IMPACT OF PRICING STRATEGY ON CUSTOMER PATRONAGE AT MANUFACTURING COMPANIES

IMPACT OF PRICING STRATEGY ON CUSTOMER PATRONAGE AT MANUFACTURING COMPANIES

ABSTRACT: This study examines the relationship between pricing strategy and customer patronage in the selected manufacturing industry in Port Harcourt, Rivers State. Data were generated with the aid of necessary information collected from the study through the cross-sectional survey, oral interview, questionnaire, and personal observation. A total population size of 200 and a sample size of 133 was determined using Yaro Yamane’s formula at 0.05 level of significance. Also, 133 copies of questionnaire were distributed to the respondents, while 106 copies were completed and retrieved. The instruments were validated with a reliability above 0.7 co-efficient, using Cronbach Alpha technique.  Seven research questions and seven hypotheses were raised which was tested with spearman’s rank-order coefficient of correlation and partial correlation for the moderating variable via SPSS 24 version. From the findings, the concept of pricing strategy creates a positive impact on sales volume, customer satisfaction, and customer retention. In conclusion, the pricing strategy influences customer patronage in the manufacturing companies. Based on the findings and conclusion, this study contributes to the knowledge that value-based pricing strategy, competitive pricing strategy are credible techniques in enhancing customer patronage in the manufacturing companies. This study provides adequate knowledge on ‘cost-based pricing strategy towards enhancing sales volume in manufacturing companies. It could be recommended among others that manufacturing companies must consider competitive based pricing and should always be on the lookout for what competitor’s strategies are in terms of pricing of similar products. Also, to further improve product quality and customer perception of value, firms should improve the quality of interaction with customers and the rate of research and development. This will inform the company on what customers expect or the benefits they expect to derive from the products of the company.

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CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The Nigerian manufacturing industry, which was once a vibrant sector of the Nigerian business enterprise, is gradually grinding to a halt. Despite government promises to revitalize the sector that holds numerous potentials for the economy, not much has happened. Nigerians who are not aware of the forces that have brought the once flourishing industry to its knees are wondering what might have struck the sector. In any developed or developing business economy sector, the indices used in judging growth is primarily based on the producing power of that country. Industries form the bulk of these indices. In Nigeria for instance, more than 80% of all finished consumer products are imported.

Nigeria relies more on imports while its once vibrant industries are facing near extinction. The textile industry particularly attracts serious public debate basically because of the pivotal role it played in stemming the tide of unemployment between the late 1950s and early 1990s.

According to Munroe (2013), pricing a product or service is one of the vital decisions management makes. Pricing has been viewed as the major pressure point for managerial decision making hence its importance. Munroe examined the environmental pressures that allowed for increased pressure on the importance of pricing. The importance of pricing can be examined with faster technological progress, the proliferation of new products, increased demand for service, increased global competition, the changing legal environment, and economic uncertainty.

The pricing puzzle is more manageable when taken in pieces. Price management issues, opportunities, and threats fall into three distinct but closely related levels such as competitive-based pricing, cost-based pricing and value-based pricing (Michael and Robert, 2012).

Etzel (2017) stressed that this is the highest level of price management; the basic laws of economics come into play. Changes in supply (plant closings, new competitors), demand (demographic shifts, emerging substitute products), and costs (new technologies) have very real effects on industry price levels. It is the broadest and most general level of price management.

The objective is to determine the current and expected future state of key market place dynamics in order to establish pricing strategies and deal with other key strategic issues (Walter, 2018). Managers who examine prices in this context must understand the pricing ‘tone’ of the market (Michael and Robert, 2012).

This is the overall direction of price pressure whether up or down and the critical marketplace variable fueling that pressure. This will help managers to predict and exploit broad price trends and foresee likely impact of actions on industry price levels.

The ultimate aim of every business is to increase sales by finding out the factors that drive consumer’s buying decisions. Consumer patronage theory tries to analyze and explain consumer behavior. The patronage of the same product or service by different consumers would vary. This is exactly what consumer patronage theory analyses by finding out what exactly motivates or influences consumer behavior in purchasing or not purchasing a specific product.

A consumer’s patronage of a product or service offered may differ from what the producer or marketer had intended to offer. This is neither helpful nor favorable for both parties in today’s competitive environment. Also, it is likely to have more serious results in seeking consumer attention as today’s consumers have greater exposure to the minute, diverse and extensive information (Nagle, Hogan and Zale, 2018).  This makes it very difficult for the offering to gain the complete attention of the consumer especially in situations where the consumer patronage is not the same as that of the offering. Getting a second innings to make a better influence becomes all the more difficult.

Customer patronage plays a vital role in a company’s ability to attract new customers and to retain existing customers. Customer Patronage is a marketing concept that tells us what customers think about a brand or a company or its offerings. It can be positive or negative feelings, patronages, inhibitions, predispositions, expectations or experiences that a customer has. Customer patronage affects not only those consumers who purchase the products or services, but also anyone who sees the product service quality, customer retention and pricing (Cambell, 2019).

