Cumulative quantity discounts apply to the

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Cumulative quantity discountsapply to the accumulation of purchases of a product over agiven time period, typically a year. Cumulative quantity discounts encourage repeat buying by asingle customer to a far greater degree than do non-cumulative quantity discounts. Seasonal Discounts- To encourage buyers to stock inventory earlier than their normal demandwould require, manufacturers often use seasonal discounts. Firms offer seasonal discounts toencourage wholesalers and retailers to stock up goods before the seasonal demand by ultimateconsumers. This enables firms to smooth out seasonal manufacturing peaks and troughs, therebycontributing to more efficient production. It also rewards wholesalers and retailers for the riskthey accept in assuming increased inventory carrying costs and having supplies in stock at thetime they are wanted by customers.Trade (Functional) Discounts- To reward wholesalers and retailers for marketing functionsthey will perform in the future, a manufacturer often gives trade, or functional, discounts. Thesereductions off the list or base price are offered to resellers in the channel of distribution on thebasis of (1) where they are in the channel and (2) the marketing activities they are expected toperform in the future.Suppose a manufacturer quotes price in the following form: list price-Birr100 less 30/10/5. Thefirst number in the percentage sequence always refers to the retail end of the channel, and the lastnumber always refers to the wholesaler or jobber closest to the manufacturer in the channel. (Minus) (Minus) (Minus)($30.00) ($7.00) ($3.15)Trade discounts are simply subtracted one at a time. This price quote shows Birr100 is themanufacturer’s suggested retail price; 30 percent of the suggested retail price is available to theretailer to cover costs and provide a profit of Birr30 (Birr100 × 0.3=Birr30); wholesalers closestto the retailer in the channel get 10 percent of their selling price (Birr70×0.1=Birr7); and theJobber cost Ormanufacturer’sSale price$59.85Retailer costOr wholesalerSales price$70.00Manufacturer’sSuggestedList price$100.00WholesalercostOr jobberSales price$63.00Retail discount: 30% ofManufacturer’s suggested Wholesaler’s discount: 10% ofWholesaler sales priceJobber discount: 5% of Jobber sales price
final group of wholesalers in the channel (probably jobbers) that are closest to the manufacturerget 5 percent of their selling price (Birr63×0.05=Birr3.15). Thus, starting with themanufacturer’s retail price and subtracting the three trade discounts shows that themanufacturer’s selling price to the wholesaler or jobber closest to it is Birr59.85.Cash Discounts- To encourage retailers to pay their bills quickly, manufacturers offer them cashdiscounts. Suppose a retailer receives a bill quoted at Birr1,000, 2/10 net 30. This means that thebill for the product is Birr1,000 but the retailer can take a 2 percent discount(Birr1,000×0.02=Birr20) if payment is made within 10 days and send a check for Birr 980. If thepayment cannot be made within 10 days, the total amount of Birr1,000 is due within 30 days.

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