CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

In the face of rapid economic and technological changes, today’s consumer is more curious, more educated and conversant with what he/she exactly wants. These changes also affect the need of firms. According to Ehmke, Fulton and Lusk (2005), marketing your business is about how to position it to satisfy your customers’ needs. Borden (1984) stated that marketing manger must weigh the behavioural forces and then handle marketing elements in his mix with focus on the resources with which he has to work when building a marketing program to fit the needs of a firm. For marketing to effect a change either in a new product or reinvigorate a new brand there are elements that remains constant which must be incorporated in the marketing mix and this is called the “four P’s” these four P’s arte product, price, promotion and place (Ehmke et al, 2005) . In the context of this study, the emphasis will be on price, hence the need to elucidate more no meaning of price to both customers and firms.

Price is 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 and Larfforge, 2004). According to Rosa, and Rodan (2011), the

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importance of price as a purchase stimulus has a key role in price management since not only does it determine the way prices are perceived and valued, but it also influences consumer purchase decisions (Rosa and Rodan, 2011; Simon, 1989; Vanhuele and Dreze, 2002). Studies have shown price as an important factor in purchase decision, especially for frequently purchased products, affecting choices for store, product and brand (Rondan, 2004).

The greater the importance of price in purchases decisions; the greater the intensity of information and the greater the amount of comparison between competing brands (Mazumdar and Monroe, 1990). Considering the nature of the consumer products (frequently purchased and consumed products, Implying medium-low level of consumer – supplier interaction), the basic is, the customers who usually purchase are more frequently in contact with prices. Pricing strategy is paramount to every organization involved in the production of consumer goods and services because t gives it cue about the company and its products, a company does not set a single price but rather a pricing structure that covers different items in its line (Kotter and Armstrong, 2001). According to Hinterhuber (2008) pricing strategies vary considerably across industries, countries and customers and can be categorized into three groups. Cost-based pricing, competition based pricing, and customer value-based pricing.

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Cloosing a pricing objective and associated strategy is an important function of the business owner and an integral part of the business plan or planning process. It is more than simply calculating plan or planning process. It is more than simply calculating the cost of production and adding a markup (Ruth, 2007). Therefore, assigning product prices is a strategy activity and the price or prices assigned to a product or range of products will have an impact on the extent to which consumers view the firm’s products and determine its subsequent purchase. However, it is less clear how pricing activities can be guided by the marketing concept. Certainly, customers would prefer paying less, in fact, they would even prefer to pay nothing but it is simply not feasible to give products without price (Sagepub.com 2009). An organization that does that will run dry and out of business and would not be able to create value for the customers. Subsequently these constitute problems that have provided a purpose for this research.

Researchers have identified a number of pricing strategies used by firms to achieve customers patronage. In the present study, three of these pricing strategies, namely, price bundling strategy, product line pricing strategies, will be used to anchor the study. The focus of the study is on the pricing strategies, though pricing strategies and patronage have been widely studied across the world. But most of these studies have been in the developed economics. Unfortunately, studies in the food manufacturing sectors of the under-developed countries like Nigeria have been

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scarce. The motivation for the study therefore was to empirically evaluate the effects of the pricing strategy of food manufacturing firms and their patronage in Southeastern Nigeria. The selected food manufacturing companies were as follows; the Nestle Nigeria Plc, Cadbury Nigeria Plc and the Unilever Brother Nigeria plc

1.2       Statement of the Problem

Based on the identified factors/variables arising from the background of the study; namely, price bundling strategy, value based pricing, demand based and product line pricing strategy, what pricing strategy attributes make the highest impact of patronage of food manufacturing firms in Southeastern Nigeria.

The failure of some firms to incorporate factors such as economic situation, level of competition, availability of close substitute, among others in their pricing decisions, may have resulted to the winding up of several small scale manufacturing firms (SSMF) in Nigeria.

It has been shown in accounting literatures that profit planning is a potential tool for achieving pricing objectives and efficiency which small scale manufacturing firms seem to ignore the use of profit planning (or budget) in their operations. This

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has led to far-reaching problems such as huge unforeseen operating cost as well as shortages in good financial and human resources.

This research work identifies some of the more common pricing strategies and the principal variables that contribute to the development of the strategy. It concludes with an analysis of the usefulness of this information to the buyer.

The problem that stimulated this study is the knowledge gap, that is, it looks as if small scale manufacturing firms are not aware that pricing strategy and profit planning impact positively on profit performance.

1.3       Objectives of the Study

The main objective of the study was to examine the effects of the pricing strategy on food manufacturing firms in the Southeastern Nigeria on their patronage. However, the specific objectives are as follows;

i.                    To determine the extent product line pricing affect the pricing strategy of food manufacturing firms in the Southeastern Nigeria on their patronage.

ii.                 To ascertain the extent price bundling affect the pricing strategy of food manufacturing firms on their patronage.

iii.               To find out the extent demand based pricing affect the pricing strategy of

food manufacturing firms on their patronage.

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1.4       Research Questions