Discount Definition and Meaning

Discount Definition and Meaning

The market is highly competitive in many areas. Everyone wants to sell their products or services to the customer. Often every means is right. Very often the customer is lured with real discount battles. But what is at discount to actually understand and what types of discounts are available?

What is a discount?

Discounts are a constant for companies in their discount policy . With discounts, you try to set certain incentives to buy. It serves you to differentiate between offer prices and you direct the discount to your target group in order to influence their buying behavior. It should be noted that the discount is always linked to a specific reason or a certain criterion.

How are discounts differentiated?

Not all discounts are the same. Rather, discounts are divided into different forms. The criteria used to differentiate are the reason for granting a discount and the time when a discount was granted.

Criterion reason discount allocation

Typical forms of discounts can be found in these categories. They are among the most frequently used types of discounts , both for customers and business partners.

Discount form description
Cash discount The cash discount is also called a cash discount. You grant it to your customer with a quick payment.
Goods discount The volume discount is very typical for this form . If a customer orders a large amount from you, you give them this discount.
Function discount Feature discounts are usually available for retailers or wholesalers. The function discount serves to ensure that the handling costs can be covered.
Promotion discount You use promotional discounts to increase your sales . As a rule, this discount is limited in time.
Early occupancy discount This discount is available if a customer orders a certain item from you early on. A very well-known example are the early bird discounts for vacation trips.
Loyalty discount With this type of discount you reward customers or business partners for their long-term loyalty to your company.
Special discounts The special discounts category includes special discounts such as student discounts , employee discounts or the press discount .

Criterion points in time of discount allocation

A distinction is also made in this area. The time discount mainly plays a role in your bookkeeping.

Discount form description
Instant discount The instant discount is granted when the invoice is issued.
Subsequent discount With a certain time delay, you can also grant subsequent discounts.
Cashback After purchasing a product or service, you grant a customer a cashback. This type of discount is also known as a mail-in discount .

What other types of discounts are there?

In addition to the above-mentioned types of discounts, there are many more that are granted on specific occasions or for specific reasons. Here is an overview of the most important.

Discount types
The loyalty discount you use like customer loyalty. The customer receives this discount as a price advantage over your competitors.
The annual discount relates to the total sales for a year . You can set this once or you can also stagger it according to sales.
If you only grant a discount on a certain item in the invoice, then we speak of the item discount . However, it is also possible to grant this type of discount for several items.
If the customer receives goods free of charge from you, then this is an indirect price reduction, which is referred to as a discount in kind .
If the customer takes on certain tasks, for example doing advertising, you can give them a function discount.
Especially for certain goods that are subject to very strong seasonal fluctuations, for example swimwear, the seasonal discount is very often granted when purchasing these products .
The clearance discount is used to create more space in the warehouse at the end of a season . The best examples here are summer and winter sales.
If a customer buys a product on the Internet, the seller often incurs lower costs, for example through warehousing. In this case, a web discount is often given.
When acquiring new customers, the first-time customer discount is very often used.

What are the goals of discounts?

Many companies use discounts as an incentive to buy. However, the discount must match your company’s pricing policy. With the use of discounts you are pursuing several goals.

  • you want to increase your sales
  • Discounts serve to strengthen customer loyalty
  • you use discounts for a temporal distribution of incoming orders
  • they want to maintain the exclusivity of their products and forego a price reduction by granting discounts
  • With a discount you want to gain a competitive advantage over your competition

Tip!

Discounts also have other positive effects. Because the aforementioned strengthening of customer loyalty also increases customer lifetime value in the long term .

In most cases, the discount is given as a percentage point of the offer price, i.e. the list price. However, it is by no means uncommon to grant the discount as an absolute amount. So do it

Discount