CHAPTER ONE

INTRODUCTION

1.0  BACKGROUND OF THE STUDY

Price is payment or compensation given by one party to another in return for goods or services. In modern economies, prices are generally expressed in units of some form of currency, although prices could be quoted as quantities of other goods or services a sort of barter exchange. The earliest record of the use of currency and prices is in 1200 BC. The earliest known written shopping list was by a roman soldier in 72-125 AD. A.T. Stewart established the first one-price system in 1846 establishing fixed prices for all of his goods and paving the way for the pricing tag. In 1861, John Wanamaker introduced the price tag in Philadelphia solidifying standard pricing as we know it.

The coupon was invented in 1895 and psychological pricing such as prices ending in .99 became popular. In 1952, the first bar code concept was patented and in 1966, the first U.K credit card was made available. In 1979, online transaction processing technology was invented by Michael Aldrich to enable online shopping. In 1991, the internet was commercialized and subsequently price intelligence was born.

Pricing is considered as an integral part of the marketing mix management. Price, cost and volume are intricately inter-related and all these affect profit. Price should be based on marketing or cost consideration. Pricing policy based on marketing considerations tend to be for short and medium-run and usually prevalent in a buyer’s market, where there is intensive competition. Approaches for marketing based pricing include high price, going-rate pricing, sealed bid pricing, FOB pricing, zone pricing, discount pricing, discriminatory pricing, penetration price, skimming price, pre-emptive pricing, PLC pricing, price warfare e.t.c. Pricing based on cost consideration are essentially cost-based which includes, full cost pricing, conversion cost method, marginal cost pricing.

          A number of studies have attempted to analyze the relationship between price and consumption of fast moving consumer goods such as non-durable goods like packaged foods, beverages, toiletries, over the counter medications and other consumables. These are some of the variables used by businessmen/organizations to achieve their objectives. Price as a variable can affect the business negatively if not properly set, but it is even more pronounced in fast moving consumer goods.

          The relationship between price and fast moving consumer goods is both complex and multi-dimensional. An understanding of this relationship and its underlying determinants is the key to the formation of the success of this study. However, the primary aim of most businesses is to make profit, so that the profit will be used to run the business effectively and efficiently.

          A firm must set a price for the first time when it develops a new distribution channel and when it enters new bids on new contract work (Kotler et al, 2006). In industries where pricing is a key factor, companies often establish a pricing department to set or assist others in determining appropriate prices. The department reports to the marketing department, finance department or top management. Price is an essential element in marketing a product or service and it affects the consumption of such product especially for small and medium enterprises (SME’s) like Nibbles Kitchen and Restaurant.

1.1      STATEMENT OF RESEARCH PROBLEM  

Over the years both government and private businesses have been using different pricing policies in order to get the desired result, but all have been abortive hence the environment and other cost units keep changing. Based on interaction with people, the middle and low income earners have the problem of satisfying most of their basic needs in the face of dwindling income due to the depreciation of the Naira, recession and the rising inflationary trend. As such Nibble Kitchen and restaurant has been experiencing low patronage due.

1.2      OBJECTIVES OF THE STUDY

The main objectives of this study is to assess the effect of price and pricing on the consumption of fast moving consumable goods with particular application to Nibble Kitchen and restaurant.

The specific objectives of the study are to:

·       Determine the pricing policy in relation to the sales volume.

·       Investigate the factors that affect the pricing policy of the organization.

·       Investigate the causes of price increase on the company’s products.

·       Determine the extent to which the increase in price affect the performance of the company.

1.3      RESEARCH QUESTIONS

The following research questions were drawn up to which the answer will facilitate the conduct of the study.

·       How does the pricing policy affect the sales volume of the organization?

·       How does government and other environmental factors affect the pricing policy of the organization?

·       What are the causes of price increase on the company’s products?

·       To what extent does the increase in price affect the performance of the company?

1.4      HYPOTHESIS

The following hypothesis help facilitate the conduct of the study.

·       Price is a factor that determines the consumption of fast moving consumer goods.

1.5      SIGNIFICANCE OF THE STUDY

This study has both theoretical and practical significance.

This study will provide useful information and knowledge for academic references in this area of economic growth. In addition, the study will be important to the general public by providing additional knowledge on price and how it affects fast moving goods and products. Furthermore, the study will not only increase the knowledge of economic and marketing growth but also enhance the understanding of economic and marketing survival thus helping economic and marketing planners and decision makers in various stages of economic and marketing activities throughout Nigeria.

This study provides a framework for the government and private business organizations in realizing strategies to effectively and efficiently tackle issues on the sales of company products. It will also provide additional knowledge in addressing market development issues using economic policies aimed directly at pricing effect in a strategic manner.

Another constraint of this study is that the researcher has chosen Nibble Kitchen and restaurant as a case study and as such extrapolating it to national coverage instead of cross sectional study of the country is a challenge.

1.6      SCOPE AND DELIMITATION OF THE STUDY

The study investigates the effects of price on consumable products. It also attempts to address the strategies put in place by companies concerning this issue of price. The scope is therefore to cover pricing policy operation in Nibble Kitchen and restaurant as a case analysis. It shall enquire into the cause of price increase and how it affects fast moving consumer goods.

1.7      LIMITATIONS OF THE STUDY

During the course of this study, the researcher encountered constraints such as the administration and collection of questionnaires which was not easy because respondents (management staff) were from different departments so the researcher had to move from one department to the other also on the customer side, they were located in different areas so it was not easy for the researcher to get data from one location to another and some of the respondents had to be guided on what was needed. It should also be noted that time was also not friendly to this research.   

1.8        DEFINITION OF TERMS

Allowance: Are other types of reduction from the list price for example, trade allowance are price reduction granted for turning in an old item when buying a new one.

Cash Discount: A cash discount is a price reduction to buyers who pay their bills promptly.

Fast Moving Consumer Goods [FCMG]: These are products that are sold quickly and at relatively low cost. Examples include non-durable goods such as soft drinks, doughnut, bread, ice cream, meat pie, samosa. Though the absolute profit made from fast moving consumer products are relatively small, they generally sell in large quantities so the cumulative profit on such products can be large.

Penetration Pricing: Lower profit margin used when market expect to have long life and product must build up a reasonable volume of sales to sustain reasonable growth for as long as possible.

Price: It is the value attached to goods or services offered in the market.

Quantity Discount: Is a price reduction to buyer who buys large quantity volume.

Revenue: It is the excess of income over cost of production.

Seasonal Discount: Is a price reduction to services of a season. Seasonal discount allows sellers to maintain production during the year.

Skimming Price: Allows easily recovery of all cost and total profit required during early period before competition intensifies. Useful for products with short term e.g fashion or when no competition exist shield product from all forms of competition. 

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