PRICING STRATEGY AND ITS INFLUENCE ON CONSUMER PURCHASE DECISION
A CASE OF COCA-COLA AND TELECOMMUNICATION SERVICES
ABSTRACT
This study sought to investigate the influence of pricing
strategy on consumer purchase decision. A case of Coca-Cola and
Telecommunication Services. The objectives of the study are to determine
the extent of customers sensitivity to changes in price, to determine
if pricing strategy influences price satisfaction of soft drinks and
telecommunication services, to determine if income influences customer’s
perception of price fairness for soft drinks and telecommunication
services, to determine if there is a significant difference between soft
drinks and telecommunication services in terms of price fairness, to
ascertain the difference between price satisfaction for soft drinks as
well as for telecommunication services, to determine customer’s
sensitivity to price and their perception of price fairness for soft
drinks and telecommunication services and lastly to determine the
relationship between the demographic characteristics of respondents and
their sensitivity towards price.
Data were collected using
questionnaires, 400 copies of the questionnaires were administered to
respondents but only 393 were recovered with valid responses. The target
population of this study are customers of Coca-Cola soft drink and
telecommunication services in Benin-City, Edo State. Convenience
sampling technique was used to obtain representative sample. Descriptive
statistics, independent T-test, ANOVA and regression analysis were used
to analyze the data. The results shows that pricing strategy was not
significant in determining customer’s satisfaction with respect to the
price of Coca-Cola soft drink, while pricing strategy was significant in
determining customer’s satisfaction with respect to the price of
telecommunication services. The various levels of income earners have
the same perception about price fairness with respect to both soft
drinks and telecommunication services. There is significant difference
between soft drinks and telecommunication services in terms of price
fairness. There is significant difference between price satisfaction for
Coca-Cola and telecommunication services, the result shows that
customers of Coca-Cola are more price satisfied compared to customers of
telecommunication services. There is no significant relationship
between customer’s sensitivity to price and their perception of price
fairness for Coca-Cola, Pepsi, Fanta, Sprite and 7-up, while there is
significant relationship between customer’s sensitivity to price and
their perception of price fairness for Teem. There is no significant
relationship between customer’s perception of price fairness and their
sensitivity towards the price of Mtn, Airtel, Glo and 9mobile. There is
significant relationship between age and customer’s sensitivity towards
price, while gender, marital status, level of education, employment
status and income are not significant.
The study recommends that
marketing managers should ensure that the products they sell to
customers are affordable in terms of price. Management should view
consumers as the central focus of all its activities because consumers
are the life wire of any business concern, since customers indicate that
they are willing to take advantage of low price of substitutes when
there is an increase in the price of their preferred brand. The
management of Coca-Cola must maintain and continuously seek to improve
the quality of its brand since consumers indicate that they are
satisfied with the price of the brand and previous research findings
attribute this price satisfaction of Coca-Cola to its taste, colour,
brand name, package and advertisements. Similarly, owners/management of
telecommunication services should continuously seek to improve the value
adding qualities of its products.The Nigerian Communications Commission
should invest massively in consumer protection programmes to help
ensure that management of telecommunication servicesare not exploiting
their customers.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background to the Study ---------------------------- -----------------------------
Statement of the Research Problem ----------------------------------------------------
Research Questions -----------------------------------------------------------
Objectives of the Study ----------------------------------------------------------------
Research Hypotheses ------------------------------------------------------------------
Significance of the study ----------------------------------------------------------------
Scope of the Study ----------------------------------------------------------------------
Limitations of the Study -----------------------------------------------------------------
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction ----------------------------------------------------------------------------
2.2 The Concept of Price and Pricing ---------------------------------------------------
2.3 Pricing Objectives -------------------------------------------------------------------
2.4 Importance of Pricing --------------------------------------------------------------
2.5 Price Satisfaction -----------------------------------------------------------------
2.6 Perception of Price Fairness ------------------------------------------------------
2.7 Price Setting Decision Process----------------------------------------------------
2.8 Pricing Strategies -----------------------------------------------------------------
2.9 Pricing Strategies for New Products ----------------------------------------------
2.10 Price and Consumer Decision Making ------------------------------------------
2.11 Purchase Decision Making Process --------------------------------------------
2.12 Nine Laws of Price Sensitivity and Consumer Psychology ------------------
2.13 Theoretical Foundation ----------------------------------------------------------
2.13.1 Adaptation-level theory ----------------------------------------------
