PRICING METHODS CREATING UNEMPLOYMENT

Mon, 30 Nov -0001 00:00:00 +0000

By Sycorax Tiyesa Ndhlovu

Many ways of creating jobs exist. Promoting sound industrial base through increased extraction, manufacturing and service sectors can create more jobs for citizens.  But some pricing methods can also contribute to more job creation. However, how most Zambian businesses price their goods and services retard economic development and job creation while increasing poverty levels in our society.

Nowadays in Zambia, few businesses realise less than 100 per cent profit on one consignment of goods ordered. Most small and medium scale entrepreneurs want 100 to 150 per cent profit on goods purchased for re-sale.

Hardly do most business managers appreciate that, often, relatively low pricing can attract not only increased customer flow to a business and high sales values but can also raise profits from the same consignment of goods within a short time. Everything being equal, such a situation can further facilitate business expansion, which creates more jobs in the same firm.

No one is saying that all goods and services in this country should be cheap. What one is saying is that prices of most goods and services in our society are unnecessarily too costly for majority citizens. Such a situation does not only negatively affect business expansion and job creation but it also retards economic growth and in the process, increases poverty levels among many citizens who cannot access such costly goods and services.

Frank Jefkins(1998), ‘Public Relations’ states that customers are part of PR publics. And PR publics affect success or failure of a business. This means that if customers are not happy with the pricing of goods and services in a certain business, they can stop buying such goods.

To know some pricing methods firms can use, Philip Kotler(1994:498-506), ‘Marketing Management: analysis, implementation and control’ explains a number of pricing strategies. Among these are cost-plus pricing, perceived value pricing, value pricing, and going rate pricing.

According to Kotler, cost-plus pricing considers cost of producing a unit of that product; and then add a mark up. Perceived value pricing does not necessarily reflect on cost of production; but looks at what value customers give a given product. Customers can either perceive a certain product valuable or not; and that influences what price a business should charge. Value pricing deliberately charges a lower price for a high value product to make customers feel that they are getting value for their money. Going rate pricing does not consider production costs per se; but reflects on what competitors charge for the same product(ibid).

Additionally, Dennis Adcock et al(2001:264-268), ‘Marketing: Principles and Practice’ demonstrate many pricing methods. Among others, these are premium pricing, market penetration pricing, economy pricing, skimming pricing and psychological pricing.

Adcock et al(2001), state that economy pricing is where a business deliberately offers a low price while price skimming is where a business deliberately offers its goods and services at a higher prices; mostly to recover cost of investment. Psychological pricing appeals to emotions of customers. Its main application is fixing prices like K9,99; K14.95; 49.99, K499, 999, etc. Customers consider the first digit(s) on the left before a dot to determine whether a price is affordable or not.

These and many other pricing methods have their own advantages and disadvantages to a business as well as to existing and potential customers concerned. Depending on how many businesses use which pricing methods and income levels of many citizens, such pricing methods can also have a strong bearing on national economic development, job creation and poverty levels in a given country.

But why is it that, in Zambia, both imported and locally produced goods are relatively expensive with the latter being more costly than the former in most cases. Reflect on prices of imported cooking oil, shoes, fresh fish and many others for example. In some cases, while wholesale prices are relatively affordable, some retailers; especially in pharmaceutical outlets are too costly for many customers.

Surprisingly, most current prices of goods and services were derived from high exchange rate between the United States dollar and our Kwacha when, by mid-2016, the latter was at K15 per a US dollar. Now our Kwacha is less than K10 per US dollar; but prices have remained the same, if not increased as if our currency has further worsened against the US dollar!

Similarly, when fuel prices and electricity tariffs rise, all things being equal, most businesses increase their prices over night. But when prices of the same commodities drop, ceteris peri bus, no one drops the prices of his or her goods and services. Why?

This implies that with such high profit margins in most businesses, some existing and some potential customers are excluded from the market brackets. This further means that a certain amount of money is not captured by most businesses. Such a situation reduces the market share of a business. The money not captured could have been used to catapult a respective business to greater heights than ever before.

If a business charges relatively lower prices for each product with due regard to cost of production, assuming that enough information flows from such a business to many customers, many customers can trek to such a business.

The more customers buy a product within a short time; the more one orders some more of such a product; and ceteris peri bus, the higher the profit from that product within that short time that it would have been if it was sold at a higher price.

Take another example of some commercial banks in Zambia. Some of these commercial banks you see today were for the elite class people in society before.

Realising that they were not capturing a certain amount of money in the economy; especially from low and middle class citizens, some former elite oriented commercial banks lowered their opening account deposit figures to attract as many depositors as possible. At the end of such a pricing strategy, such banks had huge deposits per month than when they were only targeting the elite in society. This implies that lower prices, if well managed in relation to other factors, can increase profits for a business.

Assume that such deposits are customers coming to buy from your business. You can raise a lot of money per day. Aim at a low profit; but which can facilitate your goods to be sold like hot cakes. This will help you to make many orders in a short time. Many and regular orders in a short time might give you more profits than waiting for one consignment to finish in six months or after a year before you order some more.

Not following macro-economic factors and other factors in price determination can not only chase away existing and potential customers but can also lead to stagnation or slow growth in business operations. Such developments can affect gross domestic product (GDP), balance of payments(BoP), economic growth, job creation and poverty levels in a country.

Because of mostly exploitative pricing, most businesses are not expanding and not employing as workers as possible. Consequently, what we commonly hear in most businesses is downsizing workforce; and not employing more workers because their businesses are not doing well due to high prices of their goods.

Government should also take keen interests in how pricing affects individual businesses and eventually the whole economy. While Zambia follows a free market economy, there is no economy in the world which is 100 per cent free market.

Every government; including the perceived most liberalised national economies has a hand in business. This is why we learn of government intervention in national economies; especially in specific sectors for specific national interests.

Government should find ways of bringing efficiency and genuine competition in some business sectors so that some consumers have alternative options the way it happened to the cement sector with the coming of Dangote. Such an approach can benefit consumers, business expansion, national economy and facilitate job creation while reducing poverty levels.

The author is a lecturer in Journalism and Mass Communication. He is also a trainer in Public Relations (PR) and in Local Governance. He is also a reader in Marketing and Business Administration.

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Cell: 0977/0967 450151

E-mail: sycoraxtndhlovu@yahoo.co.uk