most obvious advantage of single trade discount over the multiple trade discount is its simplicity. The single trade discount is easy to calculate and does not require additional record keeping effort for obtaining data for its calculation.
However, the biggest advantage of multiple discount is that it enables the seller to offer different levels of discount to the buyers in line with the company's cost structure and attractiveness of business of buyer. This kind of discount structure, is better able to motivate buyers in ways that benefit both the buyers and the sellers. For example, a discount for cash payment rather than credit, enables a buyer with ready cash to reduce its cost. It the same time it enables seller to reduce its working capital requirements. Similarly, a flat discount on sales price makes no distinction between the profit potential of small and big buyers. In contrast a multiple discount, linked to different levels of total purchase volume, permits extension or higher total discount to high value customers.
Some people think that multiple discount enables a seller to trick buyer into believing that the discount given is higher than the real discount. For example, a discount advertised as 25+20 percent makes it appear like a total discount of 45 percent. However, in reality the first discount of 25 percent is calculated on the full price, and the second discount of 20 percent is calculated on the remaining 75 percent of price after first discount. This result in real discount of 40 percent. However,the effectiveness of this tactics is really questionable.