Full Project – Pricing determinants and customer satisfaction of selected paint manufacturing companies

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CHAPTER ONE

INTRODUCTION

• Background to the Study

In the competitive environments, investing in customer satisfaction is a means of creating a sustainable advantage, given that it serves as a link between purchase and consumption with important post purchase development, such as loyalty and word of mouth (Muogbo, 2013). Today, firms especially the paint firms have realized how important it is to understand, meet and predict customers’ needs. Customers have also become increasingly conscious of their value to these firms. Due to the highly competitive nature in the manufacturing sector, paint companies have become more interested in assessing their customers’ satisfaction, being aware that the higher the customer satisfaction, the greater the inelasticity of demand for their products. Thus, paint manufacturing companies need to determine the factors that affect customer satisfaction, in order to assess the balance between customer expectations and the paint manufacturing companies’ services offered and identify their major advantages and disadvantages (Guilaninia, 2008).

Strategic management is the process of decision making, coordinating, planning, and taking actions by the top managers of a firm in order to achieve certain goals and objectives. According to Dauda, Akingbade and Akinlabi (2010), strategy is a detailed plan for a business in achieving success and since business involves a lot of risk, an ill planned strategic move could result in loss of millions of Naira, bankruptcy of business or even loss of thousands of jobs (Dauda, et al., 2010). One of the strategies to compete effectively in the business world is the pricing determinants. Thus, this calls for strategic management in order to develop an effective pricing determinants (Dess, Lumpkin, & Eisner, 2007). This implies that top managers should allocate the necessary resources in order to bring the intended strategies to reality (Dess, et al., 2007).

Furthermore, there is a rapid change in recent business environment which has made the competition among industries to increase (Muogbo, 2013). To compete successfully, firms need to develop some strategies and take some actions which may include: enhancing product quality and productivity, reducing cost of production, promoting product innovations and improving the speed at which the product is delivered to the market and to the customers. Firms also need to strive to meet up with the changes that are occuring globally, gain competitive advantage position and improve performance relative to their competitors (Muogbo, 2013).

According to Guilaninia (2008),pricing determinants involve segments, ability to pay, consumer behaviour, market conditions, government policies, competitor actions, trade margins and input/operational costs, amongst others. Price is among the four (4) P’s of marketing namely: Product, Place, Promotion and Price, five (5) P’s of marketing which are: Product, Positioning, Place, Promotion and Price and seven (7) P’s of marketing Product, Place, Promotion, Price, People, Process and Physical Evidence (Guilaninia, 2008). Price can be seen as the amount of benefit a consumer pays for having or using the product. If the customers accept it, it is appropriate, otherwise it would be changed immediately (Guilaninia, 2008).

However, price is the most flexible elements of marketing, unlike the other characteristics of the goods that depend on the use of a distribution channel, price can be changed very easily (Guilaninia, 2008). Furthermore, price setting and competition are the problems which many executives in marketing face. Among several pricing strategies, managers can choose their favourite type. The overall aim of pricing is to enhance sales and profits worldwide (Kigan, 2001). Thus, any firm that is concerned with the production and rendering of goods and services respectively, has to initially answer the question of what to produce and for whom to produce? Secondly, firms have to answer the question of how much the actual and potential customers will be able and willing to pay for the goods. This curiosity about price fixing and other different interfering factors such as cost of producing goods, government factors, price of competitors, demand for goods, environmental/social factors and so on, concerned in fixing prices of goods and services, have proved to be a headache to many paint manufacturing firms in Nigeria (Obigbemi, 2010).

Furthermore, decision concerning price is a very important decision a firm has to make, because it will affect their objectives, directly or indirectly (Obigbemi, 2010). A business whether big or small, complex or simple, public or private, is designed to provide prices that are competitive (Ayozie, 2008). Hilton (2005) stated that setting prices for the products or services of an organisation is one of the essential decisions managers have to face as well as one of the difficult decisions because of the number of factors that have to be put into consideration. However, Lovelock and Wirtz (2004) argued that the most important tactic to a successful pricing determinants is managing firms’ revenues in a way it will support their goals. This will lead to the question of how well can the firm supplement the different factors that affect pricing decisions, in order to achieve their objective, which is to gain customer satisfaction. Therefore, the focus of this study is on pricing determinants and customer satisfaction of selected paint manufacturing companies in Abia state, Nigeria.

• Statement of the Problem

The relationship between a company and a customer in the past was purely based on the company producing the best quality product in order to maintain the relationship, however, therelationship between the two parties has recently taken a new turn making customers’ the main focus in maintaining relationships (Gaiardelli, Saccani & Songini, 2007).

In the face of constant technological and economic changes, today‘s consumer is more curious, more educated and conversant with what they really want. The changes have also affected the need of firms, thereby making marketing managers to face huge problems in weighing the behavioral forces and in handling the marketing mix with focus on the resources, which they have to consider when developing marketing programs to fit the needs of their firm (Muogbo, 2013). Philips (2009) noted that customers would prefer paying less, sometimes, they would rather prefer not to pay at all but it is simply not feasible to give away products without price. An organization that does that will go out of business and would not be able to create value for the customer (Philips, 2009).These constitute problems that affect the organizations’ output.Consumers worldwide have various views about products based on their prices, however, product pricing for consumers is a strenuous task. This is true due to the fact that a high price may cause a negative feeling about the product, and also a low price can be deceptive as regards the quality of the product (Philips, 2009). Decisions affecting the distribution, product and price for large markets are special as well unique to every industry, this has constituted a great challenge to managers who have not considered it to be able to have a negative influence on customer buying behavior and this has led to complaints from unsatisfied customers. Based on the above, the effect of buying behavior on customer complaints is been investigated.

Pricing has been identified as one of the difficulties a decision maker faces when trying to place a price on a product or service (Rohani & Nazim, 2012). Sije and Oloko (2013) noted that executives are complaining that pricing is a big headache and one that is getting worse day by day. Markets have largely been characterized by improper pricing, taking into consideration market demand, costs and competition. In Nigerian market, the inability of firms to freely set prices without considering the policies of their competitors concerning price, has led to a decline in profit margin made by many companies (Rohani & Nazim, 2012). If the price is too high, the firm’s product will not be competitive in the market and if it is too low, the firm may not break-even (meet operational cost). The operational cost of the paint manufacturing firms has been high and this has led to the constant increase of the prices of the firms’ products and has led to a negative customer attitude towards their product, which in other hand has also resulted to the under productivity of the firms due to low patronage. (Rohani & Nazim, 2012). Based on the above, the effect of operational cost on customer attitude is examined.

According to Egwakhide, Nyor and Terzungwe (2012), the levying of additional taxes by the government in order to subsidize the public service enterprises has had an adverse effects on the manufacturing companies. This is because manufacturing companies have to pay more in the form of additional taxes and their ability to break-even is adversely affected. When the government covers the losses of public service enterprises by giving subsidies through taxation, it cripples the productive capacity of the manufacturing companies by way of over taxation of their facilities. This will also affect the quality of services rendered to customers (Egwakhide, Nyor & Terzungwe, 2012).Based on the above, the effect of government policy on the quality of services delivery by enterprises is evaluated.

Uslay (2012) proposed that firms’ inabilities to advance and protect their strategic positions often come at great cost. Customers who are aware of the price of just one retailer are “loyal” customers, whereas customers who know the prices of many retailers are “switchers” and switchers give strength to competitors. Studies have shown that there are higher number of switchers than loyalists in the market thereby making it extremely difficult for organizations to decide on their pricing strategies. The segmentation of switchers in pricingpolicyhasled to disjoint between organizational goals and customer demands (Koca & Bohlmann, 2008).  Subsequently, with the introduction of information technology which has made the world a global village, it is now easy for customers to get price information of many firms as fast as possible (Uslay, 2012). This has made competitions among firms stiffer, thereby making pricing decisions to be a herculean task for managers (Koca & Bohlmann, 2008). Based on the above, the effect of competitors’ action on customer loyalty in the paint manufacturing companies is evaluated.

However, the study identified four gaps namely: buying behaviour, operational cost, government policy and competitors’ action which have prevented the management of the selected paint manufacturing companies to attain maximum customer satisfaction.

1.3 Objective of the Study

The main objective of this study is to investigate Pricing determinants and customer satisfaction of selected paint manufacturing companies in Abia state, Nigeria. The specific objective are to:

1. assess the effect of buying behaviour on customer complaints in the paint manufacturing companies in Abia state;
2. determine the effect of operational cost on customer attitude in the paint manufacturing companies in Abia state;
3. investigate the effect of government policy on service delivery in the paint manufacturing companies in Abia state and
4. evaluate the effect of competitors’ action on customer loyalty in the paint manufacturing companies in Abia state.

1.4 Research Questions

The proposed study seeks to answer the following research questions:

1. How does buying behaviour affect customer complaints in the paint manufacturing companies in Abia state?
2. To what extent does operational cost affect customer attitude in the paint manufacturing companies in Abia state?
3. How does government policy affect service delivery in the Nigerian paint manufacturing companies in Abia state?
4. What effect does competitors’ action have on customer loyalty in the paint manufacturing companies in Abia state?

• Hypotheses

The hypotheses for the proposed study are as follows: the hypotheses were tested 0.05 level of significant

H₀₁:     buying behaviour has no significant effect on customer complaints in paint            manufacturing companies in Abia state.

H_02:         operational cost does not significantly affect customer attitude in paint       manufacturing companies in Abia state.

H_03:      government policy has no significant effect on service delivery in paint      manufacturing companies in Abia state.

H_04:      Competitors’ action have no significant effect on customer loyalty in paint            manufacturing companies in Abia state.

1.6 Scope of the Study

This study investigated Pricing determinants and customer satisfaction of selected paint manufacturing companies in Abia state, Nigeria. The identified variables of pricing determinants have been examined as well as that of customer satisfaction. Abia State is made up of seventeen local (17) government areas with two major cities namely Umuahia and Aba. All the paint manufacturing companies are sited in these major cities which have five (5) local government areas in it out of the seventeen (17) local government areas. Hence, because of the wide scope of paint manufacturing companies in these two major cities, the researcher therefore limited the research to the following five (5) major paint manufacturing companies namely: Chemlap Nigeria Limited, Nicen paints limited, Saclux Industries Nigeria Limited, Clover Paints Nigeria limited and Berger Paints Nigeria Plc, which were selected from the five local governments areas that make up the cities namely: Aba south L.G.A, Aba North L.G.A, Osisioma Ngwa L.G.A, Umuahia South L.G.A and Umuahia North L.G.A.

This study evaluated pricing determinants and customer satisfaction in Abia State. Variables identified for pricing determinants have been examined alongside those identified for customer satisfaction. Manufacturing industry was selected because of their importance to the development of the nation and because there is a high level of pricing determinants  employed by them to ensure customer satisfaction in their operations and in getting their products out into the market through the middle-men to the end users. Well-structured questionnaire was used to obtain data for this study. Theuse of stratification to group respondents into locations such as Aba South, Aba North, Osisioma, Umuahia South and Umuahia, was also employed. Then, the random sampling techniques was used to select the designated paint companies for each region.

The target respondent for the study consists of the total number of management personnel as well as supporting personnel working at the strategic level and operational level within the firms. The total figure for the population arrived at, based on survey of few selected firms, was six thousand and fifty (6,050) personnel. Information with regards to the population number was sourced from the Human Resource Department (HRD) of the firms. Using Taro Yamane (1967) formula for sample size determination, the study was able to arrive at a sample size of four hundred and thirty three (488) respondents including a provision for thirty percent non respondent. The stratified sampling method was used because of the stratification variables included in the scope of the study. The research is focused on paint manufacturing companies that are operating in Abia State, Nigeria.

1.7 Significance of the Study

The general understanding of this study would serve as a useful guide to management, practitioners, executives, corporate managers in the manufacturing industry. It would help them to understand how factors affecting pricing determinants  such as buying behaviour, operational cost, government control/policies and competitors’ action, affect and the extent of its effect on the attainment of customer satisfaction by the companies.

The study would also enable the selected companies and the manufacturing industry to proactively respond to changes within their environment more effectively. It would l also enable the management of these companies to realize the necessity of implementing better pricing strategies in the industries. This study would enable stakeholders in the manufacturing industry to understand that employing all these resources together would enable them produce a unique capability that is rare and distinct to the company.

It would also enable the government to create better policies and regulation that would enhance development and growth in the manufacturing sector of the economy. Findings from this study would enable the society to be more informed about the pricing determinants as they relate to customer satisfaction. It would also provide more knowledge concerning pricing determinants and reveal what makes it to vary from one company to another.  Lastly, it is also hoped that these findings would contribute to the body of knowledge and stimulate more researcher’s interest in this field of study.

1.8 Operationalization of Variables

The variables of this study are operationalized as follows:

Y = f(X)

Y = Dependent Variable

X = Independent Variable

Where:

Y = customer satisfaction

X = pricing determinants

Y = (y₁, y₂, y_3, y₄)

Where:

y₁ = customer complaint (CC)

y₂ = customer attitude (CA)

y₃ = service delivery (SD)

y₄= customer loyalty (CL)

X = (x₁, x₂, x₃,x₄)

Where:

x₁ =buying behaviour (BB)

x₂ =Operational cost (OC)

x₃ =Government policy (GP)

x₄=competitors’ action (CA)

The working equations are:

y₁= f (x₁) ………………………………. Equation 1

y₂= f (x₂) ………………………………. Equation 2

y₃= f (x₃) ………………………………. Equation 3

y₃= f (x₄) ………………………………. Equation 4

Y=f (x₁, x₂, x₃, x₄ + e_t) ………………………………. Equation 5

The variables in Equation 5 are the working Equations to be evaluated in this study.

y₁ = a₀ + ß₁x₁ + e_t 

y₂ = a₀ + ß₂x₂ + e_t

y₃ = a₀ + ß₃x₃ + e_t

y₄ = a₀ + ß₄x₄ + e_t

1.9 Operational Definition of Terms

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Full Project – Pricing determinants and customer satisfaction of selected paint manufacturing companies