PRICING DETERMINANTS AND CUSTOMER SATISFACTION OF SELECTED PAINT MANUFACTURING COMPANIES IN ABIA STATE, NIGERIA

CHAPTER
ONE

INTRODUCTION

1.1  Background
to the Study

In
the competitive environments, investing in customer satisfaction is a means of
creating a sustainable advantage, given that it serves as a link between
purchase and consumption with important post purchase development, such as
loyalty and word of mouth (Muogbo, 2013). Today, firms especially the paint
firms have realized how important it is to understand, meet and predict
customers’ needs. Customers have also become increasingly conscious of their
value to these firms. Due to the highly competitive nature in the manufacturing
sector, paint companies have become more interested in assessing their
customers’ satisfaction, being aware that the higher the customer satisfaction,
the greater the inelasticity of demand for their products. Thus, paint
manufacturing companies need to determine the factors that affect customer
satisfaction, in order to assess the balance between customer expectations and
the paint manufacturing companies’ services offered and identify their major
advantages and disadvantages (Guilaninia, 2008).

Strategic
management is the process of decision making, coordinating, planning, and
taking actions by the top managers of a firm in order to achieve certain goals
and objectives. According to Dauda, Akingbade and Akinlabi (2010), strategy is
a detailed plan for a business in achieving success and since business involves
a lot of risk, an ill planned strategic move could result in loss of millions
of Naira, bankruptcy of business or even loss of thousands of jobs (Dauda, et
al., 2010). One of the strategies to compete effectively in the business world
is the pricing determinants. Thus, this calls for strategic management in order
to develop an effective pricing determinants (Dess, Lumpkin, & Eisner,
2007). This implies that top managers should allocate the necessary resources
in order to bring the intended strategies to reality (Dess, et al., 2007).

Furthermore,
there is a rapid change in recent business environment which has made the
competition among industries to increase (Muogbo, 2013). To compete
successfully, firms need to develop some strategies and take some actions which
may include: enhancing product quality and productivity, reducing cost of
production, promoting product innovations and improving the speed at which the
product is delivered to the market and to the customers. Firms also need to
strive to meet up with the changes that are occuring globally, gain competitive
advantage position and improve performance relative to their competitors
(Muogbo, 2013).

According
to Guilaninia
(2008), pricing determinants involve segments, ability to pay,
consumer behaviour, market conditions, government policies, competitor actions,
trade margins and input/operational costs, amongst others. Price is among the
four (4) P’s of marketing namely: Product, Place, Promotion and Price, five (5)
P’s of marketing which are: Product, Positioning, Place, Promotion and Price
and seven (7) P’s of marketing Product, Place, Promotion, Price, People,
Process and Physical Evidence (Guilaninia, 2008). Price can be seen as the
amount of benefit a consumer pays for having or using the product. If the
customers accept it, it is appropriate, otherwise it would be changed
immediately (Guilaninia, 2008).

However, price is the most
flexible elements of marketing, unlike the other characteristics of the goods
that depend on the use of a distribution channel, price can be changed very
easily (Guilaninia, 2008). Furthermore, price setting and competition are the
problems which many executives in marketing face. Among several pricing
strategies, managers can choose their favourite type. The overall aim of
pricing is to enhance sales and profits worldwide (Kigan, 2001). Thus, any firm
that is concerned with the production and rendering of goods and services
respectively, has to initially answer the question of what to produce and for
whom to produce? Secondly, firms have to answer the question of how much the
actual and potential customers will be able and willing to pay for the goods.
This curiosity about price fixing and other different interfering factors such
as cost of producing goods, government factors, price of competitors, demand
for goods, environmental/social factors and so on, concerned in fixing prices
of goods and services, have proved to be a headache to many paint manufacturing
firms in Nigeria (Obigbemi, 2010).

