Mastering Volume-Based Discounts: Strategies, Benefits, and Risks

After classifying discounts and promotions by form, timing, and target customer groups, volume-based discounts become particularly significant. These discounts have unique characteristics that must be taken into account when developing and implementing the company’s marketing strategy.

Volume-Based Discounts

Volume-based discounts are a type of commercial discount offered to customers when they purchase a large quantity of products. This incentive system is used by sellers and manufacturers to encourage higher order volumes.

The concept of volume-based discounts is simple: the more a customer buys, the lower the unit price of the product. The discount can be expressed as a percentage or a fixed amount and is typically outlined in the price list or sales agreement.

Volume-based discounts motivate customers to increase their purchase quantities. Buyers aim to purchase more to benefit from a lower unit price, which helps sellers increase sales volume and overall turnover. Sellers can more quickly clear warehouse space, while manufacturers can better plan production, avoid downtime, and reduce costs.

Customers value the opportunity to save money when buying in bulk, which can contribute to the formation of long-term business relationships. Companies that offer volume-based discounts tend to be more attractive to customers compared to competitors who do not. Sellers also save on shipping costs, as they send fewer but larger shipments instead of multiple small orders. When a buyer places a large order, payments are typically received faster, which improves the company’s cash flow.

However, volume-based discounts have their downsides. Buyers may purchase more products than they actually need to obtain the discount, which can lead to overstocking in their warehouses. This can result in financial losses for the buyer, especially if the product has a limited shelf life.

If the discount rate is too high, it can negatively impact the company’s profitability. In some cases, customers may delay purchasing products at the regular price, waiting for larger discounts. Buyers may also start perceiving the products as “cheap,” especially if volume-based discounts are offered too frequently. This can devalue the brand and create a customer expectation of constant discounts.

Sellers are forced to regularly review their pricing policies to ensure that volume-based discounts do not result in losses. If large clients buy significant quantities of products at a reduced price but later return the goods or fail to pay their invoices, it can result in financial losses for the seller.

If a seller offers substantial volume-based discounts, demand for the product may surge, leading to product shortages and order fulfillment delays. Warehouse and production capacities may not be able to handle the unexpected increase in demand.

Financial stability can also be affected, as cash becomes “frozen” in unsold inventory or receivables from customers.

Volume-based discounts can be divided into three main categories:

• Wholesale Discounts
• Bulk Purchase Discounts
• Bundle Offers

Let’s analyze each category separately, highlighting its pros and cons for both businesses and customers.

Wholesale Discounts

Wholesale discounts are price reductions offered to buyers when they purchase large quantities of goods. They are most commonly used in relationships between manufacturers, distributors, and retailers. The main goal of wholesale discounts is to encourage customers to increase their purchase volumes and ensure a stable flow of product sales.

Advantages of Wholesale Discounts

• For the seller: Discounts motivate customers to order larger quantities, allowing the company to speed up inventory turnover and maintain stable sales. Wholesale discounts help free up warehouse space more quickly, reducing storage costs and minimizing the risk of product spoilage, especially for items with limited shelf life. It is more cost-effective for sellers to ship one large order instead of multiple small ones, which reduces transportation and administrative expenses. Wholesale discounts encourage buyers to place large orders, creating a sense of “value,” which strengthens long-term business relationships. Discounts incentivize clients to buy more from the seller rather than from competitors, helping the seller capture a larger market share. Since large purchases are often arranged in advance, it simplifies production planning and raw material procurement.
• For the buyer: Buyers can reduce their purchase costs, thereby increasing their profit margin when using or reselling the products. Wholesale clients can stock up on products at a favorable price and use them over an extended period. Buyers also save on delivery costs by paying for the shipment of a large order at once instead of multiple smaller shipments. Clients feel valued as “important partners,” especially when exclusive discounts are provided to them, which enhances their loyalty to the supplier. Buyers can resell products at lower prices than competitors or offer better deals to their own customers, helping them gain a competitive advantage. Buyers can plan their purchase volumes and sales according to their current and future needs, particularly if the products are non-perishable.

