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.

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.

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.

In the course of this study, two companies would be examined: Vintage Nigeria plc, ijanikin Lagos, manufacturers of vintage beauty products and cosmetics (e.g. body creams, relaxers, shampoos, etc) was established in the year 1992, and also, Ojukwu pen farms, producers of poultry proceeds (eggs and chickens) and farm proceeds and has been in existence since 1987.

1.2 STATEMENT OF THE PROBLEM

Hilton (1991:201) observed that both the market forces of demand and supply and the cost of production have a Significant bearing on determining prices. Equally he explained that there are other variables that influence pricing decisions according to him, this includes: Manufacturer’s pricing objective, economic situation, level of competition, and availability of close substitute.

a. For pricing to be effective, firms must incorporate all these factors in selecting the most advantageous price for its product. At times, firms are not in the habit of considering these factors and this has led to the shutting down of many factories, downsizing of workforce and in most cases, winding up of firm’s (Hilton, 1991:201).

b. Profit plan are made in form of budget and they help firms to forecast the level of profit, cost and revenue, they intend to generate in order to gain competitive advantage. Unfortunately many firms still do not prepare these plans, thus, this has led firms undertaking unplanned ventures resulting in escalation and inability of firms to foresee shortage in resources or finance or personnel needed in the future operation of the firm. Where no plans exist, there will be no basis for firm to compare or evaluate their performance.

c. Based on the foregoing, the problem of this study is in three (3) folds.

1 The failure of some firms to incorporate factors such as economic situation, level of competition, availability of close substitute, among others in their pricing decisions, may have resulted to the minding up of several small scale manufacturing firm (SSMF) in Nigeria.

2. It has been shown in accounting literatures that profit planning is a potential tool for achieving profit objectives and efficiency. Which small scale manufacturing firms seems to ignore the use of profit planning (or budget) in their operations. This has led to far reaching problem such as huge unforeseen operating cost as well as shortages in good financial and human resources.

3.Most importantly, the problem that stringated this study is the knowledge gap, that is, it looks as if small scale manufacturing firms are not aware that pricing policy and profit planning impact positively on profit performance.