Quantity Discounts: An Overview and Practical Guide for Buyers and Sellers
By Charles L. Munson, Washington State University, United States, munson@wsu.edu | Jonathan Jackson, Washington State University, United States, jonathan_jackson@wsu.edu
Abstract
Sellers commonly provide price discounts for large orders; in fact, quantity discounts have existed as ubiquitous tools of commerce for hundreds of years. In some industries today, quantity discounts are more common than not in business-to-business transactions. For example, large discount retailers demand price breaks from their suppliers, and they typically then pass on a portion of the savings to final consumers. Practitioners face the issue from two sides. For sellers, what form of quantity discounts makes the most sense, and how should the discounts be priced? What role should quantity discounts play in the larger contract negotiation scheme? For buyers, how many units should be ordered when faced with a quantity discount schedule? And under what conditions should a buyer take the lead and attempt to negotiate a discount schedule from its supplier?
In this monograph, the authors critically review the existing quantity discount literature — particularly emphasizing the differences between historical academic focus and practical applications, as well as identifying areas that are still under-developed. They provide, in one location, the equations and major solution algorithms for the most popular and relevant quantity discount scenarios from both the buyer's and seller's perspectives.
Quantity Discounts: An Overview and Practical Guide for Buyers and Sellers
Quantity Discounts surveys operations management literature and offers ways to bridge remaining gaps between research and practice. The authors include formulas and solution methods for some of the fundamental quantity discount scenarios from both buyers' and sellers' perspectives. Sample solution methods provide enough detail to enable implementation by managers, and they provide a flavor of the variety and complexity of some of the core techniques appearing in the literature.
Quantity Discounts is organized as follows. Section 2 describes quantity discount conditions and realities, including the many reasons why companies offer them, the various quantity discount characteristics, results from surveys of practicing mangers, and a sampling of real-world discounts appearing in the literature. Section 3 provides a literature review for buyer's perspective models, while Section 4 provides a review for seller's perspective models. Section 5 concludes with several recommendations for future research. Finally, especially designed for instructors and practitioners, the Appendix illustrates how to implement several standard quantity discount models into Microsoft Excel with relative ease.
