An investigation into the pricing methods used by small and medium-sized enterprises
Abstract
This thesis investigates the pricing methods used by small and medium-sized enterprises
(SMEs). Prices are a key determinant of demand which influences revenue and in turn the
business' profits. A business may fail if products and services are priced incorrectly.
Pricing decision is, therefore, one of the critical success factors of a business, including
SMEs.
There is consensus widely disseminated in the textbook literature, that successful pricing
can only be achieved when a multiplicity of factors are considered and managed and
different pricing methods are applied. The shortcomings of limitations of theoretical
concepts of supply and demand, market price and cost-based pricing make it necessary
for managers to opt for alternative pricing methods that may address the gaps found in
these determinants of price. Pricing objectives need to be stated explicitly and they should
be in line with the overall company objectives.
One of the key factors that marketing managers need to remember is that price is one
element of the marketing mix and should not be set in isolation. Since price is a major
determinant of profitability, developing a coherent pricing strategy assumes major
significance. There is both art and science in deciding the right price, but the basic
principle must be to equate profitability with goodwill and repeat business.
It is not within the remit of this research to provide a detailed critique of small and
medium-sized businesses, but clearly the population of SMEs ebbs and flows as
businesses are started as businesses fail. The SME business sector is discussed briefly by
giving an overview of the definition and discussing pricing as a critical success factor in
SMEs.
The methodology applied is both quantitative and qualitative in nature. Secondary data
has been collected and it was used as the point of departure for the study. The literature
review has given the background of pricing and price determination, followed by an
empirical study through the questionnaire.
The overriding perception derived from the findings in this study is that no decisions are
taken in an isolated or discrete circumstance. Price was consciously considered with
different context such as considering costs, value, competition, demand, revenue, margins
and mark-ups, profits, survival and market share. However, in some cases setting price
was based on a gut feeling of the managers. The company's pricing policy proves to be
an important indicator of the company's overall image and the quality of its product.
Pricing will always be a challenging area. The researcher has therefore developed a
model - called the integrated pricing model - which is recommended for SME managers.