Disadvantages of Wholesale Discounts

• For the seller: A lower unit price reduces the seller’s profit margin, which can lead to losses if sales volume does not compensate for the discount. If there is a sudden increase in order volume, the seller may face product shortages, leading to delivery delays and damage to the company’s reputation. While selling large quantities of goods, sellers may not always receive payment immediately, negatively affecting cash flow. Managing inventory becomes challenging if large volumes of unsold products remain in stock. Buyers may become accustomed to discounts and start expecting them regularly, reducing the seller’s ability to sell products at standard prices. If a customer orders a large batch and discovers defects, the seller may have to accept a return of the entire batch, resulting in financial losses. If a customer purchases an excessive quantity of goods and is unable to sell them, they may request a return or an additional discount. If competitors offer more attractive wholesale discounts, the seller may be forced to further lower prices, reducing overall profitability. Managing complex discount systems requires automation of accounting processes and strict control over the provision of discounts. Errors in calculations can lead to financial losses.
• For the buyer: If demand for a product declines or its shelf life expires, the buyer may be unable to sell it and will incur losses. The buyer may face delays in receiving ordered products, which can disrupt their sales plans. Buyers must freeze a significant portion of their capital to purchase large quantities of products, limiting their liquidity. If buyers purchase too many perishable goods (such as food), they risk not being able to sell them before the expiration date. Buyers may become accustomed to discounts and refuse to purchase if discounts are not provided, which hinders their purchasing flexibility. If a large batch of defective products is received, the buyer loses time and money on processing returns and ordering replacement items. Buyers risk “overstocking” their warehouses with surplus inventory, which may need to be sold at a loss or even discarded. Buyers may suffer from price wars among suppliers, as their own inventory loses value when market prices drop. It can be difficult for buyers to track when volume-based discounts are truly beneficial, especially if they are linked to complex conditions, such as cumulative discount systems.

Wholesale discounts are used to incentivize distributors and retail networks to reduce stock before launching a new product range, to clear seasonal inventory (e.g., winter clothing in spring), to accelerate the sale of products nearing their expiration date, or to offload outdated products or equipment.

Wholesale discounts are an effective tool for increasing sales and attracting customers, particularly in wholesale and distribution channels. They help speed up inventory turnover, free up warehouse space, and retain clients. However, they also carry certain risks, such as reduced profitability, overstocking, and increased risks of product defects and returns. To avoid these issues, Beautier recommends that both sellers and buyers carefully plan their strategies and terms for providing wholesale discounts.

Bulk Purchase Discounts

Bulk purchase discounts are a type of discount offered to buyers when they purchase a certain quantity of goods. Unlike wholesale discounts, which are often associated with bulk shipments and long-term partnerships, bulk purchase discounts can be available to retail customers and clients at any level.

The essence of the discount is that the more products are purchased at once, the lower the unit price. For example, “Buy 10 items – get 20% off” or “5% discount on purchases of 1,000 units or more.”

Advantages of Bulk Purchase Discounts

• For the seller: Bulk purchase discounts motivate customers to buy more products in a single transaction, helping the seller increase total sales volume. Selling large quantities of products quickly allows the seller to free up warehouse space and reduce storage costs. Bulk discounts attract new customers and encourage repeat customers to place larger orders. The seller reduces logistics and packaging costs by sending one large shipment instead of several smaller ones. Bulk discounts enable sellers to better forecast demand and plan deliveries, as large orders are often placed in advance. A lower price for larger purchases allows the company to stand out from competitors and attract more customers. Sellers can also use bulk discounts to sell off old or excess inventory, minimizing potential losses.
• For the buyer: Buyers can save money by purchasing larger quantities of products at a reduced price. They may need to make purchases less frequently, saving on logistics and simplifying inventory management. Buyers perceive a “deal” from receiving discounted products, encouraging them to return for repeat purchases. Buyers also reduce shipping costs by ordering a large volume of products at once. Buyers can plan their purchases in advance and take advantage of discounts to replenish stock. Buyers can purchase products at a more favorable price and resell them at a higher margin, improving their competitiveness in the market. Buyers can take advantage of discounted bulk purchases to stock up, especially if the products have no expiration date or experience constant demand.

