Alternative Measures to Offering Discounts to Customers and Inventory Control Methods

STRATEGIC
MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
Question 2........................................................................................................................................3
(a).................................................................................................................................................3
(b).................................................................................................................................................5
Question 3........................................................................................................................................7
Transfer pricing methods-............................................................................................................7
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
Strategic Management Accounting (SMA) is a process of provision and analysis of data of
management accounting of a business along with its competitors, for the use of developing and
monitoring business strategy. The various techniques of strategic management accounting are
available to companies with the help of which they can manage and control inventories. Not only
that the various measure of customer discount offering is also available to companies which they
have to adopt in order to boost sales, increase profitability and decrease working capital
requirement. This report will cover the alternative measure to offering discount to customers in
reducing working capital requirement and minimizing potential reduction in profitability.
Further, the report will critically evaluate the various methods adopted in order to manage &
control inventories along with the improving cash flow and profit in a business. In addition to
this, the report will also cover the two methods of transfer pricing and explain the both. Lastly,
the advantage and disadvantage of both the method are critically analysed along with the
coverage of numerical example.
Question 2
(a)
The alternative measures of discounts which the companies can offer to its customer in order to
boost sales and reduce working capital requirement along with minimal potential reduction in
profitability:
Bundled Discounts: This is a measure which state that companies have to provide discounts to
its customers on its bundle products. This helps the companies in increasing their number of
items sold via offering the products in bundle and kits. It is found out in a research that, this
measure will increase average order value of the company. It is one of the best way to highlight
the value of products to its customers which are high in price. However, sometime because of the
discount over products, the profit margin of products is highly get affected (Rashid, Ali and
Hossain, 2020). Thus, it is advisable to companies that they should bundled high profit margin
and low profit margin products together. This will encourage customers to try other products as
well along with their own preference products.

Prepayment discounts: This is a discount offering measure in which companies allow discounts
to its debtors whose payment are received earlier. This is basically adopted by hospitality
industry in the form that the hotels will allow discount to their customers who pay them full
amount at the time of bookings. However, it is important for the other companies to understand
that this type of measure highly leads to reduction in profitability. So, in order to overcome this,
the companies should offer this discounts on expensive items only. For example, Tesco company
uses prepayment discount option for its business customers only rather than individual customers
(Petera, Wagner and Šoljaková, 2020). Hence, it is basically a great option for B2B businesses
where the discounts will be offer on expensive items such as furniture, gold & diamond jewellery
and designer clothing’s. The impact of which profitability will not reduce highly and working
capital requirement will reduce.
Free Shipping: This is also one of the measure of discount offering to customers with the help
of which the requirement of working capital reduces and profitability increases. It is because this
measure does not reduce the price of any of its products rather than they will provide doorstep
delivery to its customers at free of shipping cost. In this option, the companies need to provide
free delivery service to its customers on its each order. However, sometime the cost of
transportation incur by company is higher than the profit they earn from each order. Thus, it is
important for the company to understand that they should provide free delivery offers to those
customers who buy products above certain limits (Krutova and et.al., 2020).
Value added offers: This measure state that company need to offer discounted price to its
customers as it is potentially reducing the profitability of the company. Thus, as per this
customer offer measure the company can value added items to its customers such as free gifts,
exchange for their purchase, vouchers for next shopping etc. This is basically one of the best
option to attract customers and boost sales without huge decrease in profitability. On the other
hand, it is critically evaluated that most of the value added offers can be complementary items
where the company can provide its slow moving goods to customer as free items in order to
increase customer retention rate (Emiaso and Egbunike, 2018). With the increased retention rate
of customers, the profitability will also increase along with reduce working capital requirement.
Customer Royalty reward: This is another or alternative measure of discount customer offer
which does not affect the profitability of customers and the requirement of working capital get
decrease. For example, the company can provide its loyal customer special service such as free