Price – Meaning and Concept of Price

Price – Meaning and Concept of Price

Price is of the marketing mix available according to Ebue (1996:59) it was a monetary expression of value.  Generally, products are said to posses utility if they are capable of satisfying human need.  Utility is often measures in terms of value and when such value is expressed in monetary terms, price is due monetary value of the product.

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Abugu (2000:11) sees prices as one amount of money that must be sacrificed so as to acquire a commodity or services.  Thus it is sellers point of view, it is the amount of money at which he is prepared to exchange his goods and /or services with buyers.  It is the value placed on a product or services by a buyer which he is willing to pay the seller.  Thus, the price is the exchange rate and at this rate both sellers and buyer agree to carry out a transition which is beneficial to the two.

Abugu (2000:12) further distinguishes between actual and normal prices of a product according to him actual price refers to the existing product price in the market.  It is the price which the buyer pays to the selling in exchange of the sellers product. On the other hand, normal price is a theoretical concept and consists of short-run and long prices.

Price occupies a strategic position in marketing the inter-play between price and other marketing mix element defines an organizational marketing strategy and hence determines its success or failure.  In other words, price can indirectly determine the success or failure of a product and/or a firm as well as its long-run survival in the market.

According to Ifezue (1996:121) a wrong price for product hampers profitability as it reduces sales volume.  Rice must cover costs and provide for an adequate profit in order to encourage re-investment and enhance the growth of the firm.

Prices are nto to be set arbitrarily as price setting its very crucial for profitable business operations.  Rather a right price should be set for any given product.


Prices are nto fixed arbitrarily.  In order to arrive at the actual price some consideration that work to influence price are outside the control of the firm and are referred to as external determinants. Others are within their control and are called internal determinants of price.

According to Ugbaja (2201:22) the external determinants include the structure of the market price elasticity of demand, government policy and cost while internal determinants include corporate resources, objective of the firm such as profit maximizations, maximization of sales revenue and market share maximization.

Among the models of market structure are perfect competition, pure monopoly, monopolistic competition, oligopoly, monophony and duopoly.  A competition is a price taker and does not fix the price of his product while others manipulate their products prices and it only checked by price elasticity of demand.

Price elasticity of demand plays an important role in actual price setting especially in imperfect markets where sellers can influence the prices of their products.  According to Ugbaja (2001:23) the Nigerian oil industry is oligopolistic and faces inelastic demand for its products.  This is because there are no substitutes for petroleum products and so oil marketers manipulate product prices and exploit consumers.

In order to protect consumers against this exploitation, the government exercises control over market prices using the relevant agencies.  According to vanish (1995:121) the control measures are aimed at setting price ceiling or floors and when this is done, price can nto be set outside these extremes. In the Nigerian oil industry, the petroleum product-pricing agency regulates prices of the product under the regulated market system.

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In recent time, the proposed deregulation of pricing in the oil industry has undermined the effort of the government to check arbitrary increases in petroleum product prices.

Another determinant of price is cost of production given the profit motive of firms, cost are minimized.  Accordingly when cost is high profit potential is how and so price must be kept high so as to cover cost and ensure profit (Vanish, 19-95:126). According to Ugbaja (2001: 26) one of the reasons given for the high prices of petroleum products is their high cost of production.

Furthermore, corporate resources influence price According to Vaish a company with a strong solid assets base easily manipulates it product’s price much more than a company with a weak solid asset base.  Besides, in fixing product price a firm takes into consideration its objectives such as profit maximization, maximization of sales revenue and market share maximization.  The first objective calls of a high price while the other two necessitate a low price (Vaish 1995 – 126).


The task of a seasoned manufacturer before deciding the price of his product is to determine his pricing goals and objectives in both the short and long run.  According to Achison (1999:71) the objectives of pricing has invariably been to obtain the right product and supplies at the lowest possible prices. Pricing goals are classified as follows:

1.       Achieving target return on investment or notes sales.

2.       Maintaining or improving share of the market.

3.       Stabilizing prices

4.       Maximizing profit.

Furthermore, he states that pricing goals and objectives include;

1.       Profit maximization.

2.       Achieving a given or target return on invested capital on net revenue.

3.       Meeting or following competition and preventing competition.

4.       Stabilizing prices

5.       Maintaining market shares

6.       Improving market share.


The pricing system in most firms is rather rigid.  This is because he add a fixed mark-up percentage on their costs in order to arrive at a selling price.  Some firms tend towards changing the price set by the leader in that industry while others set prices which we believe would bring them a contain percentage return on their investment in the long-run.  In the present time the practice is flexible pricing.

According to Ebue (1996:353) flexible pricing means varying, the price for the individual customers based on the following:

i.        The willingness to pay

ii.       The ability to pay

iii.      The conditions of purchase.

Indeed there has not been any adherence to a fixed mark-up over cost or vice versa. Marketers presently add price to other aggressive marketing tools such as promotion and new product planning among others.


For the purpose of this study, the following pricing models will be examined.

i.        Odd/even pricing

ii.       Price lining

iii.      Basing point pricing

iv.      Uniform pricing

v.       Zone pricing

vi.      Demand oriented pricing.


According to Udeagba and Okeke (1993:130) this type of pricing practice involves international setting of price at odd numbers thereby crating the impression that the price is some what different form being charged by others.  For instance if others charge N100, the firm charges N99.95k.

