What all quantity-based price discounts have in common is the enticement to the buyer “The more you buy, the more you will save.”
However, quantity discounts take two different forms that serve two different purposes.
Fortunately, picking the right form of discount to offer your customer is easy to do. Just ask yourself the following question: “Do I want to encourage my customers to place a larger order, or to remain loyal and not switch to my competitors?
I want larger orders!
If you want to encourage buyers to place larger orders, the appropriate type of quantity discount is a single-purchase (or order-size) discount.
Use this type of discount when larger order sizes reduce your costs and you want to encourage your customers by passing on some of the savings to them.
It’s also suitable when additional units of your product aren’t as desirable to buyers as the initial units. (Economists call this phenomena the law of diminishing marginal utility.)
For example, a sandwich shop sells its sandwiches for $4.99 each or 2 for $8. In essence, the second sandwich costs a buyer $3.01.
Typically, the more buyers spend on a particular product — the more of their budget the product soaks up — the more price sensitive they become. This is also a good time to use a single-purchase discount.
I want loyal customers!
If you want buyers to be loyal to you and return in the future, then you want to reward how much they buy over a period of time. The appropriate type of quantity discount to use is cumulative-purchase (or volume) discount.
For example, a sandwich shop offers members of its loyalty program a free sandwich after they have already purchased 10.
Do I have to choose? (N0.)
Although these two different types of discounts serve different purposes, they can be used together. Furthermore, you’re not limited to a single product. You can apply either form of discount to a selected mix of products or the entire range of products you offer.
Read more in How to give a quantity discounts when buyers purchase “one or none”.