Disadvantages of Bulk Purchase Discounts

• For the seller: By offering a discount, the seller sacrifices part of their profit margin. If the discount is too large, it can lead to financial losses. If the buyer cancels or changes a large order, the seller may be left with surplus inventory. Customers may become accustomed to buying products only at a discount and refuse to purchase them at full price, making discounts a “requirement” for future sales. As order volumes increase, the seller must keep more products in stock, raising storage costs and increasing the risk of shortages in the event of a sudden surge in demand. If a large batch of goods is returned, the seller incurs losses from shipping and processing the returns. The seller provides a discount and sells the product at a lower price, but payment for the goods may not be received immediately, affecting cash flow. The seller may face a situation where competitors start offering even larger discounts, forcing them to further lower prices, thereby reducing profitability. Implementing a flexible discount system requires automated accounting, order tracking, and profitability analysis. If bulk purchase discounts are used too frequently, customers may perceive the products as cheap or low quality.
• For the buyer: Buyers may be forced to purchase more than they actually need, increasing storage costs and tying up working capital. Buyers may purchase too much stock, which they may not be able to sell or use, especially if the product has a limited shelf life. Buyers may become accustomed to “beneficial” conditions and delay purchases in anticipation of the next discount, which disrupts demand stability. Buyers may face storage issues if they do not have enough warehouse space for the large volume of purchased goods. Buyers may be forced to return products, leading to time and financial losses for processing returns. To qualify for a bulk purchase discount, the buyer must invest a large sum of money, reducing their liquidity (available cash flow). Buyers may wait for deeper discounts and delay purchases, leading to reduced sales for the seller. Buyers may find it difficult to track when bulk purchase discounts are truly beneficial, especially if suppliers change their terms depending on the season or demand. Buyers may question the quality of a product if it is always offered at a discount.

Bulk purchase discounts are recommended for sellers when clearing old or obsolete inventory, promoting sales to increase order volume, attracting new customers or increasing purchase frequency, or when the goal is to speed up inventory turnover. Buyers benefit from these discounts when purchasing long-term storage products (office supplies, electronics, textiles), products with high and stable demand (food, hygiene products, household chemicals), when preparing for peak sales seasons to buy products at a lower price in advance, or when seeking long-term benefits from planned purchases (for example, buying construction materials for renovations).

Bulk purchase discounts are a powerful tool for increasing sales and attracting customers, but they have both advantages and disadvantages. Companies gain the ability to sell large batches of products faster, free up warehouse space, and increase customer loyalty. However, with the wrong strategy, it can lead to reduced profitability, price wars, and overstocking.

To avoid negative consequences, Beautier recommends that sellers develop a proper strategy for setting discount levels (for example, 5% for 100 units, 10% for 500 units), monitor the profitability of the discounts, and closely track demand and inventory management.

Bundle Offers

Bundle offers are a marketing strategy where multiple products are combined into a single set and sold at a total (usually reduced) price. This approach is used to increase sales volume, accelerate the sale of specific products, and attract customers. Bundles may consist of complementary products (e.g., smartphone + headphones) or unrelated products grouped into a promotion (e.g., “buy 2, get the 3rd free”).