Concerns have been raised that pricing strategy in the textile manufacturing goods sector has been hindered by the lack of knowledge on competitive-based pricing strategy, cost-based pricing strategy, and value-based pricing strategy. Based on the on-going this study tends to bridge the gap that exists in pricing strategy and customer patronage in the textile manufacturing goods in Port Harcourt. Rivers State.

The independent variable in this study is the “Pricing strategy”. Based on the earlier study of Nagle, Hogan, and Zale (2018) as adopted by Cambell (2019); the dimensions of pricing strategy adopted in this study are Competitive-based pricing strategy, Valued-based pricing strategy, and Cost-based pricing strategy. While the dependent variable for this study is “Customer patronage”. The measures of ‘Customer patronage” adopted for this study are based on the previous study of Kotler (2016), as adopted by Emenike (2017); Organisation for Economic Cooperative Development (OECD, 2019) which includes: Sales volume, customer retention and frequency of patronage. This study also considered the moderating role of service quality in the relationship between pricing strategy and Customer patronage.  Based on the recent study of Parasuraman (1990), service quality will be measured along five dimensions: Empathy, Responsiveness, Assurance, Tangibility, and Reliability.

1.2 Statement of the Problem

Several organizations have encountered challenges in their customer patronage on sensitivity, recognition, stimuli, and behavior of pricing strategy by consumers. The first modern textile industry in Nigeria, the Kaduna Textile Mill, started production in 1956. The primary reason for setting up the mill was to process the cotton being produced at the time, in the northern part of the country. By the 70s and the 80s, the Nigerian textile industry had grown to become the third-largest in Africa. University (UNU) for instance stated in 1987 that there were 37 textile firms in the country, operating 716,000 spindles and 17,541 looms. This was the golden period of Nigeria’s textile industry. Between 1985 and 1991, it recorded an annual growth of 67%, and as of 1991, it employed about 25% of the workers in the manufacturing sector. Sadly, this once cherished national cash cow is now on the verge of collapse, due to a number of factors.

One of the challenge factors that has become a thorn in the flesh of the industry has to do with customer patronage of the fiber as a result of sales volume, customer retention, and frequency of patronage. This was interpreted largely as a pricing strategy of developed countries’ textile industries from China. This has resulted in low profitability, poor patronage, increased customer complaints and loss of confidence. Pricing strategy is considered as among the most popular strategies that help small and large firms to create and sustain their competitive advantage. Theoretically, the literature showed that the research conducted in exploring the effects of pricing strategy practices and customer patronage showed confusing and mixed findings. Some of the studies that reported a positive and significant relationship between the two constructs include McCabe and Wilkinson (2008). Whereas, and Yeung and Chan (2008) reported a negative relationship between pricing strategy and customer patronage. This study intends to use a cost-based pricing strategy, a value-based pricing strategy and a competitive-based pricing strategy to enhance service quality in the textile manufacturing goods sector.

Therefore, this research study attempts to extend the literature by further investigating the pricing strategy and customer patronage relationship within the context of textile manufacturing goods in Port Harcourt, Rivers State.

1.3. Aim and Objectives of the Study

Generally, this study seeks to explore the pricing strategy and customer patronage. However, it is set to achieve the following specific objectives.

1. To investigate the relationship between competitive-based pricing strategy and sales volume in the textile manufacturing goods.
2. To investigate the relationship between competitive-based pricing strategy and customer retention in the textile manufacturing goods.
3. To determine the relationship between value-based pricing strategy and sales volume in the textile manufacturing goods.
4. To determine the relationship between value-based pricing strategy and customer retention in the textile manufacturing goods.
5. To examine the relationship between cost-based pricing strategy and sales volume in the textile manufacturing goods.
6. To examine the relationship between cost-based pricing strategy and customer retention in the textile manufacturing goods.
7. To ascertain how service quality moderates the relationship between pricing strategy and customer patronage in the textile manufacturing goods.

1.4. Research Questions

This study addressed issues relating to the following pertinent questions emerging within the domain of study problems. However, the research questions are itemized below as:

1. What is the relationship between competitive-based pricing strategy and sales volume in the textile manufacturing goods?
2. What is the relationship between competitive-based pricing strategy and customer retention in the textile manufacturing goods?
3. What is the relationship between value-based pricing strategy and sales volume in the textile manufacturing goods?
4. What is the relationship between value-based pricing strategy and customer retention in the textile manufacturing goods?
5. What is the relationship between the cost-based pricing strategy and sales volume in the textile manufacturing goods?
6. What is the relationship between cost-based pricing strategy and customer retention in the textile manufacturing goods?
7. How does service quality moderates the relationship between pricing strategy and customer patronage in the textile manufacturing goods?

