Pricing Strategies of SMEs in South Africa: Investigating

Antecedents and Moderators

By

Asma Fathima

(2500036)

Thesis

Submitted in fulfilment of the requirements for the degree

Doctorate of Philosophy (Management)

In the Faculty of Commerce, Law and Management,

University of Witwatersrand, Johannesburg, South Africa

Supervisor:

Prof. Thomas Anning Dorson

February 2023

i
 DECLARATION

I Asma Fathima declare that this Thesis is my own unaided work. It is being submitted for the Degree

of Doctor of Philosophy at the University of Witwatersrand, Johannesburg. It has not been submitted

before for any degree or examination at any other University.

-----------------------------------

(Signature of the student)

06------------ day of ------October---------------- 2023 --------------------- in --------Kelvin--------------

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 DEDICATION

In memory of my loving father

B. Jameel Ahmed

1955 - 2018

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 ACKNOWLEDGEMENT

Thanks be to God the Almighty, first and foremost, who showered me with blessings all through my

studies and helped me reach my goal.

My heartfelt and profound thanks go out to Prof. Thomas Anning Dorson, my research supervisor, for

providing me with the chance to conduct this study and for his constant support and direction. His

energy, insight, honesty, and drive have been really motivating to me. He instructed me in the proper

procedures for doing research and writing up my findings in an understandable manner. Working and

learning under his tutelage was an incredible honour. I appreciate his generosity very much.

My spouse Jaleel Ahmed and my two wonderful children, Arish and Daniyal, have been very

supportive over the course of my study and I am eternally grateful to them. I owe so much to my mum

Syeda and my sister Tasneem for all the support they've given me throughout my life.

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 ABSTRACT

Small and medium enterprises (SMEs) performance may be influenced by several factors, including
price strategy. However, there is limited empirical research on the pricing strategies of SMEs
especially in emerging economies such as South Africa. The purpose of this research is to assess the
antecedents, moderators and consequences of the pricing strategy of SMEs. The study also sought to
explain the extent to which the size and the age of SMEs influence the effect of pricing strategies on
the long-term viability.
Five hundred and forty-two (542) SMEs from the Gauteng Province, South Africa were surveyed for
this study. Using a partial least square structuring equation modelling (PLS-SEM) the study analyses
its hypothesized model to offer some useful insight for both theory and practice. Multiplicative as well
as subgroup moderation analysis were performed as part of the moderation analysis to examine the
effects of SME age, size, pricing objectives and pricing capabilities.

The findings indicate that some pricing conditions which are in the form of competitor relatedness,
customer relatedness and corporate and market related explains pricing strategic choices of SMEs.
While their significant effects vary per condition, pricing strategies were largely found to be driven by
these factors. The study also found that pricing strategies in the form of value-based, competitor-based
and cost-based strategies have varying effect on SME performance which were expressed in the form
of market-share growth, sales growth and profitability over the past three years. The most significant
effect of the pricing strategies on SME performance was found in value-based pricing, cost-based had
minimal effect, while competitor-based strategy had no effect. However, with pricing objective and
capability as moderators, while the effect of value-based remains significant, the effect of cost-based
and competitor based become significant on some of the key performance measures. Firm
characteristics such as age and size did not explain the effect of pricing strategies on firm performance
as some strategic scholars have proposed even in the face of moderators.

A key contribution of this study is that while the effect of pricing strategies may not offer significant
direct effect of SME performance, in the face of a clear pricing objective and adequate pricing
capability, these pricing strategies can bring beneficial effect to SMEs. The study also shows that, in
empirical terms, SME size or age may not explain the performance differential effect of pricing
strategies even with a clear pricing objective or significant pricing capability.

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 TABLE OF CONTENTS

DECLARATION ............................................................................................................................. ii

DEDICATION ................................................................................................................................ iii

ACKNOWLEDGEMENT ............................................................................................................... iv

ABSTRACT..................................................................................................................................... v

LIST FIGURES............................................................................................................................. xiii

LIST OF TABLES ........................................................................................................................ xiv

LIST OF ABBREVIATIONS AND ACCRONYMS ..................................................................... xiv

CHAPTER 1: INTRODUCTION ..................................................................................................... 1

1.1 Introduction ................................................................................................................................ 1

1.2 Background of the study ............................................................................................................. 1

1.3 Scope of the study .................................................................................................................... 10

1.4 Problem Statement ................................................................................................................... 14

1.5 Research objectives and questions ............................................................................................ 23

1.6 Definition of the terms .............................................................................................................. 24

1.6.1 Pricing capability ................................................................................................................... 25

1.6.2 Resources .............................................................................................................................. 25

1.6.3 Competitive advantage .......................................................................................................... 25

1.6.4 Cost oriented pricing strategy ................................................................................................ 25

1.6.5 Pricing capability development .............................................................................................. 26

1.6.6 Competitors-oriented pricing strategy .................................................................................... 27

1.6.7 Competitive bidding .............................................................................................................. 27

1.6.8 Prestige pricing strategy......................................................................................................... 28

1.6.9 Differential pricing ................................................................................................................ 28

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1.6.10 Demand-based pricing ......................................................................................................... 28

1.6.11 Bundle pricing ..................................................................................................................... 28

1.6.12 Pricing policy for new products ........................................................................................... 29

1.7 Assumptions ............................................................................................................................. 29

1.8 Organization of the study.......................................................................................................... 30

CHAPTER 2: CONTEXT OF THE STUDY .................................................................................. 33

2.1 Chapter overview ..................................................................................................................... 33

2.2 Performance of SMEs in South Africa ...................................................................................... 35

2.3 Size and characteristics of SMEs in South Africa...................................................................... 35

2.3.1 Formal SMEs ........................................................................................................................ 36

2.3.2 Informal SMEs ...................................................................................................................... 37

2.3.3 Characterisations and peculiarities of informal and formal SMEs in SA................................. 37

2.4 Employment ............................................................................................................................. 38

2.5 SME concept in South Africa ................................................................................................... 40

2.6 Challenges faced by formal and informal SMEs ....................................................................... 42

2.6.1 Access to finance and credit................................................................................................... 42

2.6.2 Poor infrastructure ................................................................................................................. 43

2.6.3 Low levels of research and development................................................................................ 44

2.6.4 Intricate labour laws .............................................................................................................. 44

2.6.5 An under-educated workforce ................................................................................................ 45

2.6.6 Lack of access to markets ...................................................................................................... 45

2.7 Chapter summary ..................................................................................................................... 49

CHAPTER 3: THEORETICAL REVIEW ...................................................................................... 50

3.1 Introduction .............................................................................................................................. 50

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3.2 Theory of the firm – profit maximisation .................................................................................. 50

3.3 Resource-based view theory ..................................................................................................... 53

3.4 Marketing-mix model ............................................................................................................... 58

3.4.1 Product development and SME performance ......................................................................... 61

3.4.2 Pricing strategy on marketing performance of small business................................................. 62

3.4.3 Promotion strategy and performance of SMEs ....................................................................... 64

3.4.4 Distribution strategy and SMEs business performance ........................................................... 65

3.5 Chapter summary ..................................................................................................................... 66

CHAPTER 4: EMPIRICAL LITERATURE ................................................................................... 68

4.1 Introduction .............................................................................................................................. 68

4.2 Price ......................................................................................................................................... 68

4.2.1 Importance of pricing ............................................................................................................ 70