Furthermore, decision concerning price is a
very important decision a firm has to make, because it will affect their
objectives, directly or indirectly (Obigbemi, 2010). A business whether big or
small, complex or simple, public or private, is designed to provide prices that
are competitive (Ayozie, 2008). Hilton (2005) stated that setting prices for
the products or services of an organisation is one of the essential decisions
managers have to face as well as one of the difficult decisions because of the
number of factors that have to be put into consideration. However, Lovelock and
Wirtz (2004) argued that the most important tactic to a successful pricing
determinants is managing firms’ revenues in a way it will support their goals.
This will lead to the question of how well can the firm supplement the
different factors that affect pricing decisions, in order to achieve their
objective, which is to gain customer satisfaction. Therefore,
the focus of this study is on pricing determinants and customer satisfaction of
selected paint manufacturing companies in Abia state, Nigeria.

1.2  Statement
of the Problem

The relationship between a company and a customer in
the past was purely based on the company producing the best quality product in
order to maintain the relationship, however, the relationship
between the two parties has recently taken a new turn making customers’ the
main focus in maintaining relationships (Gaiardelli, Saccani & Songini,
2007).

In
the face of constant technological and economic changes, today‘s consumer is
more curious, more educated and conversant with what they really want. The
changes have also affected the need of firms, thereby making marketing managers
to face huge problems in weighing the behavioral forces and in handling the
marketing mix with focus
on the resources, which they have to consider
when developing marketing programs to fit the needs of their firm (Muogbo,
2013). Philips (2009) noted that customers would prefer paying less, sometimes,
they would rather prefer not to pay at all but it is simply not feasible to give away products without
price. An organization that does that will go out of business and would not be
able to create value for the customer (Philips, 2009). These constitute problems that affect
the organizations’ output.Consumers worldwide have various views
about products based on their prices, however, product pricing for consumers is
a strenuous task. This is true due to the fact that a high price may cause a
negative feeling about the product, and also a low price can be deceptive as
regards the quality of the product (Philips, 2009). Decisions affecting the
distribution, product and price for large markets are special as well unique to
every industry, this has constituted a great challenge to managers who have not
considered it to be able to have a negative influence on customer buying
behavior and this has led to complaints from unsatisfied customers. Based on the above, the effect of
buying behavior on customer complaints is been investigated.

Pricing
has been identified as one of the difficulties a decision maker faces when
trying to place a price on a product or service (Rohani & Nazim, 2012).
Sije and Oloko (2013) noted that executives are complaining that pricing is a
big headache and one that is getting worse day by day. Markets have largely
been characterized by improper pricing, taking into consideration market
demand, costs and competition. In Nigerian market, the inability of firms to
freely set prices without considering the policies of their competitors
concerning price, has led to a decline in profit margin made by many companies
(Rohani & Nazim, 2012). If the price is too high, the firm’s product will
not be competitive in the market and if it is too low, the firm may not
break-even (meet operational cost). The operational cost of the paint
manufacturing firms has been high and this has led to the constant increase of
the prices of the firms’ products and has led to a negative customer attitude towards their product, which in
other hand has also resulted to the under productivity of the firms due to low patronage. (Rohani
& Nazim, 2012). Based on the
above, the effect of operational cost on customer attitude is examined.

According
to Egwakhide, Nyor and Terzungwe (2012), the levying of additional taxes by the
government in order to subsidize the public service enterprises has had an
adverse effects on the manufacturing companies. This is because manufacturing companies have to pay
more in the form of additional taxes and their ability to break-even is
adversely affected. When the
government covers the losses of public service enterprises by giving subsidies
through taxation, it cripples the productive capacity of the manufacturing
companies by way of over taxation of their facilities. This will also
affect the quality of services rendered to customers (Egwakhide, Nyor & Terzungwe, 2012). Based on the above, the effect of government
policy on the quality of services delivery by enterprises is evaluated.

Uslay (2012) proposed that firms’
inabilities to advance and protect their strategic positions often come at
great cost. Customers who are aware of the price of just one retailer are
“loyal” customers, whereas customers who know the prices of many retailers are
“switchers” and switchers give strength to competitors. Studies have shown that
there are higher number of switchers than loyalists in the market thereby making it
extremely difficult for organizations to decide on their pricing strategies.
The segmentation of switchers in pricing policy has led to disjoint between organizational goals and
customer demands (Koca & Bohlmann, 2008). 
Subsequently, with
the introduction of information technology which has made the world a global
village, it is now easy for customers to get price information of many firms as
fast as possible (Uslay, 2012). This has made competitions among firms stiffer,
thereby making pricing decisions to be a herculean task for managers (Koca
& Bohlmann, 2008). Based on the above, the effect of competitors’ action on
customer loyalty in the paint manufacturing companies is evaluated.

