The key players in the retail business are involved in offering discounts and rebates. The two terms may be confused because they both offer some form of money return on a purchase. However, each of these words has different connotations in the way they are offered and the timing of the offer.
A discount is an immediate cash back return based on the item to be sold at that time.
A rebate has a longer term offer because the item must be purchased in full before the seller considers the rebate. A rebate is more likely to be offered on services rendered.
A rebate is paid if the amount tendered is over and above the service given. Then a discount on services may also apply for prompt payment. Once again, the discount is granted with immediate effect.
Rebates and discounts can be measured in percentages marked according to the whole value of the item being sold. Discounts and rebates are used as incentives from sellers to their buyers to move their products faster and with more certainty.
Discounts are great marketing tools in the retail world because they increase sales and attract new customers. A discount can also put a store above others for customers to choose because of the discount offered.
What is a discount?
A discount is a common strategy, used in the retail world, to encourage buyers to purchase items that have been reduced in price.
The discount is attached to an item to entice the buyer to make an early purchase or to buy more of a discounted item than he normally would have considered.
The discounted price is visible as of the precise moment that the purchase would have been made and therefore offers immediate gratification. A Trade Discount is a reduction in price between a manufacturer and a retailer on high volume purchases from a stock or supply list. The higher the volume of trade the larger the discount may be.
The high-volume trader may receive a discount of 40% for example while a medium volume trader may only be given 30% reduction in his purchases. The cash discount on the other hand is between the seller or retailer and the buyer. It is a cash amount deducted from a purchase.
This discount is often referred to as a sales discount because it is between the retail seller and the buyer. The retailer puts the discount on after goods have been purchased from a wholesaler. Discounts are granted to all customers to increase sales.
A discount has the following functions:
- A strategy used by retailers to increase sales
- A reward system based on a purchase price to encourage buyers
- A method of reducing stock items to move older items from the shelves
- A marketing strategy for certain lines of product. Moving new lines into focus or getting rid of old lines that may have reached their sell by date.
- A benefit to the consumer either in reduced prices of goods or services rendered.
What is a rebate?
A rebate is a refund or return on the purchase of goods or services. A rebate is returned to the customer after the amount on the purchase has been paid in full. The rebate can be used as an incentive to buy more than one item at a time.
For example, a computer and a printer could be purchased together, and a voucher issued for a rebate on the cost of the printer. The rebate is only given after the item is paid for as a return on the complete cost of the items. Customers may also receive rebates for services if they paid more than the required amount. Taxes and utilities fall into this category. Essentially the customer will receive money back however, the money will only materialize after the goods or services are paid for in full.
A rebate has the following characteristics:
- A means to encourage positive customer relations
- Can be used on an individual basis, each rebate would be calculated according to the commitment between the seller and the buyer for services rendered
- The full purchase price is always received, and the rebate returned later
- A useful tool for larger sales items and refunds on services like taxes and utilities.
Difference Between Discount and Rebate
Function of Discount and Rebate
A discount is used for the immediate return of a portion of the value of an item by a seller. The function of a rebate is to return money that is owed to the buyer by the seller by arrangement but after the purchase of the goods or services.
Strategy of Discount and Rebate
The discount and the rebate are both used to encourage customer relations and as marketing strategies. They direct consumers to the products available and the value of prompt payments.
Availability of Discount and Rebate
A discount is readily available and visible on the purchase price. It attracts the customer and increases sales immediately. The rebate is an incentive, but the time to realize the rebate amount could take longer to organize. A rebate will differ for different customers regarding the monetary value of the rebate and could be different for different consumers.
Value of Discount and Rebate
The values of these concepts differ depending on the seller’s perspective or the buyer’s perspective. The value to the seller is more satisfied customers and a good marketing tool. The buyer can purchase an item for less or take advantage of buying in larger quantities. The system also encourages customers to pay in full for services with the hope of receiving some rebate or return for their money.
Discount vs. Rebate: Comparison Chart
Summary of Discount verses Rebate
- Discounts and rebates act as motives to buy and sell products at reduced prices and improve sales and customer relations.
- The seller in the discount or rebate plan is aiming to increase sales and build customer awareness for the products on sale.
- Discounts allow all customers to benefit either from an earlier payment or from a better price for the goods purchased
- A discount is a more common strategy and the reduction is made in the price of the product. If the price was paid in full a rebate could be given on the product by refunding some of the purchase price.
- A reduction in price at the time of making a purchase is commonly known as a discount. However, it is a rebate because an amount is returned to the consumer via the discount from the original purchase price.