4.2.2 Pricing objectives .................................................................................................................. 74

4.2.3 Pricing strategies ................................................................................................................... 76

4.3 Factors influencing pricing decisions ........................................................................................ 84

4.4 Small and Medium Enterprises ................................................................................................. 87

4.5 Pricing in SMEs ....................................................................................................................... 92

4.6 Pricing responsibility ................................................................................................................ 97

4.7 Pricing strategies and pricing approaches of SMEs ................................................................... 98

4.8. Chapter summary .................................................................................................................. 102

CHAPTER 5: CONCEPTUAL FRAMEWORK ........................................................................... 104

5.1 Introduction ............................................................................................................................ 104

5.2 Conceptual model ................................................................................................................... 105

5.3 Hypothesis development ......................................................................................................... 106

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5.3.1 Antecedents and considerations of SME pricing strategies and SME choice of pricing strategies
..................................................................................................................................................... 106

5.3.2 Pricing strategies and SME performance.............................................................................. 109

5.3.3 The moderating role of SME characteristics on the relationship between SME pricing
Strategies and SME Performance ................................................................................................. 113

5.3.4 The moderating role of pricing objectives and pricing capabilities on the relationship between
pricing strategies and SME Performance ...................................................................................... 114

5.4 Conclusion ............................................................................................................................. 117

CHAPTER 6: RESEARCH METHODOLOGY ........................................................................... 118

6.1 Introduction ............................................................................................................................ 118

6.2 Research philosophy ............................................................................................................... 118

6.2.1 Ontology ............................................................................................................................. 119

6.2.2 Epistemology....................................................................................................................... 119

6.3 Research design ...................................................................................................................... 120

6.3.1 Exploratory design............................................................................................................... 121

6.3.2 Descriptive design ............................................................................................................... 121

6.3.3 Explanatory design .............................................................................................................. 121

6.4 Research approach .................................................................................................................. 123

6.4.1 Quantitative Approach ......................................................................................................... 123

6.4.2 Qualitative research approach .............................................................................................. 123

6.4.3 Mixed method approach ...................................................................................................... 124

6.5 Research strategy.................................................................................................................... 124

6.6 Research method .................................................................................................................... 125

6.7 Research time horizon ............................................................................................................ 126

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6.8 Research technique and procedure .......................................................................................... 127

6.8.1 Data collection..................................................................................................................... 127

6.8.2 Data collection instrument ................................................................................................... 127

6.8.3 Reliability of research instrument ........................................................................................ 130

6.8.4 Validity of research instrument ............................................................................................ 130

6.9 Data analysis and interpretation .............................................................................................. 131

6.10 Partial Least Square Structural Equation Modelling (PLS-SEM)........................................... 131

6.11 Ethical considerations in the methodology ............................................................................ 132

CHAPTER 7: DATA ANALYSIS AND RESULTS..................................................................... 135

7.1 Introduction ............................................................................................................................ 135

7.2 Descriptive statistics ............................................................................................................... 135

7.2.1 Central tendency of the distribution ..................................................................................... 135

7.2.2 Variability of the distribution ............................................................................................... 136

7.2.3 Shape of Distribution ........................................................................................................... 137

7.3 Analysis of descriptive statistics ............................................................................................. 138

7.3.1 Descriptive statistics: Demographic characteristics of participating firms ............................ 138

7.4 Descriptive statistics on items and constructs .......................................................................... 141

7.4.1 Descriptive Statistics: Pricing antecedents ........................................................................... 141

7.4.2 Descriptive statistics: Pricing methods ................................................................................. 143

7.4.3 Descriptive statistics: Pricing objectives and pricing capabilities ......................................... 146

7.5 Structural Equation Modelling - SEM ..................................................................................... 148

7.6 Measurement model ............................................................................................................... 149

7.6.1 Reliability and validity......................................................................................................... 149

7.6.2 Internal consistency reliability (ICR): .................................................................................. 152

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7.6.3 Convergent validity ............................................................................................................. 153

7.6.4 Indicator outer loadings ....................................................................................................... 153

7.6.5 Average Variance Extracted (AVE) ..................................................................................... 153

7.6.6 Discriminant validity ........................................................................................................... 154

7.6.7 Collinearity assessment of dimensions and indicators .......................................................... 155

7.7 Evaluation of structural models .............................................................................................. 157

7.7.1 The rationale for PLS-SEM ................................................................................................. 158

7.7.2 Path standardized coefficients (direction)............................................................................. 162

7.7.3 Q – Square........................................................................................................................... 164

7.8 Sub-group moderation effect analysis ..................................................................................... 165

7.8.1 SME Path Analysis: SME Age............................................................................................. 165

7.9 Chapter summary ................................................................................................................... 172

CHAPTER 8: DISCUSSION OF FINDINGS ............................................................................... 174

8.1 Introduction ............................................................................................................................ 174

8.2 Discussions ............................................................................................................................ 174

8.3 Research Objective 1: Impact of pricing antecedents on pricing strategies .............................. 175

8.4 Research Objective 2: Analysing the effects of pricing strategies and SME performance ........ 177

8.5 Research Objective 3: Moderating effects of a firm’s age and size on the relationship between the
pricing strategies and SMEs in emerging economies..................................................................... 178

8.6 Research Objective 4: Impact of Pricing objectives and Pricing Capabilities on the relationship
between pricing strategies and SME Performance ........................................................................ 180

8.7 Chapter summary ................................................................................................................... 182

CHAPTER 9: RECOMMENDATIONS AND CONCLUSION .................................................... 183

9.1 Introduction ............................................................................................................................ 183

9.2. Key findings .......................................................................................................................... 183

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9.2.1 Research Question 1: The investigation of the antecedents to SMEs’ choice of pricing
strategies? .................................................................................................................................... 184

9.2.2 Research Question 2: The effect of these pricing strategies on SME performance? .............. 184

9.2.3 Research Question 3: To examine the moderators that can help best explain the pricing
strategies and SME performance?................................................................................................. 185

9.3 Contributions.......................................................................................................................... 186

9.4 Recommendations .................................................................................................................. 188

9.5 Limitations of the study .......................................................................................................... 189

9.6 Directions for future research ................................................................................................. 190

REFERENCES ............................................................................................................................ 192

APPENDIX 1: ETHICS CLEARANCE CERTIFICATE.............................................................. 236

APPENDIX 2: QUESTIONNAIRE.............................................................................................. 237

xii
 LIST FIGURES

Figure 2.1 ......................................................................................... Error! Bookmark not defined.

Figure 2.2 ......................................................................................... Error! Bookmark not defined.

