Special Adjustments to Prices. Special adjustments to list prices consist of discounts, allowances and geographical adjustments.
1. Discounts
Discount is a discount given by the seller to the buyer in appreciation of certain activities from the buyer that are pleasing to the seller.
Usually this price discount is realized in cash or in kind and is intended to attract consumers. There are four types of discounts, namely quantity discounts, seasonal discounts, cash discounts and trade discounts.
a. Quantity Discount
Is a price discount offered by the seller to encourage consumers to be willing to buy in larger quantities, or are willing to concentrate their purchases on the seller so as to increase the overall sales volume.
For example, if a buyer purchases at least 10 units of a product, he will be given a 5% discount and if he purchases less than 10 units, he will not receive a discount.
b. Seasonal Discounts
Is a price discount given to buyers to make purchases outside of certain seasons. For example, a buyer who buys a raincoat in the summer will receive discounts of 5%, 10% and 20%.
c. Cash Discount
Is a discount given to buyers for payment in a period and they make payments on time. For example, a seller offers his product with payment terms.
If the buyer can pay within 10 days, they get a 2% discount and payment must be made within 30 days of receipt of the goods.
d. Trade Discounts
Also known as functional discounts, these are price discounts offered to buyers for paying for marketing functions they perform.
So this trade discount is only given to buyers who participate in marketing their products. They include distributors, both wholesalers and retailers.
2. Allowances
Like a discount, an allowance is also a reduction from the price list to the buyer due to certain activities carried out by the buyer. There are three types of allowances that are commonly used, namely:
- Trade in Allowance Is a price discount given in the trade-in system.
- Promotional Allowance Is a price discount given to sellers or distributors who carry out certain advertising or sales activities that can promote the manufacturer’s products. The form of a promotional allowance can be a smaller cash payment or a larger number of free products.
- Product Allowance Is a price discount given to buyers who are willing to buy goods in abnormal conditions.
3. Geographical Adjustment
Geographical adjustments are adjustments to prices made by producers or wholesalers. Geographical adjustments are adjustments to prices made by producers or also in connection with the costs of transporting products from the seller to the buyer.
This transportation cost is one of the important elements in the total variable cost, which of course will determine the final price that must be paid by the buyer. There are two methods commonly used to perform geographic adjustments, namely:
a. FOB (Free On Board) Origin Pricing
FOB (Free On Board) means that the seller bears all costs until the product is loaded onto the transport vehicle used (e.g. ships, trucks, trains, etc.).
Generally, in FOB (Free On Board) Origin Pricing, the seller determines the location of product manufacture, which is often the factory, sales warehouse, or the nearest port from the seller’s location.
Responsibility for the product will shift to the buyer when the product has been loaded onto the transport vehicle. All transportation and product handling costs are then borne by the buyer. The buyer located farthest away will bear the most transportation costs.
b. Uniform Delivered Pricing
In this method, the price set by the seller also includes all transportation costs. The seller determines the method of transportation, pays for transportation costs, and is responsible for any damage that may occur. Therefore, the seller’s responsibility is until the product is received by the buyer.