However,
the study identified four gaps namely: buying behaviour, operational cost,
government policy and competitors’ action which have prevented the management
of the selected paint manufacturing companies to attain maximum customer
satisfaction.

1.3
Objective of the Study

The
main objective of this study is to investigate Pricing determinants and
customer satisfaction of selected paint manufacturing companies in Abia state,
Nigeria. The specific objective are to:

1. assess the effect of buying
   behaviour on customer complaints in the paint manufacturing companies in
   Abia state;
2. determine the effect of
   operational cost on customer attitude in the paint manufacturing companies
   in Abia state;
3. investigate the effect of
   government policy on service delivery in the paint manufacturing companies
   in Abia state and
4. evaluate the effect of
   competitors’ action on customer loyalty in the paint manufacturing
   companies in Abia state.

1.4
Research Questions

The
proposed study seeks to answer the following research questions:

1. How does buying behaviour
   affect customer complaints in the paint manufacturing companies in Abia
   state?
2. To what extent does operational
   cost affect customer attitude in the paint manufacturing companies in Abia
   state?
3. How does government policy
   affect service delivery in the Nigerian paint manufacturing companies in
   Abia state?
4. What effect does competitors’
   action have on customer loyalty in the paint manufacturing companies in
   Abia state?

1.5  Hypotheses

The
hypotheses for the proposed study are as follows: the hypotheses were tested
0.05 level of significant

H01:     buying behaviour has no significant effect
on customer complaints in paint             manufacturing
companies in Abia state.

H02:       operational cost does not significantly affect customer
attitude in paint       manufacturing
companies in Abia state.

H03:     government policy has no significant effect
on service delivery in paint      manufacturing
companies in Abia state.

H04:     Competitors’ action have no significant
effect on customer loyalty in paint             manufacturing
companies in Abia state.

1.6 Scope of the Study

This study investigated Pricing
determinants and customer satisfaction of selected paint manufacturing
companies in Abia state, Nigeria. The identified variables of pricing
determinants have been examined as well as that of customer satisfaction. Abia
State is made up of seventeen local (17) government areas with two major cities
namely Umuahia and Aba. All the paint manufacturing companies are sited in
these major cities which have five (5) local government areas in it out of the
seventeen (17) local government areas. Hence, because of the wide scope of
paint manufacturing companies in these two major cities, the researcher
therefore limited the research to the following five (5) major paint
manufacturing companies namely: Chemlap Nigeria Limited, Nicen paints limited, Saclux Industries Nigeria Limited,
Clover Paints Nigeria limited and Berger
Paints Nigeria Plc, which were selected from the five local
governments areas that make up the cities namely: Aba south L.G.A, Aba North
L.G.A, Osisioma Ngwa L.G.A, Umuahia South L.G.A and Umuahia North L.G.A.

This
study evaluated pricing determinants and customer satisfaction in Abia State.
Variables identified for pricing determinants have been examined alongside
those identified for customer satisfaction. Manufacturing industry was selected
because of their importance to the development of the nation and because there
is a high level of pricing determinants 
employed by them to ensure customer satisfaction in their operations and
in getting their products out into the market through the middle-men to the end
users. Well-structured
questionnaire was used to obtain data for this study. The use of stratification
to group respondents into
locations such as Aba South, Aba North, Osisioma, Umuahia South and Umuahia,
was also employed. Then, the random sampling techniques was used to select the designated paint
companies for each region.

The target respondent for the study consists
of the total number of management personnel as well as supporting personnel
working at the strategic level and operational level within the firms. The
total figure for the population arrived at, based on survey of few selected
firms, was six thousand and fifty (6,050) personnel. Information with regards to the
population number was sourced from the Human Resource Department (HRD) of the
firms. Using Taro Yamane (1967) formula for sample size determination, the
study was able to arrive at a sample size of four hundred and thirty three
(488) respondents including a provision for thirty percent non respondent. The
stratified sampling method was used because of the stratification variables
included in the scope of the study. The research is focused on paint
manufacturing companies that are operating in Abia State, Nigeria.

