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Abstract
The study examines pricing strategies and product differentiation of selected soft drink firms in Port Harcourt. The survey design was employed. The population of this study constitutes management and staff of Nigeria Bottling Co Plc, and Sevenup Bottling Plc which was unknown. The judgmental sampling technique which is a non-probability sampling technique was used for selecting the sample size. The sample size of this study was judgmental sample of 120 respondents which comprise of both the senior and junior staffs of Nigeria Bottling Co Plc, and Sevenup Bottling Plc in Port Harcourt, Rivers State. Both the primary and secondary data were used. The statistical test used in the testing of the hypotheses was Pearson Product Moment Correlation Coefficient. The study revealed that cost-based pricing, competitive pricing and perceived value-based pricing influences product differentiation of selected soft drinks firms in Port Harcourt. Based on the findings of the study, we recommend that management should ensure they consider the cost of production before adding profit margin on costs with a standard percentage and Soft drink firms should adopt cost-based pricing since it is the most simple and popular method for setting prices. This will help the firm differentiate their products and gain competitive advantage.
Table of Contents
Title Page i
Cover Page ii
Declaration iii
Certification iv
Dedication v
Acknowledgement vi
Abstract vi
Table of Contents viii
CHAPTER 1 1
INTRODUCTION 1
1.1 Background of the Study 1
1.2 Statement of the Problems 3
1.3 Purpose/Objectives of the study 4
1.4 Research Question 4
1.5 Research Hypotheses 4
1.6 Significance of the Study 5
1.7 Scope of the Study 5
1.8 Limitations of the Study 6
1.9 Definitions of Terms 7
CHAPTER 2 8
REVIEW OF RELATED LITERATURE 8
2.0 Introduction 8
2.1 Conceptual Framework 8
Fig 2.1: A Conceptual framework showing the relationship between Pricing Strategies and Product Differentiation 8
2.1.1 Concept of Pricing Strategies 8
2.1.2 Dimensions of Pricing Strategies 11
2.1.3 Concept of Product Differentiation 15
2.1.4 Dimensions of Product Differentiation 18
2.1.5 Pricing Strategy and Product Differentiation 21
2.2 Theoretical Framework 22
2.2.1 Porter’s five Forces of Competitive Position Analysis 22
2.3 Review of Related Empirical Studies 24
2.4 Summary of Review of related Literatures 26
CHAPTER 3 28
RESEARCH METHODOLOGY 28
3.1 Research Design: 28
3.2 Population of the Study 28
3.3 Sampling Techniques Used 28
3.4 Sample Size 28
3.5 Sources of Data 29
3.5.1 Primary Source (s) of Data 29
3.5.2 Secondary Sources of Data 29
3.6 Research Instrument for Data Collection 29
3.7 Validity and Reliability of Instrument 30
3.8 Techniques for Data Analysis/Test of hypotheses 30
CHAPTER 4 32
DATA PRESENTATION AND ANALYSIS 32
4.1 Questionnaire Distribution and Retrieval: 32
Table 4.1: Questionnaire Administration and Retrieval 32
4.2 Data Analysis and Presentation 32
4.3 Descriptive Statistical Analysis 34
4.4 Hypotheses Testing 37
4.5 Discussion of Findings: 39
CHAPTER 5 41
SUMMARY, CONCLUSION AND RECOMMENDATIONS 41
5.1 Summary 41
5.2 Conclusion 41
5.3 Recommendations 42
References 43
Appendix I 47
Appendix II 48
Questionnaire 48
CHAPTER 1
INTRODUCTION
1.1 Background of the Study
Differentiation in business refers to the art of marketing a particular product or service in a way that makes it stand out against other products or services. This involves differentiating it from competitors’ products as well as a business’s own product/service offerings. Pearce and Robinson (2015) aver that differentiation strategies are based on providing buyers with something that is different or unique, that makes the company’s strategic positioning, product or service distinct from that of its rivals. Superior value is created because the product is of higher quality, is technically superior in some way, comes with superior service, or has a special appeal in some perceived way. In effect, differentiation builds competitive advantage by making customers more loyal and less price-sensitive to a given business product/service. Consumers are less likely to search for other alternative products once they are satisfied.
