CHAPTER ONE
INTRODUCTION
1.1
BACK
GROUND OF THE STUDY
In
modern economies, prices are generally expressed in units of some form of
currency. Although, prices could be quoted as quantities of other goods and
services (BARTER SYSTEM). Prices are sometimes quoted in terms of vouchers such
as trading stamps. Price sometimes refers to the quantity of payment requested
by a seller of goods or services rather than the actual payment amount.
One
of the most crucial operating decisions management must make is establishing a
setting price for its products but this is quiet unfortunately that many firms
are still mismanaging pricing causing lots of money and anticipated profit to
be unexplored and wasted.
In
many financial transactions, it is customary to quote prices in other ways. The
requested amount is sometimes called the asking or selling price, while actual
payment may be called the transaction or traded price.
However
in explaining the importance of pricing, Egbunike (2007) sustained that setting
the price for an organizations product or service is one of the most difficult,
due to some number of variety of factors that must be considered. The primary
decision arises in virtually all types of organization, just to mention but a
few of them such as manufacturers set prices for their products, they
manufacture, merchandising companies set prices for their goods, service firms
set prices for such services as insurance policies, bank loans e.t.c.
A
company’s survival and profitability depends upon its pricing decisions, thus
price is the only element in the marketing mix that produce s revenue and thus
ensures profit ability (kotler and keller 2006:475) Price adopted by firms must
be able to cover all cost in the long run as well as to leave a profit margin
to reward management.
The
Price of a Product has a direct relationship with many operations of the firm’s
activities. A price decision will affect demand and this in turn affects the
revenue generated by the firm. Similarly, a firm which makes profit has the
propensity of attracting more new capital. This shows that the public has
confidence in the ability of the firm to yield return to them. So, the
performance of management is usually measured by the amount of revenue it
generates to satisfy the share holders of the organization.
The
actual process of profit planning involves looking at several key factors
relevant to operational expenses. Putting together effective profit plans
requires looking at such expenses as labour, raw materials, facilities
maintenance and upkeep and the cost of sales and marketing efforts.
It
is evident that management has a big responsibility before them in setting and
adopting the most advantageous pricing policy and the most effective profit
plan for their firms, since prices are not set arbitrarily therefore management
must focus on all the important factors in setting its price. Thus, it has
become imperative to investigate the effectiveness of pricing policy and profit
planning in Nigerian organizations.
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