Types of discounts

There are multiple types of discounts from sales that customers can earn. These discounts are as follows:

  • Buy one, get one free. This discount may require a buyer to receive two of the same inventory item, or it could allow for a free item that differs from the initial purchase. This discount is used to clear out inventory, or in general when the gross margin on a product is high enough to still generate an adequate profit for the seller.
  • Contractual discounts. A standard discount percentage is included in an existing contract between the buyer and seller. For example, the contract may state that all purchases made receive an automatic discount of 8%. Under this arrangement, the discount is taken from the sale price at the point of sale - there is no delay.
  • Early payment discount. Customers can take a small percentage discount when paying the seller, if they pay within a certain number of days. These discounts tend to have a high effective interest rate, and so are a good deal for customers, if they have sufficient cash available to take advantage of the offer.
  • Free shipping. The seller grants free shipping if a discount code is used, or if orders occur within a certain period of time. This is linked to the order date rather than the shipment date, since the shipment date could be delayed.
  • Order-specific discounts. A seller may be running a special deal on certain inventory items, or for all items but during a restricted period of time. In either case, a discount is applied to a specific order. If the discount is only for certain inventory items, then the discount is restricted to specific line items within the customer order.
  • Price-break discounts. A customer may qualify for an immediate discount on an order if the number of units ordered exceeds a threshold amount. If so, the discount is applied when the order is placed. The discount should not be applied at the point of shipment, since the seller may ship in a reduced quantity, which is not the fault of the buyer. This is a variation on a volume discount.
  • Seasonal discount. A price reduction may be offered at certain times of the year when sales would normally be slow. For example, a hotel at a ski resort might offer low prices during the summer months when it would otherwise have few visitors.
  • Trade discount. This is a discount offered to retailers to stock the seller's goods. This discount is usually mandated when the buyer exercises significant control over the seller.
  • Trade-in credit. This is a discount offered on the purchase of a new product when an older version owned by the customer is traded in. The seller may not earn any profit from the returned item, but generates a new sale and also locks in the customer for another product cycle.
  • Volume discount. Once a customer reaches a certain amount of sales volume during the measurement period (typically a year), a volume discount applies. This discount can be retroactive, covering all preceding sales during the measurement period, or it may only apply to all subsequent sales. In the first case, a credit or payment will be issued to the customer that relates to the prior purchases.

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