1.5 Research Hypotheses

To proffer useful answers to the research questions and realize the study objectives, the following hypotheses are stated in their null form, such as:

Ho_i: There is no significant relationship between competitive-based pricing strategy and sales volume in the textile manufacturing goods

Ho_ii: There is no significant relationship between competitive-based pricing strategy and customer retention in the textile manufacturing goods

Ho_iii: There is no significant relationship between value-based pricing strategy and sales volume in the textile manufacturing goods

Ho_iv: There is no significant relationship between value-based pricing strategy and customer retention in the textile manufacturing goods

Ho_v: There is no significant relationship between cost-based pricing strategy and sales volume in the textile manufacturing goods

Ho_vi: There is no significant relationship between cost-based pricing strategy and customer retention in the textile manufacturing goods

Ho_vii: Service quality does not significantly correlate pricing strategy and customer patronage in the textile manufacturing goods.

1.6. Significance of the Study

The significance of this study bridges the gap that exists on pricing strategy and customer patronage in the textile manufacturing goods in antecedence to value-based pricing strategy, cost-based pricing strategy and competitive-based pricing strategy toward influencing the frequency of patronage, sales volume and customer retention in the organization. Thus, the study is essential to the customers, suppliers, employer and employee, researcher, students, academic instructors, behavioral analysts, and investors.

This study will also benefit the customers and suppliers which guides the business innovative analyst and stakeholders in formulating policy and decision making on pricing strategy and benefits towards creating positive customer patronage at the workplace. It creates a culture of maintaining the standard in customer satisfaction, vendor’s supply chain and productivity efficiency.

The study will assist the researchers to investigate the relationship between pricing strategy and customer patronage which could create a tremendous impact on performance efficiency as a means of achieving her corporate goals and objectives.

Also, students and future researchers will improve on the current study to discover new dimensions and measures towards enhancing the context of pricing strategy and customer patronage in the textile manufacturing goods. Hence, it assists the methodology in exploratory research.

The patronage of the customer will ascertain prominent issues on an in-depth analysis of sales volume, interpersonal relationship, communication, frequency of patronage, decision making, and management of rewards towards increasing positive customer patronage in alignment with the frequency of patronage and satisfaction measures in the textile manufacturing goods.

Theoretical and Empirical Analyst: These researches prior to innovation and modification on the determinant construct on the concepts via testing of hypothesis with parametric and non-parametric scales i.e. regression analysis (ordinary least squares methods), Pearson’s product-moment correlation of co-efficient, z-test, spearman’s rank-order correlation of co-efficient, etc.

Thus, this study will enhance and facilitate the innovative and modification strategy of how to increase employees’ satisfaction, patronage, and customer retention, customers’ patronage of price, job involvement and turnover in the textile manufacturing goods. Also, this research work will be beneficial to the textile manufacturing goods, SMEs, manufacturing, banks, multinationals, educational sector, political leaders, legal advisers, non-governmental organization and charismatic leaders.

1.7 Scope of the Study

The scope of this study is limited to four perspectives. These are the content scope, theoretical scope, survey/geographical scope, study unit scope and the level of analysis.

Content Scope

The content scope of the study deals on the relationship between pricing strategy and customer patronage prior to value-based pricing strategy, competitive-based pricing strategy, cost-based pricing strategy being correlated with the customer retention, sales volume, and frequency of patronage.

Geographical/Survey Scope

Thus, the geographical scope is covered in textile manufacturing goods in Port Harcourt, Rivers State.

Units Scope

The study unit is the individual employees’ in the textile manufacturing goods from which data were generated. Individuals from the textile manufacturing goods were the main unit under study.

1.8 Limitation of the Study

The inability to retrieve all the instruments due to the unavailability of some of the respondents and misplacement or loss of some copies of the questionnaire by some of the respondents is a limitation to this study.

The insincerity of the respondents in completing the questionnaire may not be ruled out as such could serve as a limitation to the study.

It was extremely difficult for the researcher to administer the questionnaire alone to all respondents so, the services of four research assistants were employed.

1.9 Definition of Terms

Competitor-Based Pricing: A pricing method that utilizes competitor prices as a benchmark, rather than setting a price based on company costs or customer value.

Cost-Plus Pricing: A pricing method in which the selling price is set by evaluating all variable costs a company incurs and adding a mark-up percentage to establish the price.

Value-Based Pricing: Basing a product or service’s price on how much the target consumers believe it is worth.

Sales Volume: Sales volume is the quantity or number of products sold or services provided by a company in a particular period of time.

Customer retention: This is the activities and actions companies and organizations take to reduce the number of customer defections. The goal of customer retention programs is to help companies retain as many customers as possible, often through customer loyalty and brand loyalty initiatives.

1.10 Organization of the Study

The entire piece is written up in five chapters. Chapter one forms the introductory part of the study and is composed of the overview problem statement, research purpose, research questions, research hypothesis, and significance of the study, scope, and limitation of the study.

Chapter two covers the literature review. The researchers made an attempt to explore what previous researchers have done on topical issues.

Chapter three examines the researcher methodology; it covers the research design population, sampling produces, data collection method, data analysis techniques, etc.

Chapter four consider the discussion of findings, data presentation analysis, and interpretation. Chapter five is concerned with the summary, conclusion, and recommendation on the usefulness of the study.