CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Price sensitivity is a necessary element for marketing professionals to evaluate the

target market; so it has a big impact on the bottom line or earnings of the company. A
firm can implement a low-cost strategy to ensure the continuity of its competitive
advantage (Santonen, 2007). For this reason, price is an indispensable factor in
consumers' purchasing decisions in low-cost strategies (Silva 2012). Aliman and
Othman (2007) found that price is one of the most important features in purchasing
goods or in daily consumption. Furthermore, in some studies it has been seen that while
consumers make a purchase decision in a category of products in order to maximize
utility immediately; sometimes they pay attention to buying power, then to brand and
quality. This is a sign that consumers have price sensitivity at a certain level when
making their choices (i.e. intention to purchase).

 Price sensitivity is one of the key factors affecting companies choice of price as well as
how much profit they are going to make. Nowadays, customers are well informed about
product or service alternatives, product benefits, features, qualities and prices through
advertising, family members, peer groups, social networks, public information sources,
and newspapers. A firm can implement a low-cost strategy to ensure the continuity of
its competitive advantage (Santonen, 2007). For this reason, price is an indispensable
factor in consumers' purchasing decisions in low-cost strategies (Silva 2012). Aliman
and Othman (2007) found that price is one of the most important features in purchasing
goods or in daily consumption.

Customers are not too blind to buy a product without searching information about a
product or service. Actually, consumers are sensitive to the prices because they want
to get maximum benefits of using their money and time. Consumers are very rational to
judge what they are getting from buying a product or service in exchange of their
payments for it.

As competition and other environmental influences increase globally, it is obvious that

there are growing emphases on quality improvement and cost reduction in order to
achieve customer satisfaction and enhancing organizational value (Iwarere, 2010). It
now appears that many companies and organizations have acknowledged the critical
importance of being customer-oriented and customer-driven in all their activities.
In marketing economy, customers are the lifeblood of every organization, and without
customers no organization can be in existence. Customers are important because they
determine the survival of an organization. In network industry, price may be among the
factor that consumers consider when making purchase decision. It is important for the
organization to understand how customers compare prices of their product to
competitors’ prices when making purchase in network industry.
 This will help organization to strategize in order to meet the needs of customer.
Customers are not only influenced by price, they are influence by variety of factors but
for the purpose of this study price sensitivity alone will be considered. In today
marketing environment, the price of a product is a central issue, but not only in
consumer decision making process and the outcomes of their overall satisfaction but
decision making and marketing strategy of the producer. Pricing decision should
consider customer and competitor reactions. In formal uses, customer will generally
perceive price as an indicator of product or service quality and will normally evaluate the
cost in terms of perceived benefit derived from the consumption of the offering. The
major determinant of prices, of course, is what the consumer is prepared to pay, which
is in turn related to a number of other factors. Nowadays, price also plays an important
element in guiding choice to purchase among consumers (Silva, 2012). When a
consumer considers price, they tend to be sensitive to price changes (Noh, 2013). In
addition, price sensitivity is inconsistent from one person to another, as consumers have
the ability to change the consumer purchasing pattern (Noh, 2013), as well as it also
influenced purchase intention.
Price as one element of marketing mix can change very easily as compared to other
element of marketing mix. The marketer can decide to lower or raise a price more
frequently. It is not an exaggeration that every consumer want to use a product that is of
high quality and at the same time at high price. This has led to academic uncertainty
that, it is price that influences consumer to purchase and others are saying that it is
other factors that influence consumer to purchase but not price, that is why there is the
need to investigate whether consumer select a product by using price as indicator or
other factors.

                                                        

1.2       STATEMENT OF THE PROBLEM

It appears that the market share of some organizations today is reducing simultaneously
on a daily basis which is very dangerous. Any organization that wants to survive must
retain and increase her market share at all cost. Customers are very sensitive to prices
of goods, commodities and services they buy while organisations on the other hand are
ignorant of this fact. They fail to do their assignment by strategically finding out through
market research and other means how customers feel about the prices of their products
which will lead them to ignorantly fix prices that will give their competitors an edge over
them. They fail to look into the activities of the competitors to determine a pricing
strategy that will be favourable to the customers profitably. Thus, to find out the effect of
Price sensitivity on consumer purchase decision, organisations must understand their
customers’ perception of price in making their purchase decision if they want maintain
and increase their share of the market.

Aliman and Othman (2007) found that price is one of the most important features in
purchasing goods or in daily consumption. Furthermore, in some studies it has been
seen that while consumers make a purchase decision in a category of products in order
to maximize utility immediately, sometimes they pay attention to buying power, then to
brand and quality. This is a sign that consumers have price sensitivity at a certain level
when making their choices (i.e. intention to purchase). This study will determine the
impact of purchase intention on consumer purchase decision.

Consumers compare products. Even the simplest purchases are most likely preceded
by a subconscious evaluation of the alternatives out there, and the cost of this
alternative. Here, we talk about the reference price, i.e. what is the price/value
combination that the consumer uses to benchmark the purchase. In theory, all prices
are reference prices as they make up the general price level benchmark.. However,
often there is just a handful that is significant to the consumer, and the bigger the
difference between the price of your product and the reference price in the customer’s
mind, the higher the price sensitivity. If a product is very expensive compared to the
rest, people will stop buying it. It is obvious that there is a need to examine the effect of
reference price on consumers purchase decision.

                                                                                                               

1.3       OBJECTIVES OF THE STUDY 

The general objective of the study is to determine the effect of price sensitivity on
customer purchase decision. These specific objectives are as fellows;

• To determine the effect of perceived price on consumer purchase decision.

• To examine the effect of purchase intention on consumers purchase decision.
• To determine the effect of reference price on consumers purchase decision.
                               

1.4       RESEARCH QUESTIONS

   The study will be undertaken under the following research questions;

• How does perceived price influence consumer purchase decision?

• How does purchase intention affect consumers purchase decision?
• How does reference price affect consumers purchase decision?

           
1.5       SIGNIFICANCE OF THE STUDY 

The significance of this study cannot be overemphasized as it will be of great value to

producers of goods and services at large. This is because the result of this research will
add to the number of available materials for decision making in their companies.

Also, this research will be of value to salesmen by exposing them to how perceived
price, purchase intention and reference price influences consumer purchase decision
and how to respond to it. Salesmen who are being challenged in this areas of their work
will be able to face such challenges.

The result of this study will also be of help to students who want to make findings in this
area in the future. It will serve as reference point not only to students but to of people
who will be interested in this topic.

               

1.6       SCOPE OF THE STUDY

The study will be carried out in Airtel Nig. Plc headquarters, Ado-Ekiti, Ekiti state,
Nigeria. This is because of the area of the study for the research work where relevant
data will be obtained.

1.7       LIMITATION OF THE STUDY

The following factors are the limitations to the research:

The time allocated for the research is very short and limited, thus, the research will be
done under pressure and a high level of speed in order to meet up with time which may
reduce the quantity and quality of information that will be gathered during this research.

The entire population within the scope of the research work cannot be reached.

The result of this research will be based on information gotten from a selected sample
out of the entire population.

The non-cooperative attitude of respondents in filling and returning the questionnaires

given to them on time.

The tendency of respondent providing false and bias information may render this
research work unreliable.