Volume Discount
Candlefocus EditorThe lowering of prices due to a volume discount is based on the economic principle of economies of scale; larger volumes of production require lower marginal costs to produce than smaller volumes. Since it takes fewer resources and labor to produce a large batch, the price of producing and transporting the item drops.
The varying methods that allow producers and sellers to apply volume discounts often operate using a tiered system with two or more levels. This tiered system is used to better reflect increases in quantity purchased, allowing the producer or seller to offer a diverse range of volume discounts in order to better suit the buyer's needs.
For example, a producer might offer a 10 percent discount for the purchase of ten items, a 20 percent discount for purchases of fifty items, and a 30 percent discount for purchases of one hundred items or more. This tiered system allows for more flexibility in the discounts being offered; a purchaser can buy as many or as few items as needed at the given discount rate.
Volume discounts can be an effective way for both producers and sellers to generate sales and benefit from economies of scale. Buyers can take advantage of the discounted prices offered in order to save cost on larger orders, and producers or sellers can benefit from increased sales and reduced inventory levels. The different structures which producers and sellers can use to arrange for volume discounts allows for a neutral system of negotiation which encourages large orders of the seller's product. It is important to note, however, that buyers should still be wary of potential quality issues when buying in bulk in order to ensure they are receiving a good rate.