What is Volume discounting?
A volume discounting is an economic incentive used to encourage individuals or businesses to buy goods in large quantities or multiple units.
Volume discounting is the use of discounted prices to incentivize an individual or a business to purchase a specific good in large quantities all at once. When a customer buys multiple units or a large enough quantity of a product at once, the seller rewards the buyer by selling at a lower price for each group of goods purchased.
Volume discounts enable buyers to purchase goods at a lower cost. These savings are frequently passed on to customers. Walmart, for example, can purchase such large quantities of each specific good that it routinely receives volume discounts from its vendors. Customers of Walmart, in turn, can purchase these goods for less money than if they went to a store that did not buy in such large quantities.
Some brokerage firms in financial markets offer volume discounts on commissions charged based on the level of investment or trading activity or for large block order trades.
Three common Volume Discounting are:
Threshold volume discounting
Threshold volume discounting is a method in which a business’s discount is applied only after a buyer meets a certain threshold — or quantity — with their purchase. For example, a supplier may offer a discount on any additional units purchased after the first 100.
Tiered volume discounting
Tiered volume discounting, like the threshold method, offers buyers discounted prices after purchasing a certain quantity of a good. However, whereas threshold volume discounts apply to all purchases after a certain point, tiered volume discounts are offered in levels, which means that 100 units may come at full price, the next 50 at 75%, and the 50 after that at 50%.”
A package discount is when a company offers a discount for a specific quantity of a product. For example, it could provide a discount on packages of 100 units. The discount is not available if a company purchases 99 units. If it purchases 101 units, it will only receive a discount on the first 100.