Bulk discount is a marketing incentive which is meant to encourage customers to buy more units of a particular product or service. The model structure exists in this way so that the manufacturer or seller identifies those people who purchase items in large quantities and rewards them by giving them a reduced price for their goods. The benefit of the bulk discount is that the buyer will get additional inventory at an affordable cost and the seller reduces their inventory by giving buyers more incentives to buy more from them. It is essential to review your bulk inventory policy and keep adjusting it depending on how much you are likely to gain. Here is what you need to know about bulk discounts and metrics.
There are many ways in which you can offer your volume discounts. For many sellers, the discounts tier on top of each other. The tiered structure means that when you shop for a particular number of units within that tier, a specific discount is applied. For instance, you could state that you will give a 20 percent discount to anyone who purchases between 50 and 100 units and increase it to 30 percent for anyone who buys between 100 and 200 units. Harvard Business Review has a good example of this idea on a micro scale. They explain, “convenience stores and movie theatres, for instance, understand that thirsty customers are willing to pay a hefty price for the first 12 ounces of a cold soda relative to the next 12 ounces. To entice customers to consume more, the additional per-ounce price is significantly reduced in larger cup sizes. As a result, consumers are often faced with the conundrum of calculating whether it’s worth it to spend an extra 75 cents to double the size of our fountain drinks.”
Another way that you can structure your discount is applying a lower discount rate before a certain threshold is reached and increasing the discount amount when the stated threshold gets exceeded. This means that the buyer will still have to pay full price for the units till they reach the threshold and that the discount will only apply after they have reached the stated threshold. There is still the option of grouping the goods or services such that a discount is applied for every 25 units which you sell. This will make the customers want to buy the units in the stated groups in order to access the stated discount.
There are two things that you need to think about when implementing a bulk discount policy. First, you need to understand that when customers are getting a reduced price per unit of the items which they are buying, they will be encouraged to buy more units. On the other hand, offering the discount means that you will have to contend with a lower profit margin per unit of the product or service. According to The Kini Group, “You have to make sure that you aren’t losing money on a deal, or that you’re only making a tiny amount of profit. Doing this every so often for special clientele can be lucrative, but it’s risky business if they tell other buyers. Your company may have to make razor thin margins, and no one wants to be in that situation.” You can only strike a balance and benefit from bulk discounts if the structure is enticing enough to help you sell enough units to still be profitable despite the reduced cost.
It is important to note that sellers avoid linear discounts because, in their basic form, they limit the amount of money that you make in profit for every sale that you make. Another benefit that comes from bulk discounts is that you are able to meet the incidental costs which come with the increased sales volumes such as packaging and shipping costs. For instance, if you offer a 20 percent discount on every item, you might have to ship the item to 1000 different people, incurring the shipping cost 1000 times. However, if the discount is for every 50 items bought, you might only have to ship to 20 people buying at the discounted price. Well-structured bulk discounts, therefore, help you save money. Plus Voucher Code explains, “an excellent example of this is Groupon discounts which allow you to pay 50 percent of the regular price for more than 100 units. Integration with sites like Groupon or other discount sites allows both the buyer and seller to benefit.” Buyers benefit from the discounted costs while sellers benefit from increased sales volumes.
As a seller, you will only know whether a certain discount structure is working as it should or not when you put in place a system of monitoring your shoppers’ habits. This means investing in reliable analytics software. Using the software, you can access the data collected on how many customers accessed the discount and how many units they bought. This is the data that will help you figure out if you need to change the discount volumes or even the entire policy depending on the gains which you are making. If you find that the plan you are using is not as beneficial as you would like, you can try another method that will bring in more money.
These are some of the benefits that come with using analytics to guide your discount structures. Note that as long as you are able to analyze the sales volumes from the discounts you are offering, you will be in a position to maximize profits and create some brand love with shoppers that love a good discount.