Part 5: Price Components
Discounts and Premiums
Capsule:The industry might use several different types of discounts or premiums to appeal to specific segments of customers. The discounts usually reflect savings for the industry in serving those segments compared to the average customer. The premiums reflect the industry's higher costs.
Competitors in the industry might change the type of Discounts or Premiums used in order to change the effective price. Virtually every product and service package provides for some form of Discount for specific segments in the market. The most common forms of segment Discounts are those that reward buyers for large volumes of purchases and all customers for prompt payment on invoices. However, there are several other types of Discounts that the industry may use to reduce the basic price offered to specific segments of the market. In some cases, these Discounts might be reversed, as well. With a reversed Discount, a seller would charge a Premium to some segments in the marketplace by using the Discount concept to produce a Premium. Most of these Discounts types reflect savings for the industry in some part of the customer relationships in the segment. Premiums reflect higher costs to serve a customer segment compared to the average customer.
Example of Discount and Premiums: MCI One Plan offers 12 cents per minute if you spend at least $25 a month. Spend less than $25 and the per-minute charge is 15 cents.
MCI offers a form of a volume purchase discount.
For more examples and brainstorming ideas, please see Improve/Pricing/Change Components of Price/Change Type of Discount or Premium
Discounts and Premiums Questions
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