Figure 4.1 ....................................................................................................................................... 90

Figure 5.1 ..................................................................................................................................... 105

xiii
 LIST OF TABLES

Table 1.1 The Small Enterprise Development Agency (SEDA) August 2021.................................. 16

Table 7.1: Demographic characteristics of the firms ..................................................................... 139

Table 7.2: Descriptive statistics of antecedents of pricing ............................................................. 143

Table 7.3: Descriptive statistics of pricing methods ...................................................................... 145

Table 7.4: Descriptive statistics of pricing objectives and pricing capabilities ............................... 146

Table 7.5: Reliability and validity measures and dimensions of study constructs .......................... 148

Table 7.6: HTMT discriminant validity ........................................................................................ 152

Table 7.7: Collinearity Statistics - VIF ......................................................................................... 156

Table 7.8: SEM Path Analysis model with Pricing Antecedents, Pricing Strategies and Pricing
objectives and Pricing capabilities ................................................................................................ 160

Table 7. 9: R-Square..................................................................................................................... 164

Table 7.10: Q-Square ................................................................................................................... 165

Table 7.11: Sub- Group Moderation Path – SME Age .................................................................. 165

Table 7.12: R-square .................................................................................................................... 168

Table 7. 13: Welch-Satterwait test: SME Age (>5 Years Vrs ≤ 5 Years) ....................................... 169

Table 7.14: SEM Path Analysis: SME Size (>5 employees vs. ≤5 employees) .............................. 170

Table 7.15: Welch-Satterthwaite test (> 5 employees vs ≤5 employees )....................................... 171

xiv
 LIST OF ABBREVIATIONS AND ACCRONYMS

1. SME – Small and Medium Enterprises

2. FNB - First National Bank

3. SEDA – Sustainable Economic Development Assessment

4. SMME – Small Micro and Medium Enterprises

5. IMF – International Monetary Fund

6. GDP – Gross Domestic Product

7. BER – Bureau of Economic Research

8. TEA – Total Entrepreneurial Activity

9. BRICS – Brazil, Russia, India, China and South Africa

10. GEM – Global Entrepreneurship Monitor

11. SMB- Small and Medium Businesses

12. LMD – Leadership Management Dashboard

13. SARB – South African Reserve Bank

14. NDP – National Development Plan

15. RBV – Resource Based View

16. PLS-SEM – Partial Least Square – Structure Equation Modelling

17. CIPC – Companies and Intellectual Property Commission

18. SACE – South African Council of Educators

19. FAIS – Financial Advisory and Intermediary Services

20. CCMG – Contact Centre Management Group

21. SAICA – South African Institute of Chartered Accountants

xv
22. SAITA – South African Informal Traders Alliance

23. CFA – Confirmatory Factor Analysis

24. AVE – Average Variance Extracted

25. TOL - Tolerance Level

26. VIF – Variance Inflator Factor

27. SRMR – Standardized Root Mean Square Residual Analysis

xvi
 CHAPTER 1

INTRODUCTION

1.1 Introduction

This section serves as an introduction to the thesis and lays the groundwork for the rest of the research.

It also takes a look at the problems researchers are having and the knowledge gaps that exist. This

chapter lays out the study's objectives and formulates the questions that will guide the research. In

addition, the thesis framework is constructed, and the important topics in this study are defined. A

brief overview of the chapter's contents follows.

1.2 Background of the study

South Africa belongs to a number of countries that have focused heavily on SMEs during the last few

decades. There are an increasing number of countries whose economies rely heavily on SMEs.

Governments throughout the world prioritize the growth of SMEs as a means of stimulating economic

expansion. South Africa's SMEs remain crucial to the country's economy. As large firms reorganizing

and shrinking in size, SMEs have become more important to South Africa's economy and growth

(South Africa Info, 2016). The FNB's Commercial Property Broker Survey for the first quarter of 2021

forecasts a drop from 1.77 percent job growth in the financial, retail, and service sectors in 2019 to -

6.98 percent growth in 2021. The government has looked to the SME sector as a way to increase

employment. SMEs in South Africa are many and diversified. They were found in many different

industries, such as retail, wholesale, tourism, mining, agriculture, manufacturing, construction, and

service (Gamidullaeva, Vasin & Wise, 2020).

1
In many parts of the globe, SMEs are performing a crucial role in the expansion of the labour force.

In South Africa, this is indeed the case as well, where the SME sector is often regarded as strong and

flourishing. To encourage the production of new companies and to create a climate favourable to their

growth, the South African government has pledged its support for SMEs. The success of SMEs is

important not only for South Africa, but for all countries (Nguyen, Jeong & Chung, 2018). Mostly

because these corporations are crucial to the development of any nation's economy (Nguyen et al.,

2018). How successfully a business satisfies its consumers' demands for products and services is an

indicator of its success.

According to the South African Tax Service, the formal sector in South Africa is made up of 55.6%

microenterprises, 33.7% and 9.5% SMEs (National Treasury Panel, 2016). Medium-sized enterprises

predominate in the main industries, while tiny and micro-sized businesses rule the manufacturing and

service sectors, respectively. The public has recently become more aware of the importance of SMEs

in achieving societal objectives such as reducing poverty, increasing income equality, stimulating

economic growth, and empowering formerly marginalized groups of people.

Statistical data — nearly 2.5 million people, according to a poll conducted in the first quarter of 2021,

are working in South Africa's thriving informal economy (excluding formal Businesses). The number

of SMEs in South Africa dropped by -11.1% during the first quarters of 2020 and 2021, from 2.6

million to 2.3 million (SEDA, 2021). It is estimated that 1.5 million SMEs from 2.3 million are

unofficial, with the great majority engaged in wholesale and retail trade or the construction industry.

SMEs "have high failure rates and low performance," despite the fact that they make considerable

gains to the economy (Ncube & Ndlovu, 2022). Understanding why certain SMEs are more successful

than others is crucial to the growth of the sector as a whole. In this regard, several SME-focused studies
2
have highlighted the importance of strategic planning.

Efforts have been made on a worldwide scale to help SMEs expand and become more integrated into

the global economy (Musabayana, Mutambara & Ngwenya, 2022). South Africa's SMEs drive

economic expansion and are entrusted with addressing the country's social and economic problems,

yet they face challenges in becoming and remaining competitive (Hoetoro, 2020). SMEs have the

potential to operate as economic accelerators, however the vast majority of them end in failure

(Adeosun & Shittu, 2021). South Africa has one of the lowest rates of entrepreneurial success in the

world, despite the significant contribution that SMEs make to the growth of the economy and the

generation of new employment opportunities.

It also has high rates of poverty and economic inequality. An estimated 33.4% of South Africans are

now unemployed (Statistics South Africa, 2021). SMEs are seen favourably by company owners for

their potential to foster economic development, income parity, job creation, and overall economy

growth. Growth in the economy is largely attributable to the success of SMEs, which create new jobs

and innovative products (Mishra, 2016). The contribution of the SME sector is heavily reliant on the

creation of new businesses and SMEs in South Africa are paving the way in addressing the global issues.

“Creating a new SME is a two-stage process (Owenvbiugie, 2020)”. In the first three months, a new

business must decide what it will sell, gather the necessary resources, and set up the necessary

infrastructure. The small business now enters the marketplace and competes with established firms for

customers.

As a result, those in charge of SMEs have been dubbed "strategic myopic" (Letshaba et al., 2020). It

is widely held that SMEs would not be able to reach their full performance and development potential

unless they follow a strategic plan (Chakabva, Tengeh & Dubihlela, 2021). Because of this, several

studies have focused on identifying the "barriers" that inhibit SMEs from putting their strategies into
3
action.

Number of new businesses also at a historic low (Bushe, 2019). There has been a dramatic increase in

the number of new small businesses opening in South Africa during the last decade. When it comes to

creating stable employment, small businesses in South Africa are the country's best bet. This is sadly

endemic in the business community in South Africa. This industry is not anticipated to significantly

contribute to job creation, economic growth, or poverty reduction in South Africa due to the high rate

of new SME development failure. Since they don't see the value in it, many SMEs don't bother with

strategic planning (Dearman et al., 2018; Vasileva et al., 2018; Haleem et al., 2019). The central thesis

of the vast majority of publications on business strategy is that modern businesses "must actively

prepare for the future" to ensure their continued success (Huang, 2020).