1.7 Significance of the Study

The general understanding of this study
would serve as a useful guide to management, practitioners, executives,
corporate managers in the manufacturing industry. It would help them to
understand how factors affecting pricing determinants  such as buying behaviour, operational cost,
government control/policies and competitors’ action, affect and the extent of
its effect on the attainment of customer satisfaction by the companies.

The study would also enable the selected
companies and the manufacturing industry to proactively respond to changes
within their environment more effectively. It would l also enable the
management of these companies to realize the necessity of implementing better
pricing strategies in the industries. This study would enable stakeholders in
the manufacturing industry to understand that employing all these resources
together would enable them produce a unique capability that is rare and
distinct to the company.

It would also enable the government to
create better policies and regulation that would enhance development and growth
in the manufacturing sector of the economy. Findings from this study would
enable the society to be more informed about the pricing determinants as they
relate to customer satisfaction. It would also provide more knowledge
concerning pricing determinants and reveal what makes it to vary from one
company to another.  Lastly, it is also
hoped that these findings would contribute to the body of knowledge and
stimulate more researcher’s interest in this field of study.

1.8
Operationalization of Variables

The
variables of this study are operationalized as follows:

Y = f(X)

Y = Dependent Variable

X = Independent Variable

Where:

Y
= customer satisfaction

 X = pricing determinants

Y = (y1, y2, y3,
y4)

Where:

 y1 = customer complaint (CC)

 y2 = customer attitude (CA)

 y3 = service delivery (SD)

 y4= customer loyalty (CL)

X = (x1, x2, x3,x4)

Where:

       x1 =buying behaviour (BB)

x2
=Operational cost (OC)

x3
=Government policy (GP)

x4=competitors’
action (CA)

The working equations are:

y1=
f (x1) ………………………………. Equation 1

y2=
f (x2) ………………………………. Equation 2

y3=
f (x3) ………………………………. Equation 3

y3=
f (x4) ………………………………. Equation 4

Y=f (x1, x2, x3,
x4 + et) ………………………………. Equation 5

The variables in Equation 5 are the working
Equations to be evaluated in this study.

y1
= a0 + ß1×1 + et   

y2
= a0 + ß2×2 + et

y3
= a0 + ß3×3 + et  

y4 = a0 + ß4×4 +
et                        

1.9 Operational Definition of Terms

The proposed operational definitions of
terms for this study are:

Pricing
determinants: factors that determines the setting of
prices of goods in order to attain organizational goals and objectives through
prices on products and services. Almost
all companies, large or small, determine the prices of their products and services
on production, labour and advertising expenses but for this study buying
behaviour, operational cost, government policy and competitors’ action were
examined to communicate to the target market.

Customer
satisfaction: a state in which a consumer of a product
or service shows that his/her expectations, needs or desires have been met.

Buying
behaviour: The response or reaction of a consumer towards a
situation or change made by an organisation.

Operational cost: expenses incurred while carrying out production
activities in the firm.

Government policy: The act of setting laws by the government to
regulate or check the activities of various business organisations.

Competitors’ action: activity oforganisations that produce similar
products or services, which are in contest for the acquisition of highest
number of customers.

Customer complaint: An
act of complaining by a customer to show dissatisfaction towards a product or
service rendered.

Customer
attitude:The way a customer perceives and behave towards a product.

Service delivery: the act of providing a distinctive characteristics,
standard and quality service to customers.

Customer loyalty: a state of being loyal or having allegiance to an
organisation. In other words, it is an act of not switching from one
organisation to another.

1.10         
Historical Background of the Paint
Companies Selected for the Study

This is the brief historical development
of the firms selected for the study.

