Factors Influencing Pricing Strategies of Commodities in Supermarkets in Nairobi City, Kenya

Abstract

Supermarkets are in the dubious position of providing products that customers need on an everyday basis, while also needing to offer prices that are low and appealing enough to draw customers inside to buy. For this reason, many supermarkets opt for more complex strategies to ensure profitability while still appealing to price-conscious consumers. Objective: Factors influencing pricing strategies among supermarkets in Nairobi city. Specifically, the researcher sought to establish the influence of competition, VAT, demand and type of products on the prices in supermarkets. Design: Cross sectional survey. Participants: Middle and top managers of supermarkets in Nairobi city involving 5 top and 5 middle level managers in each of the supermarkets. Results: Majority (75%) of the respondents in the study indicated that rivalry among supermarkets in the study area was high. Majority (88%) of the respondents agreed that their supermarket faced rivalry from other businesses that offer the same primary services to the same customer base. An overwhelming majority (96%) agreed that their supermarket faced rivalry from other businesses which offer services slightly different products and services, but target the same group of customers. Correlation analysis showed that competition had a strong positive correlation (r=0.73, p<0.05) with pricing. The study found that Majority (92%) of the respondents in the interview felt that the rate of VAT was high. Majority (85%) of the respondents in the study indicated that the number of VATable products was very high with 64% indicating that the number was very high. All (100%) respondents agreed with 89% strongly agreeing that their supermarket adhered to VAT regulations. VAT had a strong positive correlation (r=0.64, p=0.004) with pricing. Majority (58%) of the respondents indicated that the rate of demand for products and services sold in their supermarket was very high. Majority (85%) of the respondents indicated that demand had large effect on pricing strategies with 50% indicating that the effect was to a very a large extent. Demand had moderate positive correlation (r=0.55, p>0.05) with pricing. That all the supermarkets in the study sold groceries, electronics, clothes, shoes and mobile phones and accessories. Home utensils and pharmaceutical products were also sold by a majority of supermarkets in the study. An overwhelming majority (98%) of respondents indicated that the brand of product affected its pricing. There was no relationship between type of product (F= 0.363, p=0.708) and pricing. Conclusion: The study concluded that there exist various factors that influence pricing strategies of supermarkets in Nairobi city. These factors include competition, VAT, demand and type of products. Overall, competition had the greatest influence, followed by VAT. Demand had a modest influence on pricing strategies whereas type of products had little influence. It was recommended that supermarkets should invest in market research to better understand the needs of the market and therefore offer the type of products that are highly sought by customers.