Change the Type of Discount
Discounts and Premiums
| Most product/service packages provide for some form of discount for specific segments in the market. The most common forms of segment discounts are those that reward buyers for a large volume of purchases and for prompt payment. This action uses various approaches to discounting to reduce the basic price offered to specific segments of the market. We have developed examples on eight types of discounts:
1. Volume: With this common discount, you grant the customer lower prices for a higher volume of purchases. |
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CHANGE PRICING/TYPE OF DISCOUNT EXAMPLE: Volume |
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NO. |
INDUSTRY SIC |
YEAR |
EXAMPLE |
| 1 | 2834 | 1995 | Drug companies are offering deeper discounts to the powerful health plans that do manage drug costs and usage aggressively. They are eliminating discounts for plans that haven't helped them or are too small. |
| 2 | 4813 | 1995 | "New MCI Friends & Family plan offers a 25% discount after you spend just $10 a month. The discount increases to 30% when your monthly tab hits $75. AT&T's True USA plan also begins at $10 level, but only offers 10% off at that point. The discount only rises to 20% after you spend $25. AT&T also gives 30% at $75." |
| 3 | 4813 | 1995 | AT&T is launching a True Reach Savings plan. It will offer customers a 10% discount if domestic long-distance calls total at least $10, and a 25% discount if calls total at least $25. AT&T's current program (True Savings) offers greater discounts. The new plan mirrors a move by MCI this month to slice discounts. |
| 2. Product demand: You price differently according to the demand the product has compared to other products. |
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CHANGE PRICING/TYPE OF DISCOUNT EXAMPLE: Product Demand |
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NO. |
INDUSTRY SIC |
YEAR |
EXAMPLE |
| 1 | 3711 | Volkswagen's new leasing rate charges for $0.10 a mile over 60,000 miles. Usage cap. | |
| 2 | 4412 | 1997 | A shipping cartel said it will raise rates on goods imported from Asia to the U.S. Analysts expect the shipping lines to seek increases of between 5% and 10%. |
| 3 | 4813 | 1997 | Sprint's dime-a-minute plan charges just 10 cents a minute for long-distance calls on nights and weekends and 25 cents a minute on weekdays. |
| 3. Customer status: You offer discounts differently according to whether the purchaser is a current or potential customer. |
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CHANGE PRICING/TYPE OF DISCOUNT EXAMPLE: Customer Status |
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NO. |
INDUSTRY SIC |
YEAR |
EXAMPLE |
| 1 | 4813 | 1997 | AT&T has been raising its basic rates in the past couple of years. More than half of AT&T's customers still pay high basic rates, apparently unaware of, or uninterested in, cheaper plans. |
| 2 | 4813 | 1996 | AT&T says it will offer new customers 3 months of free, unlimited "local-toll" calling in the Illinois region. These toll calls go beyond a local market without crossing long-distance boundaries. |
| 3 | 4813 | 1996 | "Carriers in several big markets are cutting cellular-phone prices, and even offering them for free. Bell Atlantic-Nynex further cut the price of a cell-phone, already a steal at $40 in early January, to $5 for new customers who sign up before Jan. 31." |
| 4. Transfer cost: You transfer part of your cost to the customer in return for a discount. |
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CHANGE PRICING/TYPE OF DISCOUNT EXAMPLE: Transfer Cost |
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NO. |
INDUSTRY SIC |
YEAR |
EXAMPLE |
| 1 | 2834 | 1995 | Merck gives discounts based in part on how well a customer persuades physicians to prescribe Merck drugs. |
| 5. High visibility product: You discount the products commanding the greatest customer attention. |
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CHANGE PRICING/TYPE OF DISCOUNT EXAMPLE: |
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NO. |
INDUSTRY SIC |
YEAR |
EXAMPLE |
| 1 | 3711 | Volkswagen offers a new low monthly lease rate on its new 1993 Golf GL and Jetta. Offer is only for CA residents. Leasing the car is selling per month. | |
| 2 | 4813 | 1997 | Sprint Sense Day plan offers a 10-cents-per-minute rate on the one number you call the most. |
| 3 | 4813 | 1997 | Sprint Sense Day plan offers 15 cents per minute, around the clock, if you tell Sprint you're a work-at-home person or homebound. |
| 6. Multiple product: You offer discounts based on the number of separate products the customer buys from you. |
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CHANGE PRICING/TYPE OF DISCOUNT EXAMPLE: Multiple Product |
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NO. |
INDUSTRY SIC |
YEAR |
EXAMPLE |
| 1 | 4813 | 1996 | IDT charges $15.95 a month with IDT phone service, and $19.95 without it. |
| 7. Coupon: You offer a discount only to holders of a coupon. |
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CHANGE PRICING/TYPE OF DISCOUNT EXAMPLE: Coupon |
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NO. |
INDUSTRY SIC |
YEAR |
EXAMPLE |
| 1 | 2043 | 1996 | Post just announced it is cutting prices an average of 20%. It's also issuing a new coupon that will apply to all its cereals. |
| 2 | 3944 | 1993 | Mattel plans soon to begin distributing more than 1.5 billion coupons offering discounts of between $1 and $10 apiece on its toys. Price is reached per product, but consumers must have coupons to receive the lower price. |
| 3 | 5621 | 1992 | Coupon offers 15% off any purchases at the store between January 17 and 30, 1993. |
| 8. Rebate: You refund a part of the customer's purchase price. |
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CHANGE PRICING/TYPE OF DISCOUNT EXAMPLE: |
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NO. |
INDUSTRY SIC |
YEAR |
EXAMPLE |
| 1 | 4813 | 1995 | Since last year, AT&T has been sending out $25 to $75 checks to encourage people to switch their long-distance carrier. |
| 2 | 3999 | 1993 | Various manufacturing companies are essentially lowering their prices to retailers, per the retailers' demand. Ex: Sharper Image's suppliers are paying a monthly $750 fee per product the first time the product appears in print, and a $250 fee each time after that. Supplier's rebate is per each time the product appears in print (vs. just when it sells the product to Sharper Image). |
| 3 | 3711 | 1991 | Instead of using a blanket ad campaign to offer rebates, some car companies are mailing offers to specific households that bought their make of cars 3 and 4 years ago. These are people who might delay their normal trade-in because of the recession. |
| 9. Prompt payment: In this very common form of discount, you offer your customer a lower price for paying his bill promptly. The examples list only unusual variations on this discount. |
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CHANGE PRICING/TYPE OF DISCOUNT EXAMPLE: |
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NO. |
INDUSTRY SIC |
YEAR |
EXAMPLE |
| 1 | 2389 | 1990 | Claiborne announced it will give a 10% discount to retailers that pay for their merchandise within 10 days of getting it. The discount affects 70% of Claiborne's business. The difference in pricing is that, for a short time (10 days after receipt of product), there's a discount. |