As competition and market volatility rise, SMEs throughout the world, including South Africa, are

working harder than ever to learn how to enhance their performance. More strategic planning strategies

are needed, according to some experts and governments, so that you may maintain your current level

of performance. Nonetheless, opinions remain divided on how strategic planning contributes to a

company's success. Despite several attempts, linking strategic planning with a company's financial

performance, the results have been mixed (Jayawarna & Dissanayake, 2019). As a result, there is no

consensus on how strategic planning contributes to a company's bottom line.

Those who work in the field of informal strategic realise that their clients, mostly SMEs, see no

performance gains from using this method. They argue that strategic planning tends to make

businesses less flexible, making them less able to respond to changes in a fast-paced, competitive

market (Mohapeloa & Mametsi, 2020). Others argue that strategic planning should be more formalized

because of the many positive impacts it may have on performance (Williams, 2020). Strategic

planning, in their view, is a management tool that protects enterprises from the risks posed by dynamic
4
and competitive markets. In addition, strategic planning creates an operational framework that

Schraeder (2002) findings give businesses an edge in the marketplace and boosts their productivity.

Strategic planning, or "the act of formulating and executing long-term strategies in a thorough and

adaptable fashion," is essential for a company to reach its objectives (Jan & Anwar, 2022). Strategic

planning include inquiring into the company's long-term objectives, current standing, proposed path

forward, and anticipated external developments (Huang & Rust, 2009). A declaration of corporate

purpose, objectives, strategies, and assessment are the most essential components of strategic planning

(Jayawarna & Dissanayake, 2019). A firm uses its thoughts of what the future will look like to

influence its activities while preparing for the future. According to Wei Liang (2018), significant

components of strategic planning include a firm's long-term goal, line of business definition, and

ensuring that the organization has a strategic "fit" with its surroundings. According to this hypothesis,

a firm with a strong strategic fit is more capable of capitalizing on market possibilities while

minimizing risk.

Businesses should participate in strategic planning as their surroundings are growing more

complicated and uncertain (Desai, 2000). (Desai, 2000). These results imply that strategic planning

methodologies aid SMEs in understanding their current situation, determining their future course, and

adapting to an ever-changing business environment. Good news indeed for smaller businesses! The

mission, vision, objectives, and objectives of an organization are integrated with strategic alternatives

and resources through strategic planning (Gore, 1997). Several research projects have looked into

strategic planning (Nawar, 2018). Organizations may learn more about their internal and external

environments, as well as their own objectives, objectives, and resources, by using strategic planning

approaches. Numerous studies corroborate this conclusion.

5
Strategic planning includes identifying long-term objectives, creating a strategy to achieve those

objectives, and allocating or re-allocating resources to make that strategy a reality (Sifumba et al.,

2017; Ayandibu et. al., 2019). Strategic planning in the real world is about one thing: beating the

competition. Creating a "sustainable competitive edge" is the ultimate goal of every company's

strategic plan (Ayandibu & Houghton, 2017). The fate of a small business may be determined by a

number of factors. Investment, management, leadership (including marketing), strategic planning, and

executive education are just a few of the numerous variables that contribute to a company's success.

Businesses may respond to shifting customer tastes via careful strategic planning, tactical

implementation, and regulatory monitoring of marketing campaigns (Musa et al., 2019). Dzisi and

Ofosu (2014) state that SMEs need long-term marketing strategies to grow and succeed. Lack of

marketing plan and financial resources are common causes of failure for small businesses (Amin,

2021). Management often attributed their companies' poor market performance to a lack of

commercialization planning, as well as issues with market awareness, marketing, product

development, and commercialization (Hadiyati & Hendrasto, 2021).

SMEs may boost firm performance via the usage of marketing strategies. A business's marketing

strategy may be inferred from the efforts it makes to create channels for communicating with its

intended audience, establishing and maintaining relationships with its consumers, and increasing sales

and profits (Kariithi, 2015). A customer-reach plan is essential for every business, no matter how large

or small. Satisfied clients should always be the top priority of any marketing strategy. While

conducting an extensive marketing campaign, one must first develop a marketing strategy. It allows a

company to prioritize investments in areas likely to provide the highest returns (Kariithi, 2015). The

goal of every firm in today's highly competitive market is to ensure that its goods, services, and ideas

are marketed effectively and delivered to the right target demographic (Makhitha, van Scheers &

6
Mmatli, 2019). The success of every business depends on its ability to maintain and expand its market

share while mitigating the negative effects of competitive entry (Kenu, 2019). Positioning is a

marketing approach that involves analyzing the market, the competitors, the customers, the context,

segmenting the market, and then targeting the appropriate demographic (Amin, 2021). For an

organization to successfully identify and meet the needs of its core clientele, it employs a marketing

mix consisting of a variety of tried-and-true methods for doing so (Amin, 2021).

A company's success may be traced back to its core purpose, which is to launch, manage, and maintain

the enterprise. Successful corporate management requires a thorough familiarity with the firm's

operations and the means to ensure its financial viability. Being a critical and essential aspect of every

company, price is always a valid and important point of differentiation (Abou-Moghli, 2018). Making

pricing decisions is difficult under any circumstances, but especially in the face of fast price

fluctuations, market uncertainty, and industry disruption. Profits, client retention, and repurchase rates

may all be improved by strategic pricing. Several different pricing models exist, each tailored to a

unique set of conditions and attributes (Radiman et al., 2022).

Objectives are set, available elasticity is determined, strategies are devised, prices are determined, and

methods for tracking and maintaining the pricing strategy are established all within the pricing process.

(Ndegwa, 2018). The market value of an object is determined by a series of complex mathematical

calculations, research, and the willingness to take on risk. Sales price may also be referred to as pricing

or selling price (Karugu, 2018). The price is the most that a buyer or seller is prepared to part with in

exchange for the goods. While pricing has more wiggle room than anything else in marketing, there

are still certain details to iron out (Karugu, 2018). There is a tremendous deal of variation in pricing

strategies between markets, locations, and client demographics (Kienzler, 2018). Such instances are

as follows: Pricing strategies include: premium, markup, cost-based, penetration, economy,

7
promotional, price-skimming, value, psychological, regional, packaged, prestige, relationship, and

predatory (Aman, 2022).

Yet, the vast majority of research focused on product, advertising, and distribution recommendations

while ignoring the crucial impact of price decisions (William & Joyce, 2020). There have been calls

for more investment in price research, but thus far, only little gains have been accomplished (Hofer et

al., 2019). Some causes of this neglect include the absence of acknowledged pricing theories and the

complexity of pricing strategies and managers' unwillingness to address the matter (Shane & Freeman,

2018). (Kemper, 2018). Without sound theoretical guidance, managers may be enticed to boost the

company's performance using incorrect pricing assumptions. Further complicating matters is the

possibility that improved pricing is essential for SMEs to improve performance and for firms in general

to drive long-lasting competitive benefit in marketplaces (Hofer et al., 2019).

Extensive research has shown that an organization's resource deployment success is directly tied to

the efficiency of its processes and pricing structures (Raja et al., 2020). A company's resource

utilization will suffer if it is unable to deal with the knowledge asymmetry that exists between it and

the customer on the potentially unique consumer value of its items. If the price is too high, sales

volume will suffer, but if it's too low, profit margins won't be maximized and the business's resources

won't be used effectively (Falahat et al., 2020). This is endorsed by data, thus it must be true.

