Presented below are five cases describing situations in which a firm might want to add or change some discount or allowance as part of its marketing mix. Select one case and answer the question(s) that follow.

1. Creekside Apartments offers two-bedroom apartments with the same basic "roommate" floor plan that is popular with other student-oriented apartments in the area. In August and early September, there is no difficulty in attracting tenants at the going rate of $650 per month rent. Although there is a penalty for breaking the lease, each year several unexpected vacancies occur at the end of the first semester when some students graduate or drop out of school, move to a dorm, or find someone new with whom to live. Of course, the same thing happens at other apartments, so in late December and early January, there are always more empty apartments than new renters. As a result, competition for tenants is usually intense. In this "buyer's market," student renters look for the best deal-and apartment managers dread the idea of having an empty apartment that brings in no rent for the spring semester.
   • What type of discount or allowance would you recommend in this situation? Why?
2. Prestige Speakers, Ltd. manufactures expensive speakers that are sold through manufacturers' agents to selected retailers who specialize in selling and installing high-quality audio components and home theatre systems. Most of Prestige's audio speakers are sold on credit. Prestige usually does not get paid until its retailers manage to sell the speakers themselves. While this service is convenient and necessary for most of its customers, it places a heavy financial burden on Prestige. Recently, for example, the company was forced to postpone production of a promising new product due to a lack of cash.
   • Should Prestige consider using discounts or allowances to solve its financial problem? Why? If so, what type would be best? Why?
3. PowerPro Electrical Supply Company sells a wide assortment of products to electricians, electrical contractors, and general building contractors in the area around Dallas, Texas. PowerPro's line includes almost everything its customers might need-ranging from wire, electrical tape, circuit breaker boxes, conduit, switches, outlet boxes, lighting fixtures, and a wide variety of electrician's tools and equipment. In addition, like most other electrical wholesalers in the area, PowerPro offers free delivery to the construction site. Despite PowerPro's efforts to promote itself as "the most economical source for all your needs," most of its customers split their business among several different electrical supply wholesalers. When PowerPro's owner complained about this, one of his counter clerks explained: "The person having the work done usually doesn't care what electrical supply house gets the business-so the different electricians just call whoever comes to mind first."
   • Could discounts or allowances be useful to PowerPro Electrical Supply? Why? If so, what type would be best? Explain.
4. Cape Fear Furniture Co. produces a line of high-quality reproductions of Early American style beds, dressers, tables, and chairs. Cape Fear's furniture is distributed nationally through a network of carefully selected furniture retailers. When Cape Fear first introduced its line, sales grew rapidly-in part because of its ongoing advertising in national home furnishings magazines. Now, however, sales are flat-and in some areas falling. Other producers have come out with similar lines, and most retailers now carry several competing brands. The company is concerned about what it considers "a lack of adequate promotion support at the retail level."
   • Could Cape Fear Furniture Company use discounts or allowances to obtain additional promotion support at the retail level? Why? If so, what type would you recommend? Why?
   • What would be the advantages and limitations of your recommendation relative to other approaches?
5. Nina's Teen Shop has just purchased $10,000 worth of fashionable accessories for teens from Sassy, Inc. The invoice for the accessories included the terms "3/10, net 60."
   • What do the terms 3/10, net 60 mean?
   • Suppose Nina's Teen Shop pays the invoice 10 days after receipt. What amount should it pay Sassy, Inc.?
   • If Nina's Teen Shop does not pay the invoice until 60 days after receipt, it will in effect be borrowing money at a fairly high interest rate. Calculate what the effective interest rate would be in this case. (Assume a 360-day year.)
   • What conditions would make it sensible for Sassy, Inc. to offer these terms?

Explaination

Most price structures have a basic list price from which various discounts and allowances are subtracted. Discounts (not to be confused with discount selling) are reductions from the list price that are given by a seller to a buyer who either gives up some marketing function or provides the function himself. Several types of discounts are commonly used, including:

• Cumulative quantity discounts
• Noncumulative quantity discounts
• Seasonal discounts
• Cash discounts
• Trade (functional) discounts

Allowances are similar to discounts. They are either given to final consumers, customers, or channel members for doing something or accepting less of something. Different types of allowances include:

• Advertising allowances
• Push money or prize money allowances
• Tradein allowances
• Stocking allowances

While many firms give discounts and allowances as a matter of custom, they should be viewed as highly useful tools for marketing strategy planning. As outlined in the text, each type is designed for a specific purpose. Thus, some firms offer buyers a choice of several discounts and allowances.

The purpose of this exercise is to illustrate how discounts and allowances can be used in marketing strategy planning. The emphasis will be on recognizing opportunities to improve a firm's marketing mix.