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What is discount and how is it calculated?
The price is the amount of payment received in exchange for a product or service. Discount is the reduction in price from the original price. We can calculate discount by dividing the discounted price by the original price, and multiplying the result by 100 to convert it to a percentage.
Why discount is important?
The importance of discount is paramount specially in the present market scenario. With the stiff competition prevailing in the economy, almost every business is offering discounts to the consumer to entice them to make purchases despite market conditions. Here are some common reasons why offering a discount is a good idea:
- Offers and discounts are a great way to increase sales and gain new customers.
- Discounts are not only offered to reduce the price of a product, but to increase your sales and to increase interest in your product.
- Discounts can be offered on a wide range of things, from a simple percentage off, to free shipping and handling.
- Offering discounts is a great way to gain new customers, as they can be offered at the point of sale, or even online.
What are the disadvantages of discounts?
Many people regard discounts as the best way to increase their sales. They think that the more discounts they offer, the more customers they will attract. While this can be true, there are also some disadvantages of discounts.
When some customers see that a product is discounted, they may be less likely to buy it since it is perceived as being cheap or lacking in demand. If customers always wait for discounts and sales, then your business will not grow. You should try to cultivate the habit of buying in the customers' mind, instead of relying on sales.
If used too often, discounts could reduce the overall margin of your business. This can be due to the reduction of profit per unit sold and the need to sell more units to achieve the same return on investment on product inventory.
Why are people attracted to discounts?
Most discounts operate on the principle of urgency, as they are only available for a limited time. People are likely to lose money if they do not purchase the product now, at the discounted price. There is a sense of urgency. Discounts work because people are afraid of missing out and businesses use this to their advantage.
The reason people love discounts is because of the cognitive bias called loss aversion. We always want to avoid loss and we would rather accept a small gain. This is because it gives us a feeling of control over a situation, even if it is small. In marketing, this is referred to as the 'sunk cost fallacy'.
What is the discount formula?
The discount formula is used to find the difference between the original price and the discounted price (also known as sale price). In other words, it is the rate that is discounted in order to calculate the present value. The discount rate formula is actually very simple:
Discount = (price - sale price) / price x 100
You need to subtract the sale price from the original price, then divide by the original price to get a decimal value. We then multiply the result by 100 to convert it to a percentage.