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Trade discount and quantity discount are important pricing tools used in buying and merchandising because they influence the cost at which retailers acquire merchandise, the selling price of products, profit margins, inventory decisions, and relationships between buyers and suppliers. Although both discounts reduce the price payable by the buyer, they differ in their purpose, basis, timing, and impact on merchandising decisions. A trade discount is a reduction in the listed or catalogue price of merchandise offered by a supplier to a business buyer because of the buyer’s position in the distribution channel. It is generally given to wholesalers, retailers, distributors, or other trade customers rather than to ordinary consumers. The main purpose of a trade discount is to support the commercial relationship between manufacturers, suppliers, and retailers. For example, if a manufacturer lists a product at ₹1,000 and gives a retailer a 20% trade discount, the retailer pays ₹800. The ₹200 reduction is the trade discount. In buying and merchandising, trade discounts are particularly significant because retailers normally purchase products for resale. The discount reduces the retailer’s acquisition cost and therefore creates an opportunity to earn a margin when the product is sold to the final consumer. The discount may also compensate the retailer for performing important distribution functions such as storing merchandise, displaying products, promoting brands, handling customers, and bearing inventory risks. Trade discounts may vary according to the type of buyer, product category, market conditions, or the buyer’s position in the distribution system. A large established retailer may receive different trade terms from a small retailer because of its purchasing relationship or market importance. However, a trade discount is generally connected with the trading relationship rather than __________ ____ ___ _________ _________ _________ _________ __________ ______.
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