What is a Volume Discount?

A volume discount is a method used by sellers and manufacturers to reward those who are able to purchase in bulk amounts or in mass quantities. For manufacturers, businesses that buy more of an item usually get it at a lower price because the manufacturer is not only interested in making a sale, but also getting rid of manufactured goods. The businesses that buy in bulk may have large warehouses in which to store such goods and can offer a lower price to consumers. A volume discount for merchants may inspire merchant loyalty. If a merchant buys X amount of an item, they may be offered incentives to purchase more or receive a lower purchasing price in the future.

The average consumer sees many types of the volume discount on a regular basis. Most commonly, warehouse stores like Costco®, offer merchandise at lower prices because they are purchased in bulk quantities. The main disadvantage of this is that you may have to spend more to save some, and your home storage space can be quickly diminished. It may save you some money to buy canned pineapple at your local warehouse store, but you might need to purchase eight to ten cans to get that savings. That’s great if you have the space, and eat a lot of pineapple, but not so great if you only eat pineapple once a year.

Another instance of the volume discount may occur in retail stores. A certain item, for example underwear, may have a higher price for a single pair but have a lower price per item if you purchase a certain amount. For instance, a local store might charge $8-10 US Dollars (USD) for one pair of underwear, but offer five pairs for $25 USD. Similarly, items like socks or tee shirts may be sold in groups to offer a greater discount to the purchasers.

Consumers may also find a volume discount on certain services or in entertainment venues. You might get cheaper ticket prices at the movie theater if you can get a group rate for attendance (usually at least ten people). At your local Chuck E. Cheese®, you can purchase packages which save some money and provide a greater amount of video game tokens if you buy these in larger amounts. Frequent use of services like massages, manicures, tanning services, or housecleaning may qualify you for a discounted price. A yoga studio might charge a set amount if you take one class, and a lesser amount if you pay for multiple classes in advance.

People may benefit even when they don’t buy in bulk, if they purchase from stores that buy such large quantities of items that they can undersell other merchants. This is one of the principal arguments against warehouse type stores or Big Box merchants. Small merchants and mom and pop stores pay more for items and must confer that price to consumers, while larger stores pay a cheaper price for the same items because they buy them in larger amounts.

In order to make up for lack of volume discount, small stores need to offer something unavailable at a Big Box store, like a greater degree of personal service. Some people pay higher prices if they feel especially welcomed at a store or are well known by its owners. However, often consumers are price driven, and stores that get a large volume discount on merchandise and are thus able to offer lower prices, may push smaller stores out of business.

Consumers may sometimes be influenced by the spend more, save more opportunities of the volume discount. In order to save money, it’s well to consider each bulk purchase in terms of what you actually need. In our pineapple example above, you certainly may pay a lower amount for pineapple per can, but you are still paying more money, which may not serve you if you aren’t a huge fan of pineapples. Merchants, too, may buy more items than they need and then have to drastically cut prices when items don’t sell well, sometimes even below the price of original purchase.