The objective of this pricing policy is to enhance sales because customers believe they are buying at cheaper prices.


This is the practice of setting prices for product line and them marketing all products at these prices.  It assumes that customers have a certain price in mind that they expect to pay of the product.  This is mostly used by retailers.


In this system, the set price includes factory price plus freight charges form the basing point lefty nearness to the buyers, (Boone, 1996: 503). It is the point form which freight charges are determined.  But this point is not necessarily the point form which the goods and shipped.

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According to Boone (1996: 504) under this policy, the same price, including transportation expenses is quoted of all buyers irrespective of where they are located.  Uniform pricing is often used where the products are nto bulky and transportation and shipping cost. The effect of this method is that the price to the seller is higher where buyers are closely located.


This is a modification of the uniform pricing system and entails the dividing of market into different zones and a price is set within each zone Boone (1996:504).

Zone pricing has the advantage of being easy to administer and enables the seller to the more competitive in distant markets.


This is the practice of setting prices very high relative to competitors prices.  It is also known as “mark-plus” approach.


This involves setting prices much lower than those of the competitors.  It is used to discourage competitors from entry a market as low prices provides low profit margin.


This is the addition of cost of a product to get the selling price.  The marketing is normally stated as a percentage cost of sales to get the selling price.  Their price is determined simply as

P = C +M


This price focuses on non-price competition by concentrating marketing efforts on the products, distribution and promo tools. According to vaish (1996:128) this strategy is obtainable in a perfectly competitive economy where individual firms are price-takers.  Forms charge the going rate price in the industry.


According to Okeke and Udeagha (1993:129) in this pricing system, prices are set only on the basis of the value placed on the product by buyers or on the strength of demand for the product in the market.

Demand – oriented pricing is the most market – oriented technique.  However, price can be used sometimes as a weapon of competition.  Firms can reduce their products prices so as to attract increased patronage or accelerate demand for a slow selling commodity.


The “Nigeria economy is far form being a perfectly competition exists in the market for almost every commodity being exchanged.  In the public sector, the operating parastatals providing services are monopolies and in the private sector, most of the operating industries are oligopolies.  Consequently, price is not determined by the forces of demand and supply.

According to Kedia (1997:15) the prices of public goods are determined by the government through its parastatals and the price control or regulatory agencies.  For instance NEPA and NITEL tariffs or charges are fixed by the government, and often these are considered high because of the inadequacies of these services.

In the private sector where the operating companies face monopolistic and oligopolistic competition, prices are determined b the companies but with much consideration given to competitors’ price.

According to Ikedia (1997:166) the oligopolistic breweries in Nigeria determined the product prices through price leadership.  A leader fixes the price for each brand of beer ad other producing similar beers follow.  However, there is price differential because of quality difference as perceived by consumers.

In the commodity market, prices are determined through the process of haggling (Ikedia, 1997: 13).  This process involves buyers and sellers coming into personal contact in the market and through dialogue the prices of commodities are determined.  The feature of the Nigerian commodity market is market unionism.  Market unions play a vital role in the determination of commodity prices in the Nigerian market.

Ikedia (1997:16) notes that there different market unions for different commodities with each union exerting control over the supply of commodities by every member.  According to him, each union determined the prices at which members will sell their goods.  Usually, a floor is set while the ceiling is open.  This means at such as high price as their haggling capacity permits them in the petroleum market, pricing policy is the responsibility of one Nigerian National Petroleum corporation, the Pipeline product marketing company and due government. The prices of petrol, diesel/gas, kerosene, spirit, etc are fixed by these economic units.

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However, in recent time development, the petroleum sector has led to the proposed complete deregulation of petroleum prices. According to Ugbaja (2001:32) these developments include one perennial acute shortage of petrol and kerosene due to under supply form the refineries and the deregulation of marketing activities in the down stream sector of the oil industry.

The deregulation has led to the emergence of thousands of independent petroleum product marketers whose union now greatly influences the prices of petroleum products Ugbaja (2001:33) remakes that the Nigerian labour congress has grated surely into the price fixing apparatus of petroleum products. Through industrial action, the NLC now checks the arbitrary manipulation of petroleum product prices.


Petroleum products, until recently, were uniformly price through out Nigeria.  This implies that the pump price of petrol was the same in all filling stations in Nigeria. Similarly, the prices of kerosene gas, spirit etc was the same for each of these products through out the country. There have been a lot of controversies and arguments over the implications of uniform pricing for petroleum products in the country.

Ugbaja (2001:41) assets that this has had to the cheapness of the products because of subsidization of the products by the government.  However, he remarks that this brought about adequate supply of the products while the subsidization located.  Ikedia (1997:27) argues that uniform pricing led to uncompetitiveness of the products as their prices in other countries were higher.

This led to diversion and smuggling or bunkering of the products out of the country. Iheka (2003:7) states that uniform pricing limited the amount of money accruing to the government form sales of petroleum products.  He suggests the deregulation of the down steam sector to enable the supply and demand for these products determined their prices. Nevertheless, Iheka (2003:7) acknowledges that uniform pricing discourage hoarding by independent marketers once the products got to the filling stations but had the tendency of diversification and bunkering.

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