It is that thriving SMEs often participate in some kind of strategic planning. As compared to non-

participating SMEs, those who do so have greater gains in revenue, ROI, margins, and employee

growth (Stenger, 2017). Studies back up this interpretation (Kubeyinje & Bariweni, 2020; Nair, 2019).

In addition, SMEs that indulge in strategic planning are more inventive, produce a greater volume of

items with new patents, innovative methods of production and management, and global growth (Sasha

et al., 2019; Islam et al., 2021). Both (Lee & Owusu, 2020) (Lee & Owusu, 2020) Strategically planned
8
SMEs are less likely to fail (i.e., dissolve voluntarily) (Njeri, 2019). (Lee, 2020).

Without marketing, a firm's operations strategy would go to waste, and the marketing mix is the

collection of all the many types of marketing strategies that may be used (David et al., 2017). The term

"marketing mix" is used to describe the various combinations of the four components that make up a

company's marketing system. A complete marketing strategy will use all parts of the market mix. The

"4Ps" of marketing are the item being promoted, its price, its location, and the word of mouth being

spread about it. We now integrate people, processes, and things as part of the marketing mix. All bets

are off if any of these parameters are incorrect (Mo & Yang, 2022). All subsequent marketing efforts

must be based on this, therefore mastering marketing management is crucial. "Price" is often reffered

to the money a customer must fork over in exchange for a goods or service. Setting the appropriate

price is crucial since it directly affects the amount of money that a company may earn. Cost is the

measure of what a buyer is prepared to give up to get what they want. Price changes may have a large

effect on demand and ultimately on sales, depending on the product's price elasticity. Thus, the pricing

strategy is in line with the other components of the marketing mix.

It is often held that successful pricing strategies may improve a company's bottom line (Amin, 2021).

Planning ahead is beneficial for the success of SMEs in developing economies (Eniola et al., 2019),

and an efficient pricing strategy should be a part of this plan. According to Al-Qershi et al. (2019),

strategic pricing is and will continue to be an essential skill for every business. When applied to the

business's operational operations, a company's core competencies considerably increase the company's

competitiveness (Al-Qershi et. al., 2019). A marketer's duties related to pricing are not often seen as

interesting. When it comes to pricing, most companies don't make any distinctions between products,

markets, or customer circumstances. Firms have a great deal of price diversity, which makes firms

difficult to meet their revenue and profit objectives. They are unable to respond to the competitive

9
pressures posed by other successful businesses because they lack the necessary pricing strategies.

A firm's "pricing capability" refers to how effectively it is able to maximize profits via the use of

various price techniques and strategies (Falahat et al., 2020). The pricing capacity concept contrasts

with literature that employs game theory reasoning to investigate how competing organizations assign

and appropriate value with an emphasis on how one corporation does so via its own resources and

pricing routines (Stoelhorst, 2021). Managers require price capability to succeed since a business's

pricing capacity is dependent on the efficient usage of resources and the ability of the firm to gain a

competitive advantage (Stoelhorst, 2021). Yet, earlier research on managers' pricing skills has shown

contradictory outcomes (Falahat et al., 2020). Findings indicate that neither the elements that affect

price strategies nor the managers' ability to develop pricing knowledge are totally obvious.

Successful SMEs may attribute their role in lowering unemployment and increasing GDP to careful

planning and forethought on their part (GDP). Nonetheless, there is a high failure rate among SMEs.

It is difficult to guarantee the long-term success of SMEs without first doing a comprehensive study

of the distinctions between successful and unsuccessful enterprises. Studies suggest that SMEs might

benefit from greater performance if they have strategic control over their pricing. In a nation with a

high percentage of startup failures, South Africa's SMEs recognize the importance of pricing strategy

to their continued existence.

1.3 Scope of the study

South African SMEs have a serious challenge to their growth since its founders cannot maintain the

firm over the long term. Sometimes referred to together as "small businesses," these establishments

are essential to the success of any economy. They promote economic growth, innovative ideas, and

10
the creation of new employment oppurtunities. Due to the role that small enterprises play in the

development of the economy, South Africa established a Ministry of Small Commercial Development

at the start of 2014. The government agency's stated goal is to foster the growth and success of

domestic businesses. This kind of company is crucial to the economy and has shown to be a reliable

source of new jobs (Mondliwa et al., 2021). South Africa's startlingly high unemployment rate of 25%

may be partially attributed to the country's severe manpower deficit (Statistics South Africa, Quarter

2: 2015). That's why the government is making an effort to design strategies, strategies, and initiatives

that will help small companies expand.

Under the SME category, you'll find all sorts of formal and informal, VAT-unregistered businesses.

SMBs are included under this definition (Mondliwa et al., 2021). Traditional family-owned companies

with over a hundred employees and informal micro-enterprises are both examples of little businesses.

People from the lowest socioeconomic brackets are included here. For example, SMEs make up the

higher echelons of the business spectrum in industrialized countries. Most South African SMEs

operate in the market's underbelly, where opportunistic niche players thrive (Meyer et al., 2018). They

may be weekend-only freelancers operating out of their homes, or they could be vendors on the street

or owners of backyard enterprises. SMEs account for the great bulk of the underground economy

despite their low employment rates and limited capacity for expansion (Meyer et al., 2018).

Recognizing the essentiality of SMEs to a nation's financial and social growth has been a common

practice for some time (Sefiani et al., 2018). More recognition is being given to the SMEs in promoting

financial growth and development throughout Africa, and notably in SA (South Africa) (Zainol et al.,

2018). More than half of all employment and 22% of GDP generation in South Africa (Jang & Kim,

2018), the most economically developed African country, were generated by SMEs. SMEs have a

considerable effect on GDP and an even bigger effect on employment (Shubin, 2018). Most SME are,

11
unfortunately, micro and survival operations with little possibility for expansion. Wiid and Cant (2021)

project that between 70% and 80% of SMEs would collapse. According to Zvitambo and Chazireni

(2019), the main reason for the failure of SMEs in South Africa is they lack the capital to invest in

themselves, making it impossible to acquire the tools, personnel, and consultants necessary for growth.

According to Herrington and Coduras (2019), South Africa has the lowest TEA rate among the 59

nations studied, at 8.9%, which is much lower than the average of all participating countries (11.9%).

This view is shared by others (Lekhanya, 2016).

South Africa has the highest failure rates in the world, at 75%. as reported by (Meyer & Meyer, 2017).

Researchers in South Africa (SA) found that new business owners seldom go beyond the "existing and

surviving" phase to the "launching," "expanding," and "maturing" phases of their ventures. It is

essential for small firms to concentrate on expansion if they want to survive, much less succeed, in the

modern economy. Poole (2018) defined SME objectives that South Africa is home to among of the

world's lowest rates of entrepreneurship. The rate is far lower than in other nations in Sub-Saharan

Africa, falling below even Angola and Botswana. According to Grimbald and Nchang (2019), "the

ultimate manifestation of competitiveness" is a country's capacity to preserve its riches over time. As

international barriers to the free flow of products, services, money, and labor have been lowered in

recent years, South Africa, a growing market with a mostly low skilled population, must develop a

competitive strategy in the globalized economy (Imanto et al., 2019).

