PRICING POLICY AND PROFIT PLANNING IN A PUBLIC COMPANY

Description

PRICING POLICY AND PROFIT PLANNING IN A PUBLIC COMPANY

ABSTRACT

This project investigate on pricing policy and profit planning in a public company. A case study of Nigeria Breweries Plc and Cocoa-cola Plc. This therefore bothers on determining how pricing policy and profit planning are made in some public companies. A company’s survival and profitability depends upon its pricing ‘decision. Every individual is interested in prices, so everyone whether a consumer or a producer is affected by rise or fall in price. The purpose of this researcher work is to lay emphasis on the importance of pricing in order to achieve a target rate of return on capital invested by the organization, to show or demonstrate how pricing can be used to maximize the contribution of the enterprises, yield from the products or services sold in the market. The literatures were reviewed. The researcher made uses of both primary and secondary data, which were collected using questionnaire administration, personal interview, written materials or work of other researcher in the form of journals, textbooks, handouts. Seventy (70) questionnaires were sent to the case study, but the researcher was able to collect back fifty six (56) and hypothesis formulated were tested. Finally, the findings were summarized and based on the findings of the study, it is recommended that: The company should put into consideration aggregate demand that is, forecast, what aggregate demand will be in the next planning period. Before’ fixing the selling price for the company’s products, the overall corporate object, project maximization must be put into consideration.

CHAPTER ONE

1.0                                   INTRODUCTION

1.1 BACKGROUND OF THE STUDY

One of the most important operating decision management must establishing the selling prices for its products and services: Moreover, manufacturing companies are always faced with numerous decisions. The management have to decide on what to produce, how to produce what quality and quantity to produce .and at what price, the management have to consider what policies and method to be adopted. Management must decide on the right price of the product, it is offering to the market and then set up policies, on discounts, allowance payment period, freight. payment, credit terms and many other price – related situations, which ultimately affect the list price.

According to modern (1991), a price can be referred to as a value or sum of money, at which a supplier of a product of service and a buyer agree to carryout an exchange transaction. The price at which such exchange transaction takes place may either be fixed to the buyer or negotiated in which case, the supplier and customer bargain together until they arrive at a mutually agreed price at which the transaction can take place.

According to Adirika Ernest Okey (1996) price is a monetary expression of usefulness while usefulness is based on the potential for need and want satisfaction. Value and’ utility are culturally based while needs and wants have cultural” psychological, sociological and physiological bases.

Therefore, price as an ultimate expression of need/want satisfying potential of an item of product or service has cultural sociological psychological, physiolocal and economic implications in marketing.

Pricing is a vital issue not only for the marketer but for the enterprise as a Whole, and for consumer also. The financial performance of the business will be determined by the company’s effectiveness at pricing its goods and services so that.

Customer will perceive that these prices are reasonable or offer value of money.

The company’s objectives for profitability can be met, whilst there are many ways of defining the financial objectives of business enterprise, it is common enough to find that financial performance is measure in terms of percentage margin on sales revenue (or turnover) the percentage rate of return on the operating capital employed (which is defined as value of fixed Assets plus current Assets).

In each case, the sales revenue calculation is one of the critical variables. And the generation of sales, revenue is in part, dependent on the price set by the supplier or distribution of his goods.

So the pricing policies used are essential determinant on the degree to which its financial objective can be meet. A business can have good products and manufacturing facilities, excellent distribution and effective advertising, yet, it may fail to achieve revenue an financial target because it sets prices that are too high or too low, or uses prices that confuse distributor of final consumer. It may even fail to cover cost. Setting right prices and following a coherent and though-out pricing is essential, to the achievement of financial objectives and indeed to the very survival of the enterprise itself.

Ineffective pricing policy, can have very serious commercial consequences, and could lead to bankruptcy or liquidation. Price strategies and polices ~~ in many ways. One company may have a policy of never, under cutting competition; another may have a policy of always selling below competition. One company may have a policy of selling at fixed price, another may have a policy of selling on a cost plus basis. Other companies may have both policies, applying one to a given line of product, and another to second line, the applications depending upon such environmental factors as the market and the risk involved in design and production. One company may have a strategy of distributing nationally at one price another may have a strategy of varying prices between regions, depending on cost of delivery and regional competition.

