Trade discounts are an excellent tool for increasing sales, boosting profitability, saving money and managing inventory. They are also an excellent method for maintaining customer satisfaction and attracting a wider consumer base. Lastly, they are a great tool for offsetting behind-the-scenes expenses involved with production, acquiring economic resources and ordering costs. Below, we examine the key advantages of employing these discounts for your business.
A trade discount is an excellent way to attract a customer’s attention, by offering more for less. Promotional sales, coupons, volume purchases and other strategies can attract new customers and motivate them to buy your products, creating the impression that they are getting the most out of their money. Offering a lower price or a reduced price for multiple purchases will increase the likelihood that customers will want to purchase more to take advantage of the deal from the company.
Improve Your Reputation
Offering trade discounts is also an excellent way to improve the customers perception of your company. If customers believe that you are offering good value for money, they are more likely to put their trust in the goods and services you provide. Building this relationship with the customer is key to customer satisfaction and retention.
Lower Business Costs
Trade discounts, especially for smaller businesses, can lower operational business costs. Many smaller companies will spend the majority of their capital on things like economic resources, production equipment, inventories and ordering costs. Suppliers and vendors often offer these types of businesses trade discounts, and finding suppliers willing to offer this can save a company large amounts of capital on business expenditure.
Increase Your Purchasing Power
Following on from this, seeking out suppliers and vendors who offer trade discounts can allow smaller businesses to spend more money on other resources or inputs, and less money on inventories, ordering costs or production equipment. For example, the capital saved from these discounts can be put toward improvements to production facilities, additional employees for increasing output or new marketing campaigns.
Managing Excess Stock With Trade Discounts
The assumption with any manufacturing business is often that the more you produce, the more you can sell. However, this mentality can sometimes be misleading, given that sales trajectories are rarely linear and not always predictable. In fact, this approach may backfire in the form of overproduction.
Producing too much stock can become problematic for your business if demand for your products begin to wane, or worse still, stop all together. In this case, supply is high but demand is low, and this can greatly inhibit your profitability. Trade discounts can be a very useful tool for resolving this situation.
For example, offering a trade discount to customers whereby prices are significantly reduced if they purchase in bulk is a great way to allay the problem of excess stock. This way, sales will go some way toward offsetting original production costs, preventing the need to dispose of products that you have put a large amount of time and money into manufacturing.
Offering a discount like this also works to shape the customers perception of your company in a way that suggests you offer quality goods for a reasonable price. This will help contribute to customer satisfaction and may also attract new customers.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.