According on data from Turton and Herrington's study of TEA activity, the birthrate of SMEs in South

Africa is very low (2018). In 2012, South Africa's TEA rate was 7.3 percent, down from 9.1 percent

in 2011. It's far lower than the average among efficiency-focused nations (14.3 percent). And every

year, it's predicted that 70% to 80% of South African Businesses fail (Adeniran & Johnston, 2019).

During the course of the last five years, over 440 thousand small enterprises in South Africa have

12
closed their doors (Adcorp, 2017). Because of this, the rate at which new businesses are being

established is at an all-time low. In the last decade, neither the population nor the number of small

enterprises in South Africa have grown or shrunk. In South Africa, only small businesses have the

potential to generate a significant number of additional job openings. In South Africa, only small firms

may possibly generate a large number of new employment opportunities. In my opinion, this presents

a serious obstacle to establishing a commercial presence in South Africa. After considering South

Africa's rapid rate of new company formation, the prospects for the SME sector to significantly

contribute to the creation of jobs or the reduction of poverty are dim.

Titus (2018) contends that SMEs are essential to the market well-being of all countries. Politicians in

the great majority of countries have been primarily motivated by the capacity of SME owners to offer

jobs. The increased failure rate wastes resources. Individuals and their families may lose a lot of money

if a SMEs fail. That's why it's crucial to study what factors lead to the demise of start-up companies.

Due to their high failure rate, SMEs, according to Bowen (2020), make study on the traits required to

help SMEs survive and enhance their performance essential.

SMEs have contributed significantly to employment expansion, poverty reduction, and economic

development at the national level. The creation of small businesses in South Africa has the potential

to substantially add to the country's economic growth, and doing so has a variety of benefits, including

very inexpensive start-up costs. Positive and unfavourable features may be found within South Africa's

SME industry. According to KatSMMEivhu et al. (2021), South African SMEs seldom make it

through the start-up phase and into later phases of development including survival, take-off, and

resource maturation. So many SMEs fail in their early years of existence, before they can generate any

of the potential benefits to society.

13
1.4 Problem Statement

20 % of SME in South Africa do not succeed during their first year of transactions, and another

30% fail within their second year (Bruwer et al., 2021). In a country where youth unemployment is so

prevalent, why is this happening? What can be done right now to fix this? Small businesses are crucial

to South Africa's economic transformation, yet the country is really experiencing the opposite. Some

of the drawbacks of this review, which is particularly onerous for small businesses, have emerged in

recent years. The obstacles to entry, the returns on investment, and the market share are all important

considerations here. If half of the companies don't make it to the third year because they weren't

allowed to enter the market or keep operating, it's hard to hit the two-year goal.

SMEs face a considerable barrier to growth (Amin, 2021). Their lives might seem to be stuck in a rut,

leading to discontent and eventually death. It's possible that owners' unwillingness to pursue new

innovations and markets, or external factors like the state of the economy, are to blame for the

industry's lack of forward momentum. Consequently, the challenges may come from both within and

outside the company. As compared to their international counterparts, South African start-ups are less

likely to survive the long haul, say Akinyemi and Adejumo (2018). This lessens the potential benefits

that SMEs may provide to the South African economy, such as more employment, increased

productivity, less poverty, and improved living standards. (Gankema, 2018).

Because of its immediate and direct effects on the ability of the business to earn a profit and keep

expense low, pricing is very malleable component of the market mix (Hrinchenko et al., 2018). Price

appears to have been overlooked by many academics and marketing experts, despite its obvious

importance to the success of businesses (Nassreddine, 2020). It is common practice in marketing to

put most of an organization's resources on developing novel goods, channels of distribution, and

methods of communication; nevertheless, this may often result in under-researched and hence under-
14
valued pricing strategies (Jennifer, 2022). The fact that many businesses rely primarily on the market

knowledge and intuition of their management contributes to pricing's seeming ease as a marketing

tactic (Syapsan, 2019). Few managers use pricing as part of a larger pricing strategy, and even fewer

use pricing to purposefully generate advantageous conditions that lead to profitability (Nagle &

Holden, 2003). Although just 2% of marketing journal papers focus on price, Hinterhuber and Liozu

(2019) believe that additional study is needed to fully understand how consumers make pricing

decisions.

Considering how serious the issue of the significant SME failing rate in South Africa is, this study is

necessary. A disproportionately high number of SMEs in South Africa collapses each year. The

success of South Africa's small businesses is crucial to the country's economy and the battle against

poverty and unemployment. The primary goal of this research was to learn more about the difficulties

encountered by SMEs in South Africa and the approaches used to resolving these issues.

The following data, taken from the Q1 report of SMME Quarterly 2021, demonstrates the diminishing

presence of SMEs in South Africa.

15
Table 1.1. Initiated by the Small Business Administration (SEDA) August 2021

Key Indicators 2019 Q3 2020 Q2 2020Q3 q-o-q y-o-y

change change
Number of SMEs 2614063 2382030 2325203 -2.4% -11.1%
Number of Formal SMEs 755265 656423 667111 1.6% -11.7%
Number of Informal SMEs 1748031 1617533 1552814 -4.0% -11.2%
Number of Jobs provided 10406070 9124485 9757287 6.9% -6.2%
% Operating in Commerce and 38.0 38.1 37.6 -0.5pts -0.4pts
hospitality
% Offering communal service 14.0 13.1 14.8 1.7pts 0.8pts
% Working in the construction 14.4 15.7 14.7 -0.9pts 0.3pts
industry
% Financial and Business 13.4 13.5 13.7 0.2pts 0.4pts
Services
% Formalized black-owned 74.8 74.8 72.6 -2.2pts -2.2pts
Businesses
% Contribution of SMEs to total 37.5 37.5 37.4 -0.1pts 0.2pts
enterprise revenue

According to the SME Quarterly report for the third quarter of 2021, the number of SMEs in South

Africa dropped by 11% (or 280000) between 2021Q1 and 2021Q2. (y-o-y). There were 633,000 fewer

people employed by SMEs as of 2021Q1 compared to the previous quarter. There were 9.8 million

employment in SMEs, 6.2% less than in 2020Q1. According to the International Monetary Fund,

global economic growth is anticipated to hit 6% in 2021 and 5% in 2022. (IMF). (2022). The Bureau

of Economic Research has lowered its original prediction of a 3.9% increase in real GDP for 2021 and

2022, and instead expect a 6.4% decline from 2020. The newest data show that the decline of

SMEs continued in 2021Q1.

16
90% of all lost employment in the economy were in the SME sector. In 2020Q3, SME employment

decreased by 1.5 million, including owners. From 2019Q3 and 2020Q3, the total employment supplied

by SMEs decreased by 14%, to 10.1 million. The Bureau of Economic Research (BER) forecasts that

real GDP will rebound from an expected 7.2% decline in 2019 to 3.1% in 2020 and 2.2% in 2021.

South Africa's government failed to identify SMEs as a key engine of economic growth because it

failed to provide enough support to the start-up and growth of SMEs. As a dearth of new, existing ones

are likely working at or near capacity. According to Ncube and Ndlovu, South Africa has the lowest

percentage of new SMEs being founded worldwide (2015). SMEs, as stated by Prakash et al. (2021),

contribute to a creative "destruction process" by continually disrupting an otherwise stable economy,

which in turn offers opportunities for economic rent. Thanks to the efforts of SMEs, the market is

constantly being flooded with new and exciting products and services. The pressure that new firms

put on established ones to innovate is substantial.