1.10.1 Chemlap
Nigeria Limited     

Chemlap Nigeria Limited is a paint
manufacturing company and other products like resin, adhesives, plastics and polymerizing vinyl chloride
(pvc) gums. It was incorporated in 1983 and commenced manufacturing in 1985.
Chemlap Nigeria Limited is the first pioneer company in the manufacturing of
Resin in south-east Nigeria and later went into manufacturing of paints. It has
depots in eight (8) states of the federation which include Lagos,
Abuja, Kano, Jos, Benin, Uyo, Onitsha, Enugu, with its Headquarters at Aba, Abia state. This company
from inception has distinguished itself in achieving high quality products and
services which have earned it wide market recognition and patronage in Nigeria.
The company is purely indigenous with staff strength of
one thousand seven hundred and ninety eight (1798).

1.10.2 Saclux Industries
Nigeria Limited

Saclux Industries Nigeria Limited took its feet in the early 1970’s as a
trading concern with the name “Sammy Bros Nigeria” in line with his quest,
passion and drive to fashion a viable business, the Chairman/CEO,
single-handedly supervised and nurtured the outfit basically with the concern
of dealing on paints. By 1981, Sammy Bros Nigeria won the heart of discerning
end-users of paints as a major distributor to so many manufacturing companies
in Nigeria. Consequently upon its position in the surface coating, the need to
establish a paint company was muted. However, in 1986, production of Saclux
paints commenced under the business name Saclux Industries Nigeria Limited. In
the same 1986, Saclux Industries Nigeria Limited was incorporated as a Limited
Liability Company with RC. NO 79691. 

Saclux Industries Nigeria
Limited is today a company and a major player in the Manufacturing sub – sector
of the Nigeria economy, with a staff strength of nine hundred and fifty nine
(959). In view of its expansion, the company in 2007 moved into its permanent
industry complex located at Ohokobe – Afaraukwu Ibeku along Old Aba Road
Umuahia, while at the same time retaining and maintaining its old factory at
Amuzukwu – Ibeku also in Umuahia.

1.10.3 Berger Paints Nigeria Plc

Berger
Paints Nigeria Plc, started operation in Nigeria on the 9 January, 1959. It has
grown to be a leader in the Coating and Allied Industry in Nigeria – a legacy inherited
from Lewis Berger, the German colour chemist who founded the Berger Paints’
dynasty in London, in 1760. Their other well-known brands such as Luxol
(Clinstay), Super Star, Classic, etc continue to enjoy extreme popularity
across Nigeria today.

Operating
in 5 business segments; Decorative/Architectural finishes, Industrial coatings,
Marine & Protecton coatings, Berger/KCC Heavy Duty coatings,
Automotive/Vehicle refinishes, wood finishing and Preservers, with 16 depots,
Colour World centres and a countrywide distribution network of dealers and Mega
dealers in strategic locations spread throughout the country, the company is
well placed to serve the growing requirements of the Nigeria market.

In
2012, Berger Paints Nigeria Plc entered into partnership arrangement with the
biggest Heavy Duty Coating manufacturing company in South Korea, KCC
Corporation to jointly serve the Nigerian Paints and Coating market. This
partnership affords their customers the quality and durability that marine and
protective market have found synonymous with the KCC marine and heavy duty
brands. Berger Paints Nigeria Plc is located at 137 Aba/Owerri
Road, Umungasi, Aba North, Abia, Nigeria.

1.10.4 Korama
Clover Industries

Korama Clover
Industries has a combined staff strength of seven hundred and fifty four (754).
The company which is an indigenous privately owned paint and plastic
manufacturing firm was incorporated in October 1983. Korama Clover Industries
Limited produces high quality Clover Paints range of products for Household
decorative and Hi-tech coatings, industrial and marine paints, Sinclair
Automotive and protective coatings, as well as fillers, lacquers and wood
finish. It has a good distribution network, with twelve (12) sales depots
strategically located nationwide, which include Calabar, Port Harcourt,
Owerri, Onitsha, Benin, Lagos, Kano, Kaduna.

1.10.5 Nicen Industries Limited

Nicen
Industries Limitedproduces high
quality range of emulsion paints, gloss paints, car paints and plastics
products for household decorative and Hi-tech coatings. It has depots in several cities of the
federation which include Lagos, Abuja, Port Harcourt, Kano, Benin,