What is Discount Pricing Strategy?

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In economic terms, price is the agreed-upon rate at which a seller and buyer will exchange items, with the first party receiving cash and the second a good or service. Companies will attempt to set product prices at a maximization point to achieve high profits, which may involve using a discount strategy.

Defined

A product discount is a temporary decrease in price for a good or service, often for a specific purpose. Companies may develop discount pricing strategies such as quantity, seasonal, cash or promotional discounts to increase sales revenues.

Features

Quantity price discount strategies will lower individual product prices for large volume purchases. Seasonal discounts will result in cheaper prices for off-peak seasons, allowing the travel industry to increase overall sales. Cash discounts will reduce prices when customers pay with cash as opposed to credit cards. Promotional discount strategies offer lower prices for specific events or sales programs.

Effects

Discount pricing strategies allow companies to generate higher sales for older products or items the company needs to sell in a short time period. This allows the company to at least generate some cash flow even if profit margins will not meet the company’s expectations.

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