Promotional allowances are price reductions or discounts offered by manufacturers to members of the marketing channel, such as retailers or wholesalers, in return for promoting and advertising their products (Monash University, n.d.). These allowances incentivize retailers to carry and promote specific products, ultimately increasing product visibility, boosting sales, and creating brand awareness.
Key Facts
- Definition: Promotional allowances refer to price reductions or discounts provided by manufacturers to members of the marketing channel, such as retailers or wholesalers, in return for promoting and advertising their products.
- Types of Promotional Allowances: Promotional allowances can take various forms, including cash discounts, rebates, free merchandise, cooperative advertising, and display allowances.
- Purpose: The primary purpose of promotional allowances is to encourage retailers or wholesalers to promote and sell specific products. By offering discounts or incentives, manufacturers aim to increase product visibility, boost sales, and create brand awareness.
- Conditions: Manufacturers may establish certain conditions for retailers or wholesalers to receive promotional allowances. These conditions can include obtaining approval for advertisements, providing proof of promotion, or meeting specific sales targets.
- Benefits for Retailers: Promotional allowances provide retailers with financial incentives to carry and promote specific products. These allowances can help offset advertising costs, improve profit margins, and enhance the retailer’s relationship with the manufacturer.
Types of Promotional Allowances
Promotional allowances can take various forms, including:
- Cash discountsDirect reductions in the price of goods purchased.
- RebatesRefunds provided after a certain amount of product has been purchased.
- Free merchandiseComplimentary products or samples given to retailers for display or distribution.
- Cooperative advertisingJoint advertising efforts between manufacturers and retailers, where the manufacturer shares the cost of advertising.
- Display allowancesPayments made to retailers for displaying products prominently in their stores.
Purpose
The primary purpose of promotional allowances is to encourage retailers or wholesalers to promote and sell specific products. By offering discounts or incentives, manufacturers aim to:
- Increase product visibility and brand awareness.
- Boost sales by making products more affordable for consumers.
- Strengthen relationships with retailers and wholesalers.
Conditions
Manufacturers may establish certain conditions for retailers or wholesalers to receive promotional allowances. These conditions can include:
- Obtaining approval for advertisements before they are displayed.
- Providing proof of promotion, such as copies of invoices or receipts.
- Meeting specific sales targets or performance metrics.
Benefits for Retailers
Promotional allowances provide retailers with financial incentives to carry and promote specific products. These allowances can:
- Offset advertising costs and improve profit margins.
- Enhance the retailer’s relationship with the manufacturer.
- Increase the variety and availability of products for consumers.
Citations
- Monash University. (n.d.). Promotional allowance. Marketing Dictionary. https://www.monash.edu/business/marketing/marketing-dictionary/p/promotional-allowance
- Law Insider. (n.d.). Promotional allowances. https://www.lawinsider.com/dictionary/promotional-allowances
- Investopedia. (2020, November 01). Advertising allowance. https://www.investopedia.com/terms/a/advertising-allowance.asp
FAQs
What are promotional allowances?
Promotional allowances are price reductions or discounts offered by manufacturers to members of the marketing channel, such as retailers or wholesalers, in return for promoting and advertising their products.
What are the different types of promotional allowances?
Promotional allowances can take various forms, including cash discounts, rebates, free merchandise, cooperative advertising, and display allowances.
What is the purpose of promotional allowances?
The primary purpose of promotional allowances is to encourage retailers or wholesalers to promote and sell specific products, ultimately increasing product visibility, boosting sales, and creating brand awareness.
What are the benefits of promotional allowances for retailers?
Promotional allowances provide retailers with financial incentives to carry and promote specific products, which can offset advertising costs, improve profit margins, and enhance their relationship with the manufacturer.
What conditions may manufacturers set for retailers to receive promotional allowances?
Manufacturers may establish certain conditions for retailers or wholesalers to receive promotional allowances, such as obtaining approval for advertisements, providing proof of promotion, or meeting specific sales targets.
How do promotional allowances differ from advertising allowances?
Promotional allowances are broader than advertising allowances, as they can include a wider range of incentives beyond advertising costs, such as cash discounts, rebates, and free merchandise.
Are promotional allowances taxable?
Yes, promotional allowances are generally considered taxable income for retailers and wholesalers.
How can retailers use promotional allowances effectively?
Retailers can use promotional allowances effectively by carefully evaluating the terms and conditions of the allowances, negotiating favorable terms with manufacturers, and using the allowances to offset advertising costs, increase sales, and improve their overall profitability.