2.13.2 Theory of Reasoned Action ----------------------------------------
2.13.3 Signaling Theory -----------------------------------------------------
CHAPTER THREE: METHODOLOGY
3.1 Introduction -----------------------------------------------------------------------------
3.2 Research Design ---------------------------------------------------------------------
3.3 Population and Sampling Techniques ---------------------------------------------
3.4 Sample Size ------------------------------------------------------------------------
3.5 Operationalization and Measurement of variables --------------------------------
3.6 Research Instrument -----------------------------------------------------------------
3.7 Model Specification ----------------------------------------------------------------
3.8 Sources of Data -------------------------------------------------------------------------
3.9 Method of Data Analysis --------------------------------------------------------------
3.10 Instrument Validation and Reliability ------------------------------------------
CHAPTER FOUR: DATA ANALYSIS AND PRESENTATION
4.1 Introduction --------------------------------------------------------------------------
4.2 Demographic Characteristics of Respondents--------------------------------------
4.3 Hypothesis Testing ------------------------------------------------------------------
4.4 Discussion of Findings ------------------------------------------------------------
4.4.1 Coca-Cola Product ------------------------------------------------------------
4.4.2 Telecommunication Services ---------------------------------------------------
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction -----------------------------------------------------------------------------
5.2 Summary of findings --------------------------------------------------------------------
5.3 Contribution to Knowledge -----------------------------------------------------------
5.4 Conclusions ------------------------------------------------------------------------------
5.5 Recommendation-------------------------------------------------------------------------
5.5.1Policy Implications -------------------------------------------------------------------
Recommendation for Further Studies ----------------------------------------------
REFERENCES -----------------------------------------------------------------------------
Appendix -------------------------------------------------------------------------------
LIST OF TABLES
Table 3.1: Operationalization and Measurement of Variables -----------------------------
Table 3.2: Reliability of Instrument ----------------------------------------------------------
Table 4.1: Demographic Characteristics of Respondents -----------------------------------
Table 4.2: Price Sensitivity of Respondents --------------------------------------------------
Table 4.3: Price Satisfaction of Coca-Cola Product ------------------------------------------
Table 4.4: Ranking of Price Fairness for Soft drinks -----------------------------------------
Table 4.5: Price Satisfaction for Telecommunication Services ------------------------------
Table 4.6: Ranking of Price Fairness for Telecommunication Services ----------------------
Table 4.7: Pricing Strategy and Price Satisfaction of Coca-Cola Product---------------------
Table 4.8: Pricing Strategy and Price Satisfaction of Telecommunication Services----------
Table 4.9: Income and Customers Perception of Price Fairness -------------------------------
Table 4.10: Difference between Soft Drinks and Telecommunication Services in Terms of Price Fairness
Table 4.11: Difference between Price Satisfaction for Coca-Cola and Telecommunication Services
Table 4.12.1: Customers Sensitivity to Price and their Perception of Price Fairness for Coca-Cola
Table 4.12.2: Customers Sensitivity to Price and their Perception of Price Fairness for Pepsi
Table 4.12.3: Customers Sensitivity to Price and their Perception of Price Fairness for Fanta
Table 4.12.4: Customers Sensitivity to Price and their Perception of Price Fairness for Sprite-
Table 4.12.5: Customers Sensitivity to Price and their Perception of Price Fairness for 7-Up
Table 4.12.6: Customers Sensitivity to Price and their Perception of Price Fairness for Teem-
Table 4.13: Customers Sensitivity to Price and their Perception of Price Fairness for Mtn ----
Table 4.13.1: Customers Sensitivity to Price and their Perception of Price Fairness for Airtel--
Table 4.13.2: Customers Sensitivity to Price and their Perception of Price Fairness for Glo----
Table 4.13.3: Customers Sensitivity to Price and their Perception of Price Fairness for 9mobile-
Table 4.14: Gender and Customers Sensitivity towards Price------------------------------------
Table 4.14.1: Marital Status and Customers Sensitivity towards price -------------------------
Table 4.14.2: Age, Level of Education, Employment Status and Income on customers Sensitivity towards Price
LIST OF FIGURES
Figure 2.1: Price Setting Decision Making Process----------------------------------------------
Figure 2.1: Cost Based Pricing Versus Value Based Pricing ------------------------------------
Figure 2.2: Factors Affecting Pricing Decisions--------------------------------------------------
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
With the present day economic and technological dynamics, the contemporary consumer is generally more inquisitive, sophisticated, educated and conversant with what he/she precisely wants. This change also affects the need of most firms. According to Ehmke, Fulton and Lusk (2005), marketing is how a business is positioned for the satisfaction of needs. There are elements that remain constant in promoting a new product or reviving a brand, these elements are called the four P’s – marketing mix. These four P’s are product, price, promotion and place (Ehmke et al., 2005). Within the context of this paper, emphasis will be on price. Therefore it becomes imperative to elucidate more on the concept of price.
