EFFECTIVE PRICING STRATEGIES FOR PURCHASING OF NEW PRODUCTS
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Purchasing operates within a dynamic environment and today’s companies are wreathing with customer values and orientations; economic stagnation, environmental decline, increased global competition, and a host of other economic political, social and pricing challenges which if Ignored will be detrimental to the company. Purchasing is concerned with getting the right product to the right customer at the right price.
Price for a product is one of the factors that determine the demand for the product, that is why economic theory states that price is determined by the interaction of demand and supply cost and price usually affect demand and these three are in continuous inter play. For economist, it is a key factor describing the level and movement of demand. The basic assumption made about demand is that all things being equal, price plays a decisive role in determination of the rate of purchase by the consumers. Price presents a thorny but interesting phenomenon under our current economic system.
Traditionally, price occupies the second position of the internal or important variables of the purchasing mix otherwise known as 4ps.
Product, price and promotion, place pricing decision aspect of a firms purchasing programme arises partly from the fact that of all the elements of the purchasing mix, price is the only one that generates income and revenue while the next represent lost to the firm (Adirika, Ebue and Nwachukwu 1996:59). Price is also one of the flexible elements of other elements of the purchasing mix unlike, product features and channel commitment, price can be changed quickly and if price is well blended with way in achieving better result. Price is a very sensitive issues facing a company of which a company cannot do without because of that, it can make or mar a company’s image. Price communicates to the market the company’s interview value/positioning of its products/services.
No company will want to incur loss through the sales of its products. Inspite of this firms want to achieve certain level of customer satisfaction translated in price terms, that is why both manufacturers and marketers use price to accomplish multiple objectives price may be use as a clue to product quality while conveying to the customers that a seller has high quality goods and services. Price wears many hats, stated by (Mark 1979) of the authors in pricing strategies and this emphasizes the crucial role of pricing in the survival of a company. At the same time price are pricing competition is the number one problem facing many purchasing executives. Yet, many companies do not handle pricing well. The most common mistake are: pricing that is too cost oriented; prices that are not revised often enough to take the rest of the purchasing mix into account; prices that are various enough for different products, market segment and purchase occasions.
Historically prices usually were set by buyers and sellers bargaining with each other sellers would asked for a higher price than they expected to get and buyers would offer less than they are expected to pay. Through the bargaining process, the would arrive at acceptable price individual buyer pay different prices for the same products, depending on their needs and bargaining skills.
Historically, price has been the major factor affecting choice. This is skill trade in poorer nations, among poorer groups, and with commodity products. However, non-price factor have become more important in buyers – choice behaviour in recent decades.
A company may decided to divert into a particular market at a specific price level as it develops a product accordingly, this is called pricing strategy. The organization aim at the most valuable price level that is ripe for exploitation or that meet its market objective at a profit, once the price level has been established necessary variation in price structure from day to day and from time to time are tactical.