According to Hernant, Mikael and Thomas (2011), some of the differentiation strategies adopted by organizations to foster sales performance evolve around interplay of various elements of the retail mix. These include: offering quality products, wide selection, assortment, strategic positioning, after-sales service, quality service, convenient location, parking space, attractive design and layout, conducive atmosphere, sales incentives, convenient operating hours, own branding/value addition and a one-stop-shop. Differentiation requires a firm to create something about its product that is perceived as unique within its market. Adding product features means that the production or distribution costs of a differentiated product will be somewhat higher than the price of a generic, non-differentiated product.
Customers must be willing to pay more than the marginal cost of adding the differentiating feature if a differentiation strategy is to succeed (Cavusoglu, 2010).
Pearce & Robinson, (2016) said that differentiation Strategy entails offering a product or service to the market that is unique or has unique factors. It is the creation of distinguishing qualities that makes a product to send out from the available options. According to Monroe (2003), price decisions are one of the most important decisions of management because it affects profitability and the companies’ return along with their market competitiveness. Thus, the task of developing and defining prices is complex and challenging, because the managers involved in this process must understand how their customers perceive the prices, how to develop the perceived value, what are the intrinsic and relevant costs to comply with this necessity, as well as consider the pricing objectives of the company and their competitive position in the market (Hinterhuber & Liozu, 2014).
Strategic pricing requires a stronger relationship between marketing and the other sectors of a company. In order to enhance companies’ economic and financial performance, the pricing policies should be defined by their internal capacities and on the basic systematical understanding of needs and wishes of their customers, in addition to market conditions such as, economic conditions and degree of competition (Besanko, Dranove, Shanley, & Schaefer, 2012; De Toni & Mazzon, 2013b). In this context, this study’s objective was to propose and test a theoretical model that indicates the impacts of pricing policies on company’s profit. On this regard, the theoretical assumptions consider as pricing policies the definitions that comprise the pricing strategies and the price levels used by companies in their respective markets.
Pricing strategies are based on Nagle and Holden (2003) studies, namely value-based, competition-based and cost-based pricing strategies; whereas the pricing levels are classified as high and low prices (Urdan & Osaku, 2005). Hence, this study intends to ascertain how pricing strategies relate with product differentiation of selected soft drinks.
1.2 Statement of the Problems
Many organizations are recording depressing performance manifested in the declining profitability and increasing liquidity challenges (Hamza, Mutala and Antwi, 2015). For firm to witness an increase market share, firms may choose the fast approach of buying market share through deeply discounting price or the slower approach of gaining and holding market share by adding value or service at no additional charge to the customer (Lancioni & Gattorna, 1993).
However, a critical examination of various researches and literatures on pricing strategies and product differentiation particularly in the brewery industry revealed that much had not been said about the existing relationship between these two key elements in Nigeria (Lancioni & Gattorna, 1993, Palazon & Delgado-Ballester, 2009 & Gu, Kim, Tse &Wang, 2010). This attracts a lot of interest for the researcher to seek inquiry into the factors responsible for the declining sales/financial performance of soft drinks firms.
Consequently, most of the soft drinks firms are experiencing low patronage and sales decline. Therefore, this study aims to examine the relationship between pricing strategies and product differentiation of selected soft drinks firms in Port Harcourt.
1.3 Purpose/Objectives of the study
The main purpose of the study is to examine the relationship between pricing strategies and product differentiation of selected soft drinks firms in Port Harcourt. The specific objectives are as follows;
1. To examine how cost-based pricing associate with product differentiation of selected soft drinks firms in Port Harcourt.
2. To examine how competitive pricing associate with product differentiation of selected soft drinks firms in Port Harcourt.
