AN ASSESSMENT OF PRICING STRATEGY AS A TOOL TO STIMULATE SALES IN RETAIL BUSINESS

Abstract

Consumer shopping behavior is becoming increasingly polarized, which has an impact on price decisions, and the performance and sustainability of sales retail outlet. This study sets out to examine the pricing strategies management has on the performance and sustainability of sales outlet in the Ado-Ekiti, Nigeria. The study explicitly attempts to ascertain the impact of value-informed pricing practice, competition-informed pricing practice, and cost-informed pricing practice on sales outlet performance and sustainability in Ado-Ekiti. The study also examines the impact of adopting three different pricing practices when the relative product advantage and/or competitive intensity are/is moderating variable(s). The study also found that the impact of the three pricing practices on performance and sustainability of sales outlet in Ado-Ekiti, changes significantly when relative product advantage and/or competitive intensity are/is moderating variable(s). Amongst others, this study recommends that the management of supermarkets should carry out an internal and external environmental assessment of a product before deciding on the appropriate pricing practice to adopt for that product.

CHAPTER ONE

INTRODUCTION

• Background of the study

The competition in retail trade is a complex phenomenon. Retailers are running into competition using the whole arsenal of the marketing strategies at the level of marketing mix, tempting the customer with an attractive set of products, competitive prices, suitable places and a lot of other services and promotional activities. Dolan, R.J.; Simon, H. P (2006). Therefore, the companies choose the service stocks which helps at the maximization of profits, depending on the types of consumer, they expect to attempt and their rational belief, regarding the rival’s actions. Price strategy in retail trade becomes a key element in this multi-dimensional package. Price becomes one of the most important elements of the retail marketing mix. Lately, the complexity and the speed with which the merchants develop raise the influence upon the final prices of the products that they have. Traders usually use various pricing tools and promotion policies to attract new customers and increase customer loyalty. Ingenbleek, P.; Van Der Lans, I.A (2013) Marketing scientists have offered both theoretical and empirical estimates showing that for all types of consumers different price policies are likely to attract. Although well-known reasons why a consumer selects a store, we know relatively little about how retailers choose pricing strategies because of the complexity of such a decision should take into account both consumer preferences and current and anticipated actions of rivals. Stephan, M.L.; Andreas, H. (2012)  The use of various pricing practices as a management tool in steering an organization towards the achievement of set goals and objectives becomes more pronounced during the period of transition from a barter economy to a money-based market system. Moreover, another layer of complexity is added when considering the effects of increased competition (due to the profound impact of globalization, which has shrunk the world into a global village). Managers have begun to realize that, in order to stay competitive and achieve improved performance (such as increased market share and revenue), they need to adopt superior pricing practices, which furthers this objective. Kostis, I.; George, A. (2011). This was founded on the belief that managers who have a deep understanding of pricing practices, and how they relate to their overall strategy and performance objectives, are more primed to succeed and achieve their company’s goals. Other managers, who do not follow this route, lag behind and create opportunities for competition to set the pace on prices. This usually affects performance negatively. Management and use of appropriate pricing practices are even more profound in the retail industry, particularly supermarkets who display an array of products that cut across fast-moving consumer goods to household electronics and appliances, as well as furniture amongst others. Given this, it is surprising that the management of most supermarkets in Nigeria, in general, and urban Ado-Ekiti in particular (a state with over 100 supermarkets in the metropolis) are yet to clearly understand how to adopt a pricing practice to help drive their respective supermarkets’ performance and sustainability. Cressman, G.E., Jr. (2012). The need for adopting a pricing practice by supermarkets in Ado-Ekiti is made more critical by the increasing polarization of consumer shopping behavior in the state, which is driven by rapid urbanization, technological innovation, changing lifestyle and taste, increasing players, and globalization amongst others. This drift is changing competition in the trade of the supermarkets, making it a more complex phenomenon, as their competitive landscape now involves the utilization of a whole arsenal of strategies, with “pricing” leading the pack. For sustainability, there is a need for supermarkets in urban Ado-Ekitito adjust their pricing practices in order to withstand pressure from local and international rivals. Cressman, G.E., Jr. (2012). The challenge, however, is that pricing practice is multifaceted. Consumers consider pricing in tandem with promotions, variety, services, and store location. All these affect pricing perceptions, and consequently, pricing practices of supermarkets. Given these multi-dimensional factors and issues facing supermarkets, pricing practice becomes a key element of their strategy.