Price is a measure used by customers in judging the value of an offer and in choosing between competing brands (Rosa &Rodan, 2011). Price can be easily adapted to environmental changes and one of the most flexible elements of the marketing mix (Lancioni, 2005). Price is the amount paid by a customer for a product or the summation of the benefits exchanged by customers for using or having a product or service (Bearden, Ingram&Larfforge, 2004). The meaning of price differs with different people; it is interest to lenders, COT or service charged by the banker (lenders), premium to the insurer, fare to the transporter, honorarium to the guest lecturer, etc., (Kotler& Armstrong, 2008). According to Rosa and Rodan (2011), price as a purchase stimulus, gives it a key role in price management, as it not only determines consumers perception of price, but also influences their decision to purchase (Rosa, 2001; Simon, 1989; Vanhuele and Dreze, 2002). Analysing the best pricing strategies for a firm’s products consumes a great deal of time and resources, as settling for a wrong pricing strategy can lead to loss of customers and consequently result in loss of revenue. Organizations can allow its competitors set market price by remaining indifferent or non-challant about its pricing strategy (Dolan & Simon, 1996). This may lead to the development of negative perceptions by consumers and adversely affect the market share of such organization. As asserted by Dolan and Simon (1996), price therefore becomes a competitive element in the goal for market share and an influencing factor on consumer purchase decision.
Statement of the Research Problem
The modern day organization is confronted with stiff competition that is not only local but also international. Many producers/sellers in the market aim at attracting the same customer base. An organization must exploit its strength and develop effective strategies that give it an edge against its competitors. Pricing strategy is one of these strategies. Few organizations understand how price influences consumer’s decision to purchase. In the quest of Smith, Willis and Brooks (2000) in explaining how price influences consumer’s decision to purchase, it was argued that structuring a price that is perceived to be high by the consumer, may lead the consumer to a competitor. Conversely, pricing too low may attract the wrong category of customers (Smith et al., 2000). The pricing strategy adopted by an organization must blend with its goals, culture and market, the organization must consider these factors in designing its pricing strategy (Shoemaker, 2003). Price perception should provide value to consumers in order to influence their purchase decision (Hellier, 2002; Nagle &Cressman, 2002; Shoemaker, 2003).
A major function of the business owner or management and an integral part of business planning is the selection of a pricing objective and strategy. It is more than simply calculating the cost of production and adding a mark-up (Roth, 2007). Pricing is a strategic activity and the price or prices assigned to a product or range of products will have an impact on the extent to which consumers view the firm’s products and determine its subsequent purchase. However, it is less clear how pricing strategies and activities can be guided by the marketing concept. Certainly, customers would prefer paying less or may even prefer not to pay at all for products, but it is simply not feasible to give products without price (Sagepub.com, 2009). An organization that gives out its products without price will run at a loss and out of business, and would be unable to create value for its customers. Consequently, these constitute problems that have provided a purpose for this research.
Objectives of the Study
Broad Objective
The main objective of this research is to ascertain customer’s satisfaction with the price of Coca-cola and
Telecommunication services.
