EFFECTIVENESS OF PROFIT PLANNING IN NIGERIAN ORGANIZATIONS

CHAPTER ONE

INTRODUCTION

1.1 Background to the study

In  modern  economies,  prices  are  generally  expressed  in units of some form of currency. Although, prices could be quoted as quantities of other goods and services (BARTER SYSTEM). Prices are sometimes quoted in terms of vouchers such as trading stamps. Price sometimes refers to the quantity of payment requested by a seller of goods or services rather than the actual payment amount.

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.

In many financial transactions, it is customary to quote prices in other ways. The requested amount is sometimes called the asking or selling price, while actual payment may be called the transaction or traded price.

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 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 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.

The actual process of profit planning involves looking at several key factors relevant to operational expenses. Putting together effective profit plans requires looking at such expenses as labour, raw materials, facilities maintenance and upkeep and the cost of sales and marketing efforts.

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.

In the course of this study, two companies would be examined: Vintage Nigeria plc, ijanikin Lagos, manufacturers of vintage beauty products and cosmetics (e.g. body creams, relaxers, shampoos, etc) was established in the year 1992, and also, Ojukwu pen farms, producers of poultry proceeds (eggs and chickens) and farm proceeds and has been in existence since 1987.

1.2  Statement Of The Problem

Hilton (1991:201) observed that both the market forces of demand and supply and the cost of production have a Significant bearing on determining prices. Equally he explained that there are other variables that influence pricing decisions according to him, this includes: Manufacturer’s pricing level of competition, and availability of close substitute.

For pricing to be effective, firms must incorporate all these factors in selecting the most advantageous price for its product. At times, firms are not in the habit of considering these factors and this has led to the shutting down of many factories, downsizing of workforce and in most cases, winding up of firm’s(Hilton, 1991:201).

Profit plan are made in form of budget and they help firms to forecast the level of profit, cost and revenue, they intend to generate in order to gain competitive advantage. Unfortunately many firms still do not prepare these plans, thus, this has led firms undertaking unplanned ventures resulting in escalation and inability of firms to foresee shortage in resources or finance or personnel needed in the future operation of the firm.

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