• STATEMENT OF PROBLEM

Pricing is near the heart of marketing strategy because of its link to profitability. It is believed that price of a product should be based on the production costs. Any firm that sells its product less that the cost price will not survive for long. It is therefore not easy to arrive at a price that both satisfies consumers and provides the firm with profit. The issue of pricing is perhaps one of the least understood areas within the marketing mix, especially for supermarkets who stock a wide array of products, and are driven by various levels of demand, price, availability, and other factors. As competition increases, there is the opportunity for supermarkets in Enugu to start looking for new ways to gear up their profitability ratios by adopting various pricing practices that sits within their overall goals and objectives. While there is a strong case for this, supermarkets in Ado-Ekiti suffer a general lack of knowledge on the impact that various pricing practices have on performance and sustainability making them lose out on key growth opportunities. Current pricing practice is far from strategic, and does not allow them to lock in gains that could be generated if a robust pricing practice framework is instituted. Moreover, most pricing literatures for management have predominantly focused on normative strategies adopted by managers Tzokas, N.; Susan, H.; Paraskevas, A.; (2000), and consumers’ perceptions of price and value. It in view of this that the study becomes pertinent.

• OBJECTIVE OF THE STUDY

The study has one main objective which sub-divided into general and specific objective, the general objective of this study is on an assessment of the pricing strategy as a tool to stimulate sales in retail business, the specific objectives are;

1. To examine the relationship between pricing strategy and sales volume
2. To ascertain the effect of pricing strategy on consumers patronage of the product

• To examine the impact of price on product acceptability in Ado-Ekiti

1. To ascertain if there is any significant relationship between pricing strategies and profitability of the firm
   • RESEARCH QUESTIONS

The following research questions were formulated by the researcher to aid the completion of the study;

1. Is there any relationship between pricing strategy and sales volume?
2. Is there any effect of pricing strategy on consumer’s patronage of the product?

• Does the price of a product have any impact on product acceptability?

1. Is there any significant relationship between pricing strategies and profitability of the firm?
   • RESEARCH HYPOTHESES

The following research hypotheses were formulated by the researcher to aid the completion of the study;

H₀: There is no significant relationship between pricing strategies and profitability of the firm

H₁: There is a significant relationship between pricing strategies and profitability of the firm

H₀: There is no relationship between pricing strategy and sales volume

H₂: There is a relationship between pricing strategy and sales volume

• SIGNIFICANCE OF THE STUDY

It is believed that at the completion of the study, the findings will be of great importance to the management of this sales outlet as the findings of the study will guide them in making an inform pricing decision, No product has or can enter the market place without a price. Earning a profit is a basic objective for all businesses irrespective of their organizational set up. For long price has been recognized as an accepted procedure for profit planning and many of the most successful companies have applied it to good effect over a period of years. Price determines in many aspects the volume that can be realized as well as the final profit. Price is the only element in the marketing mix that creates revenue, the other elements being costs. In spite of the importance of setting the price, many organizations do not handle pricing well.

• SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers an assessment of pricing strategy as a tool to stimulate sales in retail business with emphasis on Ado-Ekiti, but in the course of the study, there are some factors that limited the scope of the study;

(a) Availability of research material: The research material available to the researcher is insufficient, thereby limiting the study.

(b) Time: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

(c) Finance: The finance available for the research work does not allow for wider coverage as resources are very limited as the researcher has other academic bills to cover.

1.8 OPERATIONAL DEFINITION OF TERMS

Price

A price is the quantity of payment or compensation given by one party to another in return for one unit of goods or services. A price is influenced by production costs, supply of the desired item, and demand for the product.

Pricing

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

Pricing strategy

A pricing strategy takes into account segments, ability to pay, market conditions, competitor actions, trade margins and input costs, amongst others. It is targeted at the defined customers and against competitors.

Sales

Sales are activities related to selling or the number of goods sold in a given targeted time period. The delivery of a service for a cost is also considered a sale.

1.9 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.