Specific Objectives
The specific objectives of the study are as follows:
1. To determine the extent of customers sensitivity to changes in price.
To determine if pricing strategy influences price satisfaction of soft drinks.
To determine if pricing strategy influences price satisfaction of telecommunication services.
To determine if income influences customer’s perception of price fairness for soft drinks.
To determine if income influences customer’s perception of price fairness for telecommunication services.
To determine the difference between soft drinks and telecommunication services in terms of price fairness.
To determine the difference between price satisfaction for soft drinks and telecommunication services.
To determine the relationship between customer’s sensitivity to price and their perception of price fairness for soft drinks.
To determine the relationship between customer’s sensitivity to price and their perception of price fairness for telecommunication services.
To determine the relationship between the demographic characteristics of respondents and their sensitivity towards price.
Research Questions
The study would provide answers to the following research questions:
What is the extent of customer’s sensitivity to price changes?
To what extent does pricing strategy influences price satisfaction of soft drinks?
To what extent does pricing strategy influences price satisfaction of telecommunication services?
To what extent does income influences customer’s perception of price fairness for soft drinks?
To what extent does income influences customer’s perception of price fairness for telecommunication services?
Is there any significant difference between soft drinks and telecommunication services in terms of price fairness?
Is there any significant difference between price satisfaction for soft drinks and telecommunication services?
Is there any significant relationship between customer’s sensitivity to price and their perception of price fairness for soft drinks?
Is there any significant relationship between customer’s sensitivity to price and their perception of price fairness for telecommunication services?
Is there any significant relationship between the demographic characteristics of respondents and their sensitivity towards price?
Research Hypotheses
H01: There is no significant relationship between pricing strategy and price satisfaction of soft drinks.
H02: There is no significant relationship between pricing strategy and price satisfaction of telecommunication services.
H03: There is no significant relationship between income and customer’s perception of price fairness for soft drinks and telecommunication services.
H04: There is no significant difference between soft drinks and telecommunication services in terms of price fairness.
H05: There is no significant difference between price satisfaction for soft drinks and telecommunication services.
H06: There is no significant relationship between customer’s sensitivity to price and their perception of price fairness for soft drinks.
H07: There is no significant relationship between customer’s sensitivity to price and their perception of price fairness for telecommunication services.
H08: There is no significant relationship between the demographic characteristics of respondents and their sensitivity towards price.
1.6 Significance of the Study
Findings of this study will benefit the following categories of people: researchers, customers, middlemen and manufacturers/producers of soft drinks and telecommunication services.
To Researchers: This research will make contribution to the body of literature in the area of pricing strategy on consumer purchase decision, a case of Coca-Cola and telecommunication services, thereby constituting empirical literature in the subject area.
To customers: This research will educate the customers and the public at large on the various pricing strategies available, and aid their purchase decision with regards what brands of soft drinks and telecommunication services to purchase that will enable them have value for their money.
To Middlemen: It will help intermediaries develop a better understanding of consumers satisfaction with the prices of soft drinks and telecommunication services that they distribute as well as the brands of soft drinks and telecommunication services that are perceived by customers to have the fairest price.
To Manufacturers / Producers: It will help manufacturer/producers of soft drinks and telecommunication services determine customers satisfaction with their pricing strategy, customers perception of price fairness for their products and the influence of income on customers perception of price fairness.
Scope of the Study
This research work focused on pricing strategy and its influence on consumer purchase decision. A case Coca-Cola and telecommunication services. With respect to geographical location, this study will be restricted to respondents in the Benin-City, Edo State, Nigeria.
Limitations of the Study
The limitations encountered in this study include:
Biasness of respondents answers either for lack of interest or security reasons, low response rate of respondents due to time constraints and busy schedule, provision of inaccurate and incomplete responses by respondents.
Non-suitability of related textbooks and data on the topic under research which limited the depth, scope and length to which the researcher intends to view related literature.
Smallness of the sample size; the sample size was too small to represent the population of the study.
The use of student sample; findings obtained from student sample have the possibility of not being generalizable. Although students tend to be highly familiar with these product category (soft drinks and telecommunication services).
