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Have you ever come across this advertising slogan: “Buy more, save more”? This is exactly what the philosophy of volume discounting is — encouraging buyers to buy more while saving some money.
But does it really work?
Well, in today’s fast-paced economy, when every brand is chasing the attention of the customer — volume discounting allows brands to adopt economies of scale, capture a large market share by offering competitive pricing to customers buying in bulk, and improve customer loyalty and satisfaction by offering discounted price on volumes.
In this article, we’ll take you through the nitty-gritty of volume discount along with examples to help you implement the concept in your ecommerce business too.
Understanding Volume Discounting
A volume discount is offered by a brand to its customers when the customer buys an increased quantity of the product. This means that the buyer who purchases a bulk quantity of the product gets a heavy discount compared to buying a single product.
By offering volume discounts, brands tap the psychology of the customers that revolve around the perception of value and the desire to maximize the value. The volume discount works as an incentive for the customer that compels them to buy more to get the reward of “more discount.”
Historically speaking, the concept of volume discounting, targeting wholesale buyers and commercial establishments, existed long back. But with the rise of ecommerce giants like Amazon and Alibaba, this age-old pricing strategy has seamlessly transitioned for ecommerce buyers fueled by changing customer behavior and tough market competition.
Types of Volume Discounting
Here are some of the common types of volume discounting.
Cumulative Volume Discounts: A cumulative volume discount applies to the total volume bought by a customer over a period of time. So, each time a buyer purchases something, they add to the potential discount.
Such discount policies encourage long-term customer relationships and repeat purchases.
An example of a cumulative volume discount is a loyalty program where customers earn a higher discount rate after reaching certain spending thresholds over a year. Say, a customer can save $500 on a cumulative spend of $4000 over a period of time.
If you’re wondering how to apply such a discount strategy and keep track of it, Skai Lama's Kite makes it super easy to track and apply these discounts over time.
Non-Cumulative Volume Discounts: Non-cumulative volume discounts, unlike cumulative volume discounts, are applied on a single purchase, thus encouraging the customer to buy in larger volumes to avail the discount.
Brands often choose non-cumulative volume discounts when they need to clear the inventory quickly. For example, consider a brand offering a bulk purchase discount on a single order of 100 units of a product.
For brands who wish to offer non-cumulative volume discounts, Skai Lama's Kite makes it easy to set up for single-purchase volume discounts.
Tiered Volume Discounts: Tiered volume discounts involve offering different discount rates for different tiers of product purchase. The discount increases with each tier of the quantity purchased. For example, consider this tiered volume discount a cosmetics brand offers on its lipsticks.
Unit 1: $ 40
Unit 10 - 19: $35 per unit
Unit 20-49: $30 per unit
Unit 50: $20 per unit
Now, say if a customer buys 9 lipsticks, then the total amount will be:
40 x 9 = $360
But if they buy one more, i.e. 10 units, the cost will be
35 x 10 =$350
Which means, the customer won’t mind buying one piece extra and save $10. As the volume of the product goes up, the discount amount goes up, too, encouraging customers to buy more.
And if you’re a Skai Lama's Kite customer, you can easily create and manage these tiered discount structures effectively for your ecommerce store.
Examples of Volume Discounting in Action
Here are some industry-specific examples of volume discounting
Fashion Retail: Here’s an example of a fashion retail offering tiered discounts on its apparel.
Electronics: Best Buy’s rewards program is a classic example of a cumulative discount program that offers customers points for each purchase they make. The points that are accumulated over a period of time can be redeemed for free delivery, discounts, etc.
Customers who spend a certain amount in a year are rewarded with different membership options that unlock additional benefits for the customers.
Beauty and Cosmetics: Jada Beauty, a beauty and skincare brand, offers attractive bundling discounts on their range of products.
Benefits of Volume Discounting
Volume discounting has many benefits for businesses and customers alike.
Benefits for Businesses:
Volume discount strategy helps brands to improve their sales and sustainably grow their business. Here are some of the significant benefits of volume discounting:
- Increased Sales and Revenue: Volume discounting encourages customers to buy more in order to receive the discounts. This, in turn, leads to larger order sizes and higher overall sales for brands.
- Improved Inventory Management: Volume discounting is a tried and tested method to move inventories quickly. The strategy focuses on “buying more,” making it easy for brands to move seasonal and perishable products quickly.
- Enhanced Customer Loyalty: Volume discounting is perceived as better deals or value for money. This helps in fostering customer loyalty and repeat business.
