Why Quantity discounts are offered?

Quantity discounts are price reductions related to the quantities purchased. It may take several forms. It may be related to the size of the order which is being measured in terms of physical units of a particular commodity. This is practicable where the commodities are homogeneous or identical in nature, or where they may be measured in terms of truck-loads.

However, this method is not applicable in the case of heterogeneous commodities as it is difficult to add them in terms of physical units or truck loads e.g. textile and drug industry. Quantity discounts are useful in the marketing of materials and supplies but are rarely used for marketing equipment and components.

Objectives of quantity discounts: 

 The main objective of quantity discounts is to reduce the number of small orders and thus avoid the high cost of servicing them. 

Advantages: Quantity discount system enables the dealer to avail such discounts by buying larger lots. The economic buying by a dealer may enable him to charge lower prices from his customers thereby benefiting them. 

Finally, lower prices to customers may increase their demand for the commodities which in turn may enable the dealer to purchase larger quantities, reaping still greater discounts, and the manufacturer to reap economies of largescale production. In some cases, discounts become a matter of trade custom.

Disadvantages: Dealers may find it cheaper to purchase their requirement of commodities from wholesalers, availing themselves of these quantity discounts than from the manufacturers directly. This is because the wholesalers may pass on some of their discount to the dealers. Such a practice may affect the image of the manufacturer in the minds of the dealers.
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