Quantity discounts are price reductions given to entities that purchase large quantities of items. They are commonly given to distributors and businesses, but individuals can also receive them. These discounts can lower marketing, packing, and shipping costs for businesses, and they can pass the savings on to consumers or increase profits.
A quantity discount, also known as a volume discount, is a reduction in the price given to an entity that purchases a large quantity of items and merchandise. Most commonly, quantity discounts are given to distributors who purchase large quantities of a particular item from a manufacturer, then turn around and sell that item to end users. Individuals can also get a quantity discount in certain situations.
The most basic example of a quantity discount can be observed in the concept of warehouse warehouses and bulk grocery shopping. For example, a person who visits a department store may receive a lower price per roll on toilet paper than a person who buys a single roll at a grocery store. Similarly, a person who bulk purchases a large quantity of any other product, whether from a warehouse or special bulk sections in grocery stores, may also receive a bulk purchase discount.
Such discounts are also given to businesses. For example, Wal-Mart is able to offer low prices in part because it purchases such large volumes of goods from suppliers. It can request low prices from suppliers, who depend on Wal-Mart’s business, and receive these discounts from suppliers who offer low prices to get the large amount of business that Wal-Mart promises.
There are many benefits for a business to issue a quantity discount. First, it may have lower marketing, packing, and shipping costs. When a business ships 100 products to 100 different people, each product must be packed separately and shipped separately. It’s much less expensive to ship those same 100 products to an individual.
Similarly, the marketing costs of a company with a large volume buyer are much lower. For example, if a company needs to sell its 100 products to 100 different people, that company must market the product to get 100 people to buy it. On the other hand, if a company knows that a particular entity will buy all 100 products it produces, it has a large amount of secured assets and does not need to engage in widespread commercialization of its product.
When a business receives a quantity discount, it also benefits because it can pass the savings on to the consumer, thereby attracting more buyers. Alternatively, it can keep the savings and increase the profits or profits it makes. It is therefore advantageous for both the buyer and the seller to take advantage of a quantity discount.
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