CHAPTER ONE

INTRODUCTION

• BACK GROUND OF STUDY

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.

However in explaining the importance of pricing, Egbunike (2007:83) sustained that setting the price for an organizations product or service is one of the most difficult, due to some number of variety of factors that must be considered. The primary decision arises in virtually all types of organization, just to mention but a few of them such as manufacturers set prices for their products, they manufacture, merchandising companies set prices for their goods, service firms set prices for such services as insurance policies, bank loans etc.

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.