Concessions, Purchasing Methods

An Expert's View about Business Administration in China

Last updated: 22 Feb 2011

9.1 Concessions, Purchasing Methods and Settlement Methods for Distributors


9.1.1  Concessions for Distributors

1. Discount

For discount coupons given out to consumers by the retailer, the discounted amount has to be reimbursed by the production enterprise to the retailer within the discount period.

2. Bulk Discount

Bulk discount refers to the provision of a certain amount of goods free of charge by the production enterprise to the distributor or by the wholesaler to the retailer based on the quantity of goods purchased.

3. Transaction Discount

This refers to a discount on the price offered by the production enterprise to the distributor or by the wholesaler to the retailer. Since such discount is offered within the distribution channels, it is called transaction discount.

4. Display Allowance

Display allowance is a specified sum of money given by the production enterprise to the intermediary for a certain amount of goods purchased as a reward for the support given by the intermediary.

5. Sales Allowance

Sales allowance is offered by the production enterprise to the intermediary based on the actual amount of goods sold within a specified period.

It should be noted that an ideal concession system should include concessionary policies for different distributors such as agents, wholesalers and retailers so that they will be motivated to sell the production enterprise’s products. The enterprise should avoid favouring one distributor over another as it will arouse discontent among the less favoured distributors. Also, many mainland enterprises presently offer incentives such as large bonuses or year-end rebates based on sales volume and not profits. The problem with such an incentive scheme is that distributors are tempted to use all kinds of improper means to boost sales including slashing prices or even sharing their bonuses and year-end rebates with downstream distributors. As a result, great confusion in the pricing system is caused.

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Posted: 21 February 2011, last updated 22 February 2011

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