This activity is important because the final price serves many functions for the firm. The final price must be high enough to cover the firm's costs and achieve the firm's objectives, but also low enough to be attractive to consumers. To set the final price, marketing managers begin with the list (quoted) price and then make price adjustments. Marketing managers use both discounts and allowances, which are reductions from the list price given, as a reward for performing an activity to arrive at the final price. The four most common types of discounts are (1) quantity, (2) seasonal, (3) trade (functional), and (4) cash. The goal of this activity is to demonstrate your understanding of the four types of discounts used by sellers.
Select the most appropriate category of discount for each of the eight examples below.
1. Chiquita encourages Smoothie King to pay its bills for bananas quickly by offering a 3% discount on bills that are paid within 7 days.
2. To encourage Target Stores to place its orders for bagged candy well before the trick-or-treat season, Hershey offers a low price on Reese's Peanut Butter Cups for orders placed before June.
3. Radio Flyer tries to get toy stores to order snow sleds and saucers in May by temporarily lowering the retailer's cost for its outdoor snow toy line.
4. Costco can purchase up to 1000 pallets of water from the manufacturer for $300 per pallet, but the costs drops to $275 per pallet for orders of 1001 or more pollets.
5. To get bills for its storage products paid quickly, Rubbermaid offers a 1% discount on bills that are paid in full within 10 days.
6. Pepsi offers a grocery store a reduction in the pallet price of Pepsi products in exchange for the store setting up a large football- themed display at the front of the store.
7. Consumers can buy a four-pack of Dove White Beauty Bars for $5.49 or they can buy an eight-pack of the same soap for $8.49.
8. Haggar offers Kohl's a reduction in the cost of its Men's Cool 18 Flat Front Pants in exchange for Kohl's running local advertising featuring Haggar products.

The types of discounts and their examples are displayed below:

Discount Category   Example

Cash                           1. Chiquita's 3% discount for payment within 7 days.

Seasonal                    2. Hershey's offers of a low price for orders placed

                                       before June.

Seasonal                    3. Radio Flyer's lowered retailer's costs to encourage

                                      toy stores to order in May.

Quantity                    4. Reduced cost per pallet for orders above 1,000

                                      pallets.

Cash                          5. Rubbermaid's offer of 1% discount on bills paid

                                      within 10 days.

Trade                        6. Pepsi's offer to a grocery store of reduced pallet

                                     price in exchange of a large football-themed display.

Quantity                   7. Buying eight-pack Bars for $8.49 instead of a four-

                                     pack Bars for $5.49.

Trade                       8. Haggar's offer of reduced cost in exchange for

                                  Kohl's running local advertising with Haggar products.

Thus, each category of discounts has specific purposes it achieves.

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