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Two jewelry retailers place orders worth $1,000 for their stores. By the time the shipment arrives at their store, they have secured better pricing, lower landed costs, and better future deals because they used volume discounts and are nurturing their relationship with the manufacturer.
Volume discounts are about more than just lowering the purchasing price of stock. When used correctly, volume discounts can support better inventory planning, provide more pricing flexibility, and, of course, improve margins. In this article, we will use a Thai wholesaler and manufacturer specializing in sterling silver (925SilverJewelry.com) as an example, since they were happy to share their insights and perspectives at great length, which was validated by their customer feedback.
How Volume Discounts Do More Than Just Reduce Costs
It’s easy to think of volume discounts as a perk that lets retailers save money when buying stock, but they come with plenty of added benefits. Larger orders reduce the average cost per item, offering better margin protection and giving retailers more flexibility to run their own discounts and promotions.
Bulk orders are also more efficient, especially when purchasing stock internationally, as they reduce shipping costs. Purchasing more products reduces the number of orders a retailer places, enabling better inventory planning, especially during peak seasons such as the holidays and Valentine’s Day. It also reduces administrative work and improves cash flow forecasting, especially for smaller retailers with thin profit margins.
Why Volume Discounts Are Necessary for Manufacturers
Retailers and brands may wonder why manufacturers use volume discounts and why they don’t offer these lower prices for all orders. Manufacturing costs are driven by several factors, including raw materials, production, and labor costs.
Fluctuating metal prices have also made volume discounts an important tool for incentivizing retailers to make larger orders. Volume discounts are possible because of the operational efficiencies that come with larger orders, rather than any arbitrary price reductions.
It’s the economies of scale involved in these larger orders that enable manufacturers to offer better prices. Labor costs remain relatively fixed, regardless of the customer’s order size, but it’s with production efficiency that manufacturers can offer tangible discounts.
The Importance of Landed Costs vs. Factory Price
The price that a retailer pays for an item is only part of the cost of purchasing it. The landed cost of an item includes everything from shipping, insurance, import duties, and customs. Depending on the retailer and supplier, VAT and currency exchange fees may also be added to these costs. VAT and import duties are calculated on the declared value of the order, which is lower when volume discounts are used.
The landed cost and the total price of stocking a product are crucial to consider when deciding where to source jewelry from. As a business that’s importing into Canada, it’s important to account for import taxes & duties (If Thailand: 8.5% HTS Duty + 5% import VAT based on the CIF value), rather than solely focusing on supplier pricing
How Retailers Can Utilize Volume Discounts in Their Pricing Strategy
When retailers utilize volume discounts from a manufacturer, they can offer their own customers more competitive pricing without hurting their profit margins. Retailers can tap into this strategy by rewarding customers who purchase multiple items, for example, with a “buy 3, get 20% off” sale.
Tiered discounts should be used carefully, as they should encourage customers to make a larger purchase without negatively impacting the product’s perceived value. Volume discounts will always be more effective during peak buying times, including the holidays and wedding season. Before offering a discount, retailers need to understand their gross margin before setting discount thresholds.
Volume discounts on factory prices can be a highly competitive advantage that retailers should utilize whether they are sourcing in bulk or selling to their own customers. Leveraging these discounts makes it easier to achieve sustainable growth and customer loyalty, even amid fluctuating metal prices.
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