3. To examine how perceived value-based pricing associate with product differentiation of selected soft drinks firms in Port Harcourt.
1.4 Research Question
1. How does cost-based pricing associate with product differentiation of selected soft drinks firms in Port Harcourt?
2. How does competitive pricing associate with product differentiation of selected soft drinks firms in Port Harcourt?
3. How does perceived value-based pricing associate with product differentiation of selected soft drinks firms in Port Harcourt?
1.5 Research Hypotheses
H01: There is no significant relationship between cost-based pricing and product differentiation of selected soft drinks firms in Port Harcourt.
H02: There is no significant relationship between competitive pricing and product differentiation of selected soft drinks firms in Port Harcourt.
H03: There is no significant relationship between perceived value-based pricing and product differentiation of selected soft drinks firms in Port Harcourt.
1.6 Significance of the Study
A critical examination of various researches and literatures on pricing strategy and product differentiation particularly in brewery industry revealed that much had not been said about the existing relationship between the two variables in Nigeria. Hence, to contribute to the body of knowledge based on this discovery; this research will be carried out to investigate the existing relationship and the impact of pricing strategy on the product differentiation of soft drinks firms in Port Harcourt.
In another development, the result of this study will also guide marketers on the relationship between pricing strategies and product differentiation. This simply means that it will enable them to develop strategies that can foster their pricing which in turn will differentiate their products from that of the competitors.
Finally, it will provide a guide to operations of brewery firms and government policy makers on the proper frame to adopt towards pricing strategies and product differentiation of soft drinks firms in Port Harcourt.
1.7 Scope of the Study
The study is delimited under the following heading: content scope, geographical scope and unit of analysis.
Content Scope: The content scope of this study involves an investigation to ascertain the relationship between pricing strategies and product differentiation of soft drinks by consumers firms in Port Harcourt. The dependent variable is product differentiation measured by product cost differentiation, product market differentiation and product distribution differentiation. While independent variable is pricing strategies measured by cost-based pricing, competitive pricing and perceived value-based pricing.
Geographical Scope: This study is delimited to Port Harcourt Metropolis with references to selected soft drink firms in Port Harcourt, Rivers State which include Nigeria Bottling Co Plc, Plot 126 Trans Amadi Layout Port Harcourt Rivers State and Sevenup Bottling Plc, 4, East West Road, Off Eleme junction, Port Harcourt.
Unit of Analysis: The unit of analysis in this research involves senior and Junior staff of the selected soft drink firms in Port Harcourt at the time of the study.
1.8 Limitations of the Study
The study was limited by the following:
Finance: The source of accessing fund for the research work was difficult and this to a great extent limited the quality of research activity.
Time: another limitation for this study is the time allocated to the research work was not sufficient to give room for further intensive work on the field of study, however, the researchers was able to cover the areas motion in the study.
Organization Policy: Again, organizational policies limited the level of information received. The personnel of the firms were not willing to give information, stating that it was against the organization’s policy.
1.9 Definitions of Terms
In this study, it will be very important to define key terms that will be featuring. They include the following:
Customer value-based pricing strategy: It is when companies base their pricing on how much the customer believes a product is worth.
Competition-based pricing strategy: It is a pricing method that makes use of competitors’ prices for the same or similar product as basis in setting a price.
Cost-based pricing: It is a pricing method that is based on the cost of production, manufacturing, and distribution. Essentially, the price of a product is determined by adding a percentage of the manufacturing costs to the selling price to make a profit.
Product differentiation: It is the process used to distinguish one company’s goods and services from another company’s goods and services.
Product Distribution Differentiation: A differentiated strategy in business means that the firm offer distinct product or service attributes to the customers
Product Differentiation: It is the process of distinguishing a product or service from others, to make it more attractive to a particular target market.
Pricing Strategy: It takes into account segments, ability to pay, market conditions, competitor actions, trade margins and input costs, amongst others.
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