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IMPLEMENTATION OF PRICE DETERMINANT SYSTEM

CHAPTER ONE

INTRODUCTION

1.0 Introduction

According to Marn and Rosiello (2014), the fastest and most effective way for a company to realize its maximum profit is to get its pricing right. The right price can boost profit faster than increasing volume will; the wrong price can shrink it just as quickly. Yet many otherwise tough-minded managers shy away from initiatives to improve price for fear that they will alienate or lose customers. The result of not managing price performance, however, is far more damaging. Getting the price right is one of the most fundamental and important management functions; it should be one of a manager’s first responsibilities, a nuts and bolts kind of job that determines the dollar and cents performance of the company.

The introduction of computerized technology into the retail environment over the past two decades has resulted in new opportunities for retailer managers. For example, demand based management uses statistical models to predict consumer price response using historical information. The most prevalent type of information in retail markets is transaction data collected using optical bar code scanners which track every item purchased by a consumer at the point-of-sale. This data could potentially contain a wealth of information about how consumers respond to price and promotions. A price determinant management system is a computerized system that aids in adjusting the price of products based on different variables such as cost price, transportation, taxes and commissions on products and  competitors prices. This is done such that an optimal price is ascertained that still brings about a certain percentage of profit.

1.1 Theoretical Background

Standard economics can be divided into two major fields. The first, price theory or microeconomics, explains how the interplay of supply and demand in competitive markets creates a multitude of individual prices, wage rates, profit margins, and rental changes. Microeconomics assumes that people behave rationally. The two factors that determines the price of an item is the level of demand and supply. The central components of microeconomics are demand, supply, and market equilibrium.

The theory of supply and demand takes into consideration the influence on prices of such factors as an increase or decrease in the cost of production, but regards that influence as an indirect one, which it affects prices only by causing a change in supply, demand, or both. Other factors indirectly affecting prices include changes in consumption habits (for example, a shift from natural silk to artificial silk fabrics) and the restrictive practices of monopolies, trusts, and cartels. In the view of many economists, the multiplicity of such indirect factors is so great that the terms supply and demand are inclusive categories of economic forces affecting prices, rather than precise, primary causal factors. The price-determining mechanism of supply and demand is operative only in economic systems in which competition is largely unfettered. Increasing recourse, in recent times, to governmental regulation of the economy has tended to restrict the scope of the operation of the supply-and-demand mechanism.

The introduction of computerized technology into the retail environment over the past two decades has resulted in new opportunities for retailer managers. For example, demand based management uses statistical models to predict consumer price response using historical information. The most prevalent type of information in retail markets is transaction data collected using optical bar code scanners which track every item purchased by a consumer at the point-of-sale. This data could potentially contain a wealth of information about how consumers respond to price and promotions. A price determinant management system is a computerized system that aids in adjusting the price of products based on different variables such as cost price, transportation, taxes and commissions on products and  competitors prices. This is done such that an optimal price is ascertained that still brings about a certain percentage of profit.

As Hinterhuber (2008) noted, ‘If the company itself does not know the value of its products or services to customers, how does it  know what to charge the customers for value?’. It is imperative that a system is in place that makes price adjustment flexible based on the present value of the product, the cost and other variables.

1.2 Statement of Problem

Many business organizations do not have an effective method of determining price to sell their products such that they increase their revenue and attract customers. There are many competitors in the market place and this influences the level of patronage especially if they are good in managing prices. In addition, the situation of charging higher than normal may also reduce demand and consequently bring about loss. This situation brings about the need for a price determinant software system that can enable the adjustment of price of each product such that there is no loss or excess profit and also to provide avenue for updating price of items.

The aim of the study is to develop an automated price adjustment system for supermarket. The following are the specific objectives:

1.4 Significance of the study

The significance of the study is that it will provide solution to the problem of adjusting price of products, it will serve as a management information system for business organizations. The study will also serve as a useful reference material to other researchers seeking information on the subject.

1.5 Scope of the Study

This study covers the of price determinant system limited to shop and save supermarket. Uyo Akwa Ibom state.

1.6 Organization of the Research

This research work is organized into five chapters.

Chapter one is concerned with the introduction of the research study and it presents the preliminaries, theoretical background, statement of the problem, aim and objectives of the study, significance of the study, scope of the study, organization of the research and definition of terms.

Chapter two focuses on the literature review, the contributions of other scholars on the subject matter is discussed.

Chapter three is concerned with the system analysis and design. It analyzes the present system to identify the problems and provides information on the advantages and disadvantages of the proposed system. The system design is also presented in this chapter.

Chapter four presents the system implementation and documentation. The choice of programming language, analysis of modules, choice of programming language and system requirements for implementation.

Chapter five focuses on the summary, conclusion and recommendations are provided in this chapter based on the study carried out.

1.7 Definition of Terms

Automated: To convert a task that was manually done to using technology or machines.

Determinant: a factor that causes or influences something

System: a combination of related parts working together to achieve a common goal

Profit: To gain more than expenses on a particular good/ service marketed.

Demand: the level of desire or need that exists for particular goods or services

Supply: To give, sell, or make available something that is wanted or needed by somebody or something Software: set of instructions given to the computer to execute.

Management: the organizing and controlling of the affairs of a business or a sector of a business

Price: The amount, usually of money, that is offered or asked for when something is bought or sold.

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