Up to this point, we have discussed the setting of a price as if it is a static event: a price is determined and that’s that. The initial price that is set is called the list price. There are many adjustments that happen to the list price before arriving at the final price, or the price the buyer pays. In this section and the next, we will discuss the adjustments that are made to the list price. This section will focus on common adjustments in the industrial markets while the next section will focus on common adjustments in the consumer market. This does not mean the adjustments are limited to usage in either B2B or B2C. We are just grouping them by their most common usage.
Organizations must decide what their policies are when it comes to making price adjustments, or changing the listed prices of their products. Some common price adjustments include quantity discounts, which involves giving customers discounts for larger purchases. The terms need to specify if this required quantity can be purchased at one time or over a set period of time. Cash discounts, used to aid cash flow by speeding up payments, and seasonal discounts to get rid of inventory and holiday items are other examples of price adjustments.
A company’s price adjustment policies also need to outline the firm’s shipping charges. Many online merchants offer free shipping on certain products, orders over a certain amount, or purchases made in a given time frame. FOB (free on board) origin and FOB delivered are two common pricing adjustments businesses use to show when the title to a product changes along with who pays the shipping charges. FOB (free on board) origin means the title changes at the origin—that is, when the product is purchased—and the buyer pays the shipping charges. FOB (free on board) destination means the title changes at the destination—that is, after the product is transported—and the seller pays the shipping charges.
Uniform-delivered pricing, also called postage-stamp pricing, means buyers pay the same shipping charges regardless of where they are located. If you mail a letter across town, the postage is the same as when you mail a letter to a different state.
Trade discounts, also called functional discounts, are payments to distribution channel members for performing some function. Examples of these functions are warehousing and shelf stocking. Trade discounts are often combined to include a series of functions, for example 20/12/5 could indicate a 20% discount for warehousing the product, an additional 12% discount for shipping the product, and an additional 5% discount for keeping the shelves stocked. Many times these discounts are split among channel members. If that is the case, the first discount listed goes to the last channel member. This progresses as the last discount listed goes to the first channel members. Trade discounts are most frequent in industries where retailers hold the majority of the power in the distribution channel Trade discounts are given to try to increase the volume of sales being made by the supplier.