Skai Lama Integration: While volume discounting itself is a powerful strategy, the use of technology can make the implementation of the strategy seamless. Skai Lama's apps, like Easy Bundles and Kite, - first app to make product bundles and the second app to make volume discounts can aid in implementing these strategies effectively.
For example, using Skai Lama’s Easy Bundles, a brand was able to integrate a product bundling strategy in its online store that resulted in $17,221.79 in sales in 30 days!
Benefits for Customers:
Volume discounting not just benefits the brands but attracts the customers too.
- Cost Savings: Volume discounting enables customers to save money by purchasing more at once, which is especially appealing for regular-use products.
- Perceived Value: Volume discounting gives customers the perception of getting better deals as they can save more money, especially on regular-use products.
- Thus, brands tap into the psychological aspect of the customer, making them feel they are saving more and thus enhancing customer satisfaction.
- Convenience: Volume discounting not only helps customers save money, but it’s also convenient to shop for regular-use items at once. Thus, the convenience of bulk purchasing plays a significant factor in customer decision-making.
Long-Term Business Growth:
Volume discounting is a powerful tool in a company’s pricing strategy that enables sustainable growth of the company.
On the one hand, it helps the brand to manage its inventory turnover effectively, while on the other hand, it strikes customer satisfaction by meeting customer needs, helping them get better deals, and maintaining a healthy long-term relationship with the customer.
Volume discounting also helps a brand to stay competitive in the market.
For example, if Brand A offers a 50% discount on bulk purchases of a regular-use product and Brand B doesn't offer any volume discount, it’s likely that customers of this regular-use product will opt for Brand A as they’re getting a “better deal” here.
Implementing Volume Discounting in Your Business
Here are the six steps to implement volume discounting in your business.
- Analyze the data
- Understand your customers and their needs
- Decide which products to offer at a discount
- Calculate the maximum limit of discount
- Determine a pricing structure
- Keep track of sales and adjust
Best Practices for Volume Discounting:
- Setting the Right Discount Levels: Finding the optimal discount level that attracts the customers but still does not eat up your revenue is important. Using discount simulators can help businesses identify the sweet spot. This can be done by analyzing the profit margin and identifying the optimal discount levels, which can help brands make data-driven decisions.
- Segmenting Products for Discounting: Brands must identify the products for volume discounting. Certain factors that brands need to keep in mind are demand among the customers, profit margin, and stock in the inventory.
- Clear Communication: Lastly, brands need to maintain clear communication about the discounting terms with the customers to avoid customer confusion. Remember, unclear communication can lead to confusion among customers which can lead to dissatisfaction.
Common Pitfalls and How to Avoid Them:
While volume discounting may have several advantages, it has some pitfalls too, if not done right. Some of the common challenges that brands face are:
- Undermining Profit Margins: This is one of the pitfalls for any discount strategy. Remember, by offering a discount, you might be cutting into the profit margin for the unit product.
- But, if you’re selling in volume and not offering a very steep discount, you can compensate for the per-unit losses with a high volume of sales.
- Overcomplicating the Offer: While it’s okay to get innovative with your discount offer to pique the interest of the customer, overly complex discount structures can deter customers. So, as a best practice, keep your discounts simple.
- Neglecting Inventory Management: Volume discounting can lead to unexpected high demands among customers. So, brands might be at risk of running out of stock. This can significantly affect customer satisfaction if brands are unable to keep their discount promises.
Using Technology to Simplify Implementation
While an effective discounting strategy can boost your sales significantly, technology can help you simplify the implementation process of the pricing strategy. This is where Skai Lama Apps come in handy.
Automating Discount Calculations: The Skai Lama's apps can automate the discounting process, ensuring accuracy and efficiency. With Skai Lama’s Easy Bundle apps, Arbor Made, a sustainable and reusable candle store, was able to increase its conversion rates by 20%.
Integrating Discounts with Online Storefronts: With Skai Lama’s tools like Easy Bundles and Kite you can easily integrate volume discounts into your online shopping store.
Tracking and Analyzing Sales Data: For the sustainable growth of your brand, it’s important to measure sales and keep track of all the sales data. Skai Lama tools help you to measure the sales data effectively and analyze the effectiveness of volume discounting strategies.
Conclusion: Boost Sales with Volume Discounting
Volume pricing is a powerful tool for brands to move inventory and increase the number of sales quickly. While brands can try different volume discounting strategies, some of the key benefits include:
- Increasing average order size
- Attract new customers
- Appeal to customers with various needs
- Promoting sustainable growth for the brand
- Create a long-term relationship with customers
- Better customer satisfaction and retention
Try Skai Lama's suite of apps for easy implementation of volume discounting strategies. Schedule a call for a demo today!
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