One company may have strategy of giving utmost In quality discounts, another may have a policy opposing such discount out virtually, all companies have considerable policy imposed on them by the rigorous application of price discrimination laws of federal and state government.According to Ogochukwu[1992] commented that “company pricing policy is an area when the academic would have long recreated in despair of ascribing consistency of principles or rationality of practice:. Some reasons for Ogochukwu despair may be gleaned from the later techniques, full cost or average cost pricing (a generic term which covers a wide variety of pricing approaches which uses “cost” as a basis) In subsequent chapter of this study. Pricing behavior can be splited into two aspects namely:

A short – term focus on pricing techniques – the actual machanies price setting.A long – term focus on pricing objective. Lastly, since pricing strategy is a vital part of sale planning and profit planning, the research work will critically demonstrate accounting and economic data which can be used by management of private companies enterprise with special reference to the case.

1.2 STATEMENT OF THE PROBLEM

The problems under investigation by researcher covers three

(3) major areas, which influence pricing decision in private enterprise. They are:

Customers: The manager must always examine pricing problem through the eye of customers. A customer potentially may reject the company’s product and choose one from the competitor. Alternatively, a customer may choose a substitute product that meets the desire quality specification in a more cost – effective way.

Competitors: Rivals reactions or lack or reactions will influence pricing decision. In guessing a competitor’s reactions analysis of competitors cost can be very useful, knowledge of the rival’s technology, plant size and operating policies can help sharpen estimates or such costs. Increasingly, competition should be viewed in an intention context. Over capacity of firms in some parts of the global can lead to the adoption of aggressive pricing policies by those firms in their export markets.

Cost: The maximum price that may be charged is that, one does not direct the customer’s way, the ‘maximum price is zero. Occasionally, comprise virtually give their profitable guide isgleaned from the study of cost–volume-profit relationship. In the short – run, if minimum price quoted exceeds the additional cost of accepting order, short – run income will increase.

1.3 OBJECTIVES OF THE STUDY

Basically, this research work is aimed at achieving the following objectives:

a) To lay emphasis on the importance of pricing in order to achieve a target rate of return on capital invested by the organization.

b) To show or demonstrate how pricing can be used to maximize the contribution of the enterprises, yield from the products or services sold in the market.

c) To evaluate the effectiveness of pricing on the target market share of the organization.

d) To make market recommendation/suggestion based on above findings.

1.4 RESEARCH QUESTIONS

The following research questions are formulated for the purpose of this research project.

1. To what extent are the importance of pricing in order to achieve a target rate of return. On capital invested by the organization?

2.Towhat extent are the ways of using pricing to maximize the contribution of the enterprise yield from the products or services sold in the market?

3.To what extent are the various ways of -evaluating the effectiveness of pricing on the target market share of the organization?

4.To what extent are the market recommendation/suggestion based on the above findings?

1.5 HYPOTHESES

The following hypothesis are formulated for the purpose of this research project.

Ho: There are no importance of pricing In order to achieve a target rate of return on capital invested by the organization.

Hi: There are importance of pricing in order to achieve a target rate of return on capital invested by the organization.

Ho: There are no ways of using pricing to maximize the contribution of the enterprise yield from the products or services sold in the market.

Hi: There are ways of using pricing to maximize the contribution of the enterprise yield from the products or services sold in the market.

Ho: There are no ways of evaluating the effectiveness of pricing on the target market share of the organization.

Hi: There are ways of evaluation the effectiveness of pricing on the target market share of the organization.

Ho: There are no market recommendation/suggestion based on the above findings.

Hi: There are market recommendation/suggestion based on the above findings.

1.6 SIGNIFICANCE OF THE STUDY

This research work will be immense significance to Nigerian breweries plc and coca cola plc. It will go a long way in enlightening them on the concept of pricing policy as well as its role  in ensuring profit planning in a public company.

The recommendation  from this project work, it will also be used for the economy in sense that if firms have substantial control over price setting, then their pricing behaviour can. influence nationaloutput, employment, income and hence community welfare. Finally, this research work will also be or great value to scholars/ students who intend writing and pricing policy and profit planning and some related topics on the issue under study. The work will serve as a comprehensive reference.

1.7 SCOPE AND LIMITATION OF THE STUDY

This research work on pricing policy and profit planning in a public company is focused on Nigerian Breweries Plc and Coca-cola Plc.

The researcher encountered the following constraints in this research work;

Financial Constraint: Finance is the key to the success of every research work. There was no enough fund on the part of this researcher, this led to a slit delay in the completion of this research work.

Time constraint: this was no enough time in the part of the researcher due to the time needed to attend lecture and as well see the supervisor.

Information constraint: the researcher also had difficulty in gathering the information that is necessary for the successful completion of this research work.

Attitude of  respondents most of the respondents were reluctant to give out information pertaining to this research work, while most of them were not on seat each time the researcher visit them. Regardless of these constraints the researcher was still able to successfully carry out this research project.