Impact of Pricing Policies on the Profitability Level of an Organization
Chapter One
OBJECTIVE OF THE STUDY:
This research is aimed at achieving the following objectives.
(i) To establish the efficiency and effectiveness of pricing policy in selected firms.
(ii) To find out the various factors that influence pricing decisions in selected firms.
(iii) To determine if pricing decision (s) can make an impact on a firm’s profit and efficiency.
(iv) To investigate if profit planning (or budgeting) can result in cost reduction and increased profit performance.
(v) To make recommendation based on the findings of this study to the management of firms.
CHAPTER TWO
REVIEWED OF RELATED LITERATURE
Defining pricing policies and related terms
To have a clear meaning of pricing policy, there is a need to define underlying terms such as price, cost and policy. In addition, the definition of cost and profit shall also be clarified. These definitions are contained in the paragraphs below. A policy can be defined as a set of ideas or a plan of what to do in particular situations that have been agreed to officially by a group of people, a business organisation, a government, or a political party (Cambridge Dictionary 2017). For example, in business, policy defines the guideline and scope that the organisation can carry out its activities, such as purchase procedures, sales of its products, etc. Price refers to the amount of money charged for a product or service or the sum of all the values that customers give up gaining the benefit of having or using a product or service (Kotler & Armstrong 2010, 263). Every business operates to make a profit, which can be achieved by setting a reasonable price. Price is the backbone of the business modelling, and it is one of the 4 P’s in marketing Mix. Before setting price, the business must consider the cost inquired in producing the goods/services. In a basic economic sense, cost is the measure of the alternative opportunities foregone in the choice of one good or activity over others. This fundamental cost is usually referred to as opportunity cost (Britannica 2021). They are two types of cost in business, that is variable and fixed cost. Variable cost varies according to business activities, whereas fixed cost does not change regarding business activity and will remain the same whether even when the company production is 0%. Pricing policies refer to a set of guidelines that spell out how a company sets its price for its product and services based on costs, value, demand, and competition. (Encyclopedia.com 2019). With pricing being one of the main determinants of consumer purchasing behaviour, each business must deploy the best price policy accepted by its targeted consumers. Profit is the money a business pulls in after accounting for all expenses. The primary goal of the majority of companies is to earn money. Therefore, a business key performance indicator is based on profitability in its various forms (Kenton 2021). Profit is calculated as total cost- total revenue. When 7 cost is higher than revenue, the business is making a loss, and if the company suffers loss for an extended period, it might lead to bankruptcy. Pricing policy refers to the policy by which a company determines the wholesale and retail prices for its product or services (Shivam 2020). In real life, firms want to prevent the entry of rivals and increase market share. One way to achieve this competitive advantage is to have a pricing policy based on relevant data elaborated by specialists. A systematic approach to pricing requires the decision that an individual pricing situation is generalised and codified into a policy coverage of all the major pricing problems. Pricing decision remains a patchwork of ad hoc decisions. In many otherwise well-managed firms, price policy has been dealt with on a crisis basis.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine impact of pricing policies on the profitability level of an organization. Selected small scale manufacturing firms in Anambra state Awke form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain impact of pricing policies on the profitability level of an organization. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing impact of pricing policies on the profitability level of an organization
Summary
This study was on a impact of pricing policies on the profitability level of an organization. Four objectives were raised which included: To establish the efficiency and effectiveness of pricing policy in selected firms, to find out the various factors that influence pricing decisions in selected firms, to determine if pricing decision (s) can make an impact on a firm’s profit and efficiency, to investigate if profit planning (or budgeting) can result in cost reduction and increased profit performance and to make recommendation based on the findings of this study to the management of firms. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from selected SMEs in Awka. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
In conclusion, pricing policies have a significant impact on an organization’s profitability. A well-thought-out pricing strategy that considers various factors, including customer segmentation, competitive dynamics, and data analysis, can lead to improved financial performance. However, it is important for organizations to approach pricing decisions strategically and remain flexible in adapting their policies to ever-changing market conditions to ensure long-term success and profitability.
Recommendation
Based on the findings of the study on the impact of pricing policies on the profitability level of an organization, several key recommendations can be made for businesses looking to optimize their pricing strategies and enhance profitability:
- Segmentation and Personalization: Implement a customer segmentation strategy to tailor pricing policies to different customer groups. Personalized pricing can help maximize revenue and customer satisfaction simultaneously.
- Data-Driven Decision-Making: Invest in data analytics and market research to gain deeper insights into customer behavior, competitive pricing, and market trends. Data-driven decision-making should be at the core of pricing strategy development and adjustments.
- Competitive Analysis: Regularly monitor the pricing strategies of competitors and adjust your pricing policies accordingly. Assess the impact of competitive pricing changes on your market position and profitability.
- Value-Based Pricing: Consider adopting a value-based pricing approach, where the price is determined by the perceived value that your product or service delivers to customers. This approach can allow you to capture a higher share of the market.
- Dynamic Pricing: Explore dynamic pricing strategies that adjust prices in real-time based on demand, supply, and other market conditions. Dynamic pricing can help optimize revenue and profit margins.
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