In$-$Class Activity $17-1$: Using discounts and allowances to improve the marketing mix

Introduction

Most price structures have a basic list price from which various discounts and allowances are subtracted. Discounts $($not to be confused with discount selling$)$ are reductions from list price that are given by a seller to a buyer who either gives up some marketing function or provides the function himself. Several types of discounts are commonly used, including:

a$)$ Cumulative quantity discounts

b$)$ Noncumulative quantity discounts

c$)$ Seasonal discounts

d$)$ Cash discounts

e$)$ Trade $($functional$)$ discounts

Allowances are similar to discounts. They are either given to final consumers, or to customers or channel members for doing something or accepting less of something. Different types of allowances include:

a$)$ Advertising allowances

b$)$ Push money or prize money allowances

c$)$ Trade in allowances

d$)$ Stocking allowances

While many firms give discounts and allowances as a matter of custom, they should be viewed as highly useful tools for marketing strategy planning. As outlined in the text, each type is designed for a specific purpose. Thus, some firms offer buyers a choice of several discounts and allowances.

The purpose of this exercise is to illustrate how discounts and allowances can be used in marketing strategy planning. The emphasis will be on recognizing opportunities to improve a firm's marketing mix.

Assignment

Presented below are two cases describing situations in which a firm might want to add or change some discount or allowance$-$as part of its marketing mix. Read each case carefully and then answer the questions that follow.

$1.$ Creekside Apartments offers two bedroom apartments with the same basic "roommate" floor plan that is popular with other student oriented apartments in the area. In August and early September, there is no difficulty in attracting tenants at the going rate of $$650$ per month rent. Although there is a penalty for breaking the lease, each year a number of unexpected vacancies occur at the end of the first semester when some students graduate or drop out of school, move to a dorm, or find someone new with whom to live. Of course, the same thing happens at other apartments, so in late December and early January there are always more empty apartments than new renters. As a result, competition for tenants is usually intense. In this "buyer's market," student renters look for the best deal$-$and apartment managers dread the idea of having an empty apartment that brings in no rent for the spring semester.

$$ What type of discount or allowance would you recommend in this situation? Why?

$2.$ PowerPro Electrical Supply Company sells a wide assortment of products to electricians, electrical contractors, and general building contractors in the area around Dallas, Texas. PowerPro's line includes almost everything its customers might need$-$ranging from wire, electrical tape, circuit breaker boxes, conduit, switches, outlet boxes, lighting fixtures, and a wide variety of electrician's tools and equipment. In addition, like most other electrical wholesalers in the area, PowerPro offers free delivery to the construction site. Despite PowerPro's efforts to promote itself as "the most economical source for all your needs," most of its customers split their business among a number of different electrical supply wholesalers. When PowerPro's owner complained about this, one of his counter clerks offered an explanation: "The person having the work done usually doesn't care what electrical supply house gets the business$-$so the different electricians just call whoever comes to mind first."

$$ Could discounts or allowances be useful to PowerPro Electrical Supply? Why? If so$,$ what type would be best? Explain.