As acknowledged by the Government of South Africa the research of Prakash et al. (2021) on the

benefits of establishing SMEs and published the White Paper on SMEs in 1995, it has done very little

to support and promote SMEs activities since then. In 2019, South Africa has a smaller number of

total entrepreneurial activity (TEA), falling much below the global average of 12.1%. Over the

previous year, this figure was down 10.8 percent. The formation of new SME is negatively connected

with areas having lower than average TEA rates (Herrington & Lollar, 2020). The University of

Southern California's Global Entrepreneurship Monitor Report, 2020 Researchers at the 2020 South

African GEM research compared business formation in the BRICS (Brazil, Russia, India, China, and

South Africa) countries in 2017 (before the global economic crisis) and 2019. — The Incubator and

Innovation Hub at the University of Cape Town. As shown by their study, Mefi and Asoba (2020)

hypothesize. The TEA rate in Brazil is predicted to rise by as much as 28.0% between 2017 and 2019.

17
This is the result of a confluence of causes, the most important of which are policy changes those

objectives to foster the expansion of small businesses and structural alterations to the business sector

that make it less difficult to establish start-ups (Herrington & Lollar, 2020).

The dynamic economic climate and severe competition pose the greatest risk to SMEs. The pace of

change in small businesses is high (Naicker & Rajaram, 2019). The economy expands, more people

find work, and poverty decreases as businesses thrive. The capacity of small business owners to

respond to shifting customer preferences is crucial to their companies' long-term viability.

As such, pricing has the capacity to affect a company's long-term prosperity. The marketing mix,

which comprises the product, the pricing, the positioning, and the promotion, is essential to the success

of any organization. Regrettably, many companies put too much stock in advertising and neglect to

properly price their products and services. Nonetheless, pricing is essential to a business' success; if

it's wrong, it may hurt sales and income (Cant & Wiid, 2016).

Despite the fact that price is essential in marketing, it receives surprisingly little study in academia

(Kunjal et al., 2021). To wit: (Boachie et al., 2022). This is worrisome because it might significantly

impact the pricing strategies of South African SMEs in light of the current uptick in demand for value-

based solutions in the SME sector (Osano & Lutego, 2022). Based on their research, Boachie et al.

(2022) estimate that in the not-too-distant future, people would want to pay for outcomes rather than

things. This fact makes it urgent and important to examine the state of studies on pricing strategy. The

literature on pricing strategies is quite narrow and fragmented, giving the impression that it lacks a

coherent whole. Current literature fails to address contemporary developments in the field, such as an

increase in studies on the impact of pricing strategies.

18
The major challenges faced by SMEs in context of pricing are:

1.4.1. Evaluating the Competition

It is argued that focusing on the consumer while developing a price strategy is crucial, but for any

business that exists in a competitive market, this is best accomplished by concentrating on competition

pricing (Ajami, 2020).

Customers have decision-making, and based on what they want and their values, they will select the

most alluring value proposition for their requirements. It's crucial to fully comprehend your

competitors' pricing in the pricing arena so that you can compete (Gregson et al. 2005). This doesn't

always include undercutting the competition's pricing, especially if your product is exclusive or caters

to a certain market. In either case, it's critical that you are aware of what the competition is charging.

1.4.2. Market Analysis

In a highly competitive market, a review of the product offerings and pricing of your rivals will

probably provide you a complete picture of the industry. Nevertheless, incumbents occasionally make

mistakes(Gregson et al. 2005). A certain demographic may be excluded from the market due to the

pricing structure in place, or there may be a niche market that has not yet reached its full potential.

If the current retailers aren't delivering based on the expectations of the customers, a good pricing

strategy of an business can make changes (Gregson et al. 2005).

1.4.3. Pricing for different consumers

19
It is challenging for businesses to set different prices for various consumer groups. One-time sales, for

instance, typically have much greater expenses than recurrent customers. Implementing a strategy for

consumers that make recurrent purchases, buy additional or related products, or both. These customers

are more valuable, and SMEs should consider rewarding them with memberships or exclusive

discounts that encourage them to make repeat purchases (Rentschler et al., 2007).

1.4.4. Knowing when to discount:

By reaching the objectives of the business, SMEs face the challenge of discounting their products.

Discounting must be beneficial. Clearance reductions, for instance, might encourage the sale of

outdated or otherwise soon to become obsolete inventory, freeing up working capital and enhancing

cash flow (Rentschler et al., 2007).

On the other side, offering discounts may entice people to try a new item, but the company runs the

danger of projecting the incorrect image of its goods or generating sales that would not have occurred

without the discount (Rentschler et al., 2007). Additionally, it's crucial to avoid creating a habit among

your customers of simply visiting your store during sales or discounts.

All the departments including marketing of a company must work together more closely when using

strategic pricing. In order to increase profits, businesses often define their pricing strategy by

considering external variables like the market and the amount of competition in the market (Korubo

& Onuoha, 2020).

20
There also appears to be a paucity of study and experience with the pricing strategies of SMEs, despite

the fact that pricing in the border sense has gotten a lot of attention in marketing textbooks and research

papers. The challenging process of pricing, which requires a more analytical approach than SME

managers know, and failing to grasp the distinctive features of SMEs in terms of resources and skills

are also issues. Second, the lack of a distinct research strategy or an established research stream

dedicated to the pricing practices of SMEs may contribute to the severity of the issue. The few pieces

that exist intend to be highly specialized on all the themes and are often written in a style that suggests

many writers were involved. The challenges provided by SME-specific peculiarities and

environmental unpredictability have not been studied sufficiently to chart a better route for empirical

research and practice.

Existing literature on SMEs fails miserably in its attempt to deal with the problem of price

unpredictability. SMEs may not survive due to shallow pricing operations and judgments, which may

be disastrous given their limited resources and the complexity of price. Hence, SMEs may lack the

strategic discipline required to investigate and capitalize on market possibilities that might help them

remain competitive and profitable. Understanding the elements that impact SMEs' pricing choices is

essential for improving their prospects of survival and growth in developing countries like South

Africa.

Second, setting the right pricing for your products may be challenging. Businesses need to charge a

competitive price to attract and retain customers, yet setting unreasonable prices may hurt sales and

hurt the company's image. But, if a company undervalues itself, it may not be able to generate enough

profit to remain operational. According to statistics on company failures, it is the leading cause of

death for 18% of companies (CBInsights, 2021). While it has decreased from 6% in 2017 to 4.9% this

year, South Africa's firm exit rate is still much higher than the rate for well-established enterprises

21
(3.5%). As a result, it seems that the pace at which businesses are sold or go out of business is higher

than the pace at which new businesses are created (Global Entrepreneurship Monitor, 2019).

It is "one of the most basic issues facing SMEs" to deal with fluctuating cash flow, therefore

understanding the elements that affect it is crucial (Cowling et al., 2019). According to Amaral and

Guerreiro (2019), knowing what influences the success of pricing strategies is crucial. Maximizing

profits requires a well-thought-out approach, and this can't be accomplished without first gaining an

appreciation for the factors that go into setting prices in the SME market. Although a wealth of

information is available on SMEs in developed countries, the literature on developing economies like

South Africa has largely ignored the significance of investigating the factors that lead businesses to

choose certain pricing policies. Are there any other criteria or prerequisites for effective SME pricing

strategies in developing markets, beyond manufacturing cost and competitiveness (Neubert, 2017)?

Lack of access to pertinent market information often leads to suboptimal pricing strategies (Iyer et al.,

2017), pricing low (Ingenbleek et al., 2018), and an increased dependence on individual's decision,

social resources, and operational expertise when determining prices (Adekambi et al., 2018) and a

higher market risk (Hallberg, 2017). The studies (Ingenbleek et al., 2018; Hallberg, 2017) support this

idea. Understanding the pertinent antecedents may help advance the literature and theory of SME

pricing.

Another critical hole in the research on SME success was the extent to which pricing strategies affect

SME performance, particularly in emerging marketing contexts like Africa. Whereas other fields, such

as services (Lie et al., 2021) and new product development (Liozu, 2019) and international trade, have

extensive empirical research, emerging market SME development has lagged behind (Fracasso et al.,

2022). To get theoretical insight into price and the SME literature, one must understand the many

types of pricing strategies, the combinations of these strategies, the context, and the degree to which

22
SME traits effect pricing.

The many limiting circumstances under which a firm's pricing strategy will have an effect on its

success has received little consideration in the literature (SMEs). The empirical backing for business

objectives, industry competitiveness, and SME pricing power is murky. To understand how SMBs

may best optimize their pricing strategy, awareness of the various consequences of these factors is

required. Interactions are not necessarily linear because of the unpredictable circumstances in which

SMEs operate. The success of a SMEs is directly tied to its pricing strategy, and this strategy may be

improved by analyzing many boundary conditions (Dassen, 2021).

1.5 Research objectives and questions

The purpose of this research is to thoroughly understand how pricing strategies influence the overall

performance of SMEs in South Africa. To facilitate the achievement of this purpose, some key questions are

asked. Thus, what pricing conditions explain SMEs choice of pricing strategies?

Do the different pricing strategies have the same effect on different SME performance measures?

How can firm charactersitics such as age and size and capability and goal, explain the impact of pricing

strategies on the productivity of SMEs?

The following specific research objectives are set to help respond to the questions above:

• To investigate the price antecedents and their effect on pricing strategies among South African

SMEs.

• To assess the effects of pricing strategies on SMEs.

• To examine the impact of SME age and size on the relationship between pricing methods and

performance of SMEs in South Africa.

23
 • To examine how the relationship between pricing strategy and SME success is influenced by

pricing objectives and SME pricing capability.

1.6 Definition of the terms.

1.6.1 Price

Price, as defined by Gundlach et al. (2017), is the sum for which something is offered for sale or

exchanged, regardless of its value to the buyer. Even if a monetary value is not ascribed, products that

are traded may nevertheless have a price. The price of a product or service is directly proportional to

the value it provides to the buyer (Ahmed et al., 2021).

1.6.2 Pricing Strategies

A pricing strategy is a plan or process for choosing the most competitive price for a good or service.

It assists you in setting prices while taking customer and market demand into account in order to

maximise earnings and shareholder value.Numerous aspects of your organisation, including revenue

targets, marketing goals, target market, brand positioning, and product features are taken into account

by pricing strategies. Additionally, they are impacted by outside variables like market and economic

changes, consumer demand, rival price, and general market trends (Sije & Oloko, 2013).

1.6.3 Small and Medium Enterprises (SME)

Small businesses in South Africa are defined as "a separate and distinct business entity, together with

its branches or subsidiaries, if any, including cooperative enterprises, managed by one owner or more

predominantly carried out in any sector or subsector of the economy" by the National Small Business

Amendment Act of 2004. Groups like "survivalist," "micro," "very small," "small," and "medium."

24
Depending on a company's gross asset worth, annual revenue, and number of employees, each

economic sector is classified differently.

1.6.4 Pricing capability

When we talk about a company's "pricing capabilities," we're referring to its in-house capacity to set

prices (by researching competitors' prices, developing a pricing strategy, and implementing that

strategy through pricing) as well as its external capacity to fix rates in the buyers' eyes. The capability

to set prices is essential for every business that wants to follow through on its pricing strategy.

Competitors will have a hard time duplicating your price advantage if you have a solid pricing strategy

(Dutta et al., 2020).

1.6.5 Resources

In the words of Barney (2019), an entity's resources consist of “all assets, capabilities, organizational

processes, firm characteristics, information, and knowledge that are under the business's control and

allow the firm to plan and execute strategies that enhance its efficiency and effectiveness.”

1.6.6 Competitive advantage

Barney (2019) argues that businesses get an advantage over their rivals if they adopt a value-persisting

strategy at the same time their rivals do not.

1.6.7 Cost oriented pricing strategy

25
Cost-based pricing techniques depend on manufacturing cost data. Access to information in real time

is crucial, yet this method isn't without its limitations. It doesn't take into account the likelihood that

buyers will really pay (Hinterhuber, 2018). Cost-plus pricing and direct/marginal-cost pricing are the

two most frequent structures used by SMEs (Hinterhuber, 2018).

1.6.7.1. Cost plus method

As demand fluctuates, the cost-plus method simply adds a fixed percentage to the final unit cost of

manufacturing and shipping (Faith & Agwu, 2018). Among these factors is a "reasonable" increase in

the unit price, as determined by the work of Faith and Agwu (2018). The authors believe that a business

should calculate its total cost of production and sales and then add a certain percentage in order to

account for variables like competitors' price, product quality, distribution networks, and advertising

campaigns (Ebitu et al., 2015).

1.6.7.2. Direct or marginal method

Those expenses that are anticipated to grow at the same time as production are included into the

pricing. As a result of its money-saving properties, direct cost pricing is a useful instrument for

marketing services. The money goes down the drain when, for example, customers are unable to

reserve a hotel room or plane ticket. Setting pricing to cover direct expenses plus a portion of overhead

may make sense in certain circumstances. If leasing equipment (or chairs, or space) is the answer, the

direct cost is the very minimum at which a firm may be run successfully (Hyginus et al., 2019).

1.6.8 Pricing capability development

26
A company's pricing strategies and strategies will change when it has the power to charge greater

prices. Adapting the company's current pricing structures and practices will lead to a new set of

pricing capability elements since pricing capacity is made up of resources and procedures, and these

may be further divided into distinct pricing capability components (as discussed in Section 2.3.2).

The expansion of a pricing capacity may also include the addition or modification of sub-

capabilities.

1.6.9 Competitors-oriented pricing strategy

The practice of modeling one's price after that of a competitor is shown here (Faith & Agwu, 2018).

In this industry, it is common practice for businesses to benchmark their pricing against those of their

primary competitors. Use of "go-rate" pricing, which is often used to commodities with minimal

variation from unit to unit, such as aluminum and steel, forms the foundation of this pricing method

(Hyginus et al., 2019). In this case, the cost of a product or service was calculated using market data

(Agwu et. al., 2014). This happens more often in marketplaces where a pricing leader can be identified.

Companies are usually wary of starting a price war with rivals, so they avoid setting prices that are

much lower than the competition. As a result, bottom lines everywhere will take a hit. a. There are

contexts in which businesses work together.

1.6.10 Competitive bidding

Typically, a consumer would post a detailed description of a product online and get bids from possible

suppliers, who will then submit their best, most confidential offer to the customer (Jobber & Shipley,

2012). Everything else being equal, a consumer will choose the service provider offering the lowest

price (Hyginus et al., 2019).

27
1.6.11 Prestige pricing strategy

Premium pricing attracts status-conscious, budget-conscious customers (Hyginus et al., 2019). A

customer's perception of value is reflected in the price they pay. Consumers who feel that low costs

indicate inