PRICING POLICIES IN NIGERIA
The buyer and seller determine the ruling prices through the demand and supply of goods and services government and competitors do influence pricing decisions. Some of the conditions of a perfect market include large number of buyers and sellers, free entry and exit, homogeneous products, perfect knowledge of the market, indifference by the buyers etc. Given these conditions, it means that all discrepancies in prices quoted by sellers will be known immediately and buyers will buy at the lowest prices. The existence of low prices will compel other sellers selling at higher prices to conform to the ruling prices. This type of market is very rare in the business world. A close example would be a developed stock exchange market with price monitoring mechanism.
- Price Fixing under Imperfect Competition:
This is a more realistic market. This market recognizes the various limitations in communication, prices, uniform products etc. this type of market can be classified into monopoly, duopoly, monopolistic competition and oligopoly, despite the differences in the individual characteristics of these imperfect markets, they share notable similarities in the issue of pricing the items traded in them therefore, our broad analysis of the method of price determination in any one of these market condition can reasonably by applied to the others.
Take a pure monopoly market condition for an illustration. The seller of the item traded here is known to be rather a price giver or a quantity giver but rarely the two of them at the same time. Once he decides to dictate one of those two variables, the market is then allowed to determine the other.
If the firm desires to sell more of its product it must reduce the price of the item. So as to attract more customers for this reason, the demand curve facing the monopoly firm is downward supping from the left to the right.
- Marginal Approach under Perfect Competition:
Odike (2001) observed that for a perfectly competitive industry, a firm’s MR is the same as its AR, which is also the price. This coincidence of the MR and AR makes the demand curve facing the firm to be horizontal or parallel to the quantity axis.
Consequently, as soon as the firm’s rising MC intersects with it MR, it also agrees with the AR and the price. Therefore, the only thing necessary here for the determination of the profit maximizing price level is to equate the rising MC with the MR.
- Marginal Approach under Imperfect Market:
This situation is different under imperfect markets. Therefore, the MR is less than the AR at all quantity levels. This emanated from the fact that in order to sell additional units of it product a firm in such market situation must reduce its price.
- Importance of Price in an Economy:
The prices of goods and services play a very important role in any given economy. Price determines both the money wage and the real wage. The wages labour attracts is directly related to the price of its output. Examples would include employees of large companies such as NBPLC, lever brothers, NNPC etc. Prices determine real wages in the sense that they determine what quantity of goods and services that a given unit of money can buy. Deductively therefore, price is directly related to the standard of living enjoyed in any economy. Higher prices (inflation) will reduce the real income and thus reduce the standard of living of people expecting, of course, the rich people within the economy. The price at which a product is sold has direct influence on the net profit of any firm. Net profit its if is the motivating force of business without which our competitive system could not continue to function. In the long run, prices serve to regulate economic activity through the price mechanism.
- Pricing Strategies:
In general terms, policies are general rules intended to keep an organization’s decisions in line with its objectives while strategies give the guidelines on how to achieve the objectives.
There are two main pricing strategies – skimming and penetration in addition to other variations. These variations include price leading, prestige pricing and customary pricing.
2.5.1 The Skimming Price Strategy:
This strategy is used to reach the few core customers of a newly introduced product who are ready and willing to pay the high price tag of the products it often referred to as the skim – the cream price strategy in the sense that like cream, the upper layer constitutes the few core customers. This core customers are likely to breached and successfully too if they.
- Are insensitive to the high price.
- Derive some psychological satisfaction for being the early adopters of the products etc.
In the event of a company making a success of this strategy, the advantages includes:
- Fast recovery of developmental costs.
- Limits demand until full capacity is attained etc.
2.5.2 The Penetration Price Strategy:
This strategy is used to achieve high volume sales through low entry prices. Unlike in the skimming price strategy in which appeal is directed to the core customers, penetration strategy appeals to the entire market. The objective is to realize high sales volume, which will result in high total revenue.
The advantages of this strategy lie in achieving large sales volume and discouraging competitors. The disadvantage, however, is that the developmental costs may not be recouped until a longtime.