Advantages of Bundle Offers

• For the seller: Buyers are more likely to choose bundles over individual products, as they perceive them as more valuable deals. This increases total sales volume and contributes to revenue growth. Selling multiple products in a bundle raises the average order value, as buyers spend more money in a single transaction, benefiting the business. Bundle offers often include items that are not in high demand. By combining them with popular products, the seller can clear out “stagnant” inventory. Bundles can help the company stand out from competitors by creating unique offers not found in other stores. Instead of promoting each product separately, the seller can advertise a bundle, reducing marketing costs. Shipping is also simplified and cheaper. Buyers feel they are getting a good deal, encouraging them to return for more offers. New or less popular products can be included in a bundle with well-known items, increasing their visibility and popularity. The seller can offer related products (e.g., a smartphone and a phone case) or complementary services (e.g., a device and warranty service). Sellers can adjust prices to make bundles more attractive compared to individual purchases. They can also use bundle offers to speed up the sale of old inventory or seasonal products, reducing storage costs.
• For the buyer: Buyers receive more products at a lower price, creating a sense of value and encouraging them to make a purchase. Buyers get a complete set of essential items, avoiding additional expenses on individual purchases. Buyers may receive extra products they would not have bought separately, but in a bundle, they are seen as a “bonus.” Buyers see the unique value of bundles and often choose stores that offer such promotions. Buyers pay for a single delivery instead of several, saving on logistics expenses. Buyers experience the “joy of a deal,” increasing loyalty and forming a positive impression of the company. Buyers get the opportunity to try a new product without having to buy it separately. Buyers receive all the necessary products and services at once, saving time searching for and ordering needed items. Buyers often perceive bundle discounts as a valuable deal and may purchase items they did not initially plan to buy. Buyers gain access to products that may be temporarily unavailable or not sold separately.

Disadvantages of Bundle Offers

• For the seller: Sellers often reduce the price of a bundle, lowering the profitability of individual products. If the discount is too large, it can lead to financial losses. The seller may have to offer a discount on a bundle to sell slow-moving items, which can reduce profitability. If the company frequently offers bundles at reduced prices, customers may begin to expect discounts and refuse to buy products at regular prices. When creating bundles, the seller must consider the quantity and availability of all products in the bundle. If one item is out of stock, the entire bundle becomes unavailable. If the bundle does not interest customers (for example, if the products are not related), sales may fall short of expectations. If a customer returns part of a bundle, the seller must recalculate the cost, adding complexity to return management. Competitors may start offering better bundles, forcing the seller to reduce prices further, leading to lower profits. Buyers who previously purchased individual products at full price may now buy them as part of a discounted bundle, reducing the seller’s revenue.
• For the buyer: Buyers may purchase unnecessary products in the bundle, increasing their expenses. Buyers may receive products they do not need, discouraging them from participating in similar promotions in the future. Frequent promotions may give buyers the impression that the product is overpriced at regular times. Buyers may experience delivery delays if one of the products in the bundle is out of stock. Buyers may not see value in the bundle if the products are not perceived as essential or related. Buyers may be unable to return a single part of a bundle if the return policy requires the return of the entire set. Buyers may delay purchases, waiting for better bundle deals, which slows down overall sales. Buyers may spend more money on a bundle than they initially planned for a single product.

Bundle offers are most beneficial when used to clear outdated inventory by mixing popular and old products to sell off excess stock. During holiday periods, gift bundles (e.g., gift sets) are in high demand. Bundle offers work well when launching new products, as the new item is combined with popular existing products to increase brand recognition. Bundles are also effective for selling accessories, such as a smartphone + phone case + screen protector, or promoting additional services, such as warranty coverage bundled with the main product.

Bundle offers are an effective sales strategy that helps sellers speed up inventory turnover, increase the average order value, and attract new customers. The main benefit for the buyer is cost savings and the ability to purchase several useful products at once.

However, Beautier recommends that sellers exercise caution to avoid profit loss and prevent customers from developing an expectation of constant discounts. It is best to use bundle offers for seasonal promotions, clearance sales of outdated inventory, or to promote new products. A balanced strategy for bundle offers can become a competitive advantage and increase customer loyalty.

Bulk purchase discounts are a powerful tool for increasing sales and attracting customers. However, companies must carefully calculate their offers to avoid profit loss and stock management issues. The ability to strike a balance between customer benefits and seller profitability is the foundation of a successful discount strategy.

The main principle of discounts and promotions is that they should benefit both parties: the seller achieves stable sales and reduces warehouse stock, while the buyer saves on the cost of goods.