CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Businesses today are facing one of the most competitive eras in history. The rise and fall of businesses and the outright failure of some businesses suggest that if businesses are not properly managed and do not have a clear direction, its organizational performance and ultimately organizational sustainability is bound to be in jeopardy (Utaka, 2008). Furthermore, pricing strategy is a pivotal component of an organization’s management focus that can elevate or deter a company’s performance. As such it is extremely important that businesses get their pricing strategies absolutely right.
Price is the amount a customer pays for a product or the sum of the values that consumers exchange for the benefits of having or using a product or service (Bearden, Ingram & Lafforge, 2014). Price is the amount of money or value traded for the possession or utilization of a good or service (Kevin, Hartley & Rudelius, 2014). Furthermore, it can be defined as the worth that is put to a good or service and is the result of an intricate combination of costs, research and a full understanding of the perceived value of customers (Kelly & Willam, 2014). According to Kotler & Armstrong (2008) pricing is determining the value that must be provided by a customer in return for a product or service. Pricing is the process whereby a business sets the price at which it will sell its products and services, and may be part of the business's marketing plan (Dibb, Simkin, Pride & Ferrell, 2013). Furthermore, price is the measure of cash charged for an item or administration, it is the sum of all the values that customers give up in order to gain the the benefits of having or using a product (Kotler, Armstong & Tait, 2001). Pricing is one of the major components of a marketing plan, which is a component of a full business plan (Rao & Kartono, 2009). The principle objective of pricing is to adequately to cover overhead costs including work and materials costs and produce adequate profits which helps to maintain growth in the business and create organizational sustainability (Nikoomaram & Jafari, 2011). According to Yeoman (2011) price is one of the significant components in the marketing mix that organizations can control. Agwu and Carter (2014) agreed stating that among the famous four Ps, price is the only income generator as it is the only element that creates an exchange of value. Kellogg, Youngdahl, & Bowen (2014) pointed out that if effective product development, promotion and distribution sow the seeds of business success, effective pricing is the harvest. Hence the need for pricing strategies designed to fit specific products and services and the customers perception of the value of the product or service. Therefore pricing strategies involves the use of a specific type of information on prices to represent the evolution of price in price index compilation (Mckenzie, 2015). A pricing technique is additionally focused at the characterized clients and against contenders (Nreick, 2012). Assigning product prices is a strategic activity. Pricing strategies are selected with the business and financial goals in mind. Elements of a company’s business plan (such as the vision and mission of the company) can also influence the choices of a pricing strategy.
The price assigned to a product will influence the consumer’s perception of the product and ultimately impact on their willingness to purchase it. According to Rosa & Rodan (2011), the importance of price as a purchase stimulus plays a key role in price management due to the fact that not only does it determine the way prices are perceived and valued, but it also influences consumer purchase decisions. Studies have shown price as an important factor in purchase decision, especially for frequently purchased products, affecting choices for store, product and brand (Simons, 2014; Rosa, 2011; Vanhuele & Dreze, 2012; Rondan, 2014). Furthermore, Roth (2007) noted that price helps as a market segmentation strategy because it is able to distinguish a product from those of competitors. However, the price assigned to a product must be in line with other marketing strategies and the product attributes.
1.2 Statement of the problem
The business environment is fast evolving from one, where companies get to dictate the types of products and services produced to one where consumers get to decide what they want to be produced. Therefore, in a day and age where competition amongst businesses is rife and consumers are spoilt for choice, it is important for any company that hopes to maximize profit to get their pricing strategies right. However, many are unable to realize good profits margins, dispose off their excess stock, recover the cover the cost of operation on time, and command a reasonable market share due to their inability to generate higher sales volume; this is majorly because of the pricing strategy they adopt. The consequences of this are that, these companies incur more loses due to overstocking, loss of market share to competitors, meager profits, inability to secure financial resource and pay their creditors on time, and slow growth and expansion There is therefore the need to look objectively at the pricing strategy to improve the sales volume. Hence, this study is to explore further how pricing strategy affects sales volume.
1.3 Objective of the Study
1. To identify whether price skimming has an effect on customer retention.
2. To investigate whether penetration strategy has an effect om the firm’s market share.
3. To determine if market parity pricing has a significant impact on sales volume.
1.4 Research questions
The research will aim to answer the following questions. They are:
1. Does price skimming has any effect on customer retention?
2. Does penetration strategy has any effect om the firm’s market share?
3. Does market parity pricing has a significant impact on sales volume?
1.5 Significance of the study
This study will be significant to the management of manufacturing industries. as it will help them understand the importance of pricing strategies in increasing sales revenue, profit and ultimately their organizational growth. It will also be significant in detailing the appropriate pricing strategy for each type product.Theoretically, the study will add to the body of knowledge and serve as reference material for scholars and student who wishes to conduct further studies in related field.
1.6 Scope of the study
1.7 Limitation of the study
There are few factors that posed as limitation of the study. Those are Financial constrain and Time Constrain.
Financial constraint– Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint– The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
1.8 Definition of terms
Price: Price is the amount of money charged for a product or service. It’s the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service (Kotler & Arsmtrong, 2008).
Consumer behaviour: It’s the study of individuals, groups or organizations and the processes they use to select, secure, use, and dispose of products, services, experiences, or ideas to satisfy needs and the impacts that these processes have on the consumer and society (Perner, 2016).
Marketing mix: Marketing mix is the set of controllable variables that the firm can use to influence the buyer’s response. (Kotler & Armstrong, 2010)
Market Parity: A parity price is when the price of an asset is directly linked to the price of another asset (American Marketing Association, 2008).
Price skimming: Price skimming is a pricing strategy in which a marketer sets a relatively high initial price for a product or service at first then lowers the price over time. It is a temporal version of price discrimination/yield management (kotler & Armstrong 2008).
Penetration Strategy; Penetration pricing is a pricing strategy where the price of a prodyct is initially set low to rapidly reach a wide fraction of the market and initial word of mouth (Kelly & William 2014).
Pricing Strategy: A business can use a variety of pricing strategy when selling a product or service (Kotler & Armstrong 2008)
Sales Performance: Sales performance management (SPM) is the practice of monitoring and guiding personnel to improve their ability to sell product or services (Naver & Slater 2010).
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