A quantity discount, also referred to as a volume discount, is a reduction in price given to an entity that buys a large quantity of items and goods. Most commonly, quantity discounts are given to distributors who buy large amounts of a given item from a manufacturer and then turn around and sell that item to end-users. Individuals can also obtain a quantity discount in certain situations.
The most basic example of a quantity discount can be observed in the concept of warehouse stores and bulk grocery buying. An individual who visits a large warehouse store may receive a lower price per role on toilet paper, for example, than a person who buys a single role in a grocery store. Likewise, a person who bulk buys a large quantity of any other product, either from a warehouse store or from special bulk sections in grocery stores, may also receive a discount for buying in large quantities.
Such discounts are also issued to businesses. For example, Wal-Mart is able to offer low prices in part because it buys such large volumes of goods from suppliers. It can demand low prices from suppliers, who are dependent on Wal-Mart's business, and receive these discounts from suppliers who bid low prices in order to get the large amount of business that Wal-Mart promises.
There are many benefits to a company from issuing a quantity discount. First, it may have lower marketing, packing and shipping costs. When a company ships 100 products to 100 different individuals, each product must be packed separately and shipped separately. It is far less costly to ship those same 100 products to one individual.
Likewise, the marketing costs of a company with a large-volume purchaser are much lower. For example, if a company needs to sell its 100 products to 100 different people, that company must market the product to convince 100 people to buy it. On the other hand, if a company is aware that a given entity will buy the full 100 products that it produces, it has a large amount of guaranteed business and does not need to engage in the widespread marketing of its product.
When a company receives a quantity discount, it also benefits because it can pass the savings on to the consumer, thus enticing more buyers. Alternatively, it can keep the savings and increase its bottom line or profits that it makes. It is thus advantageous to both buyer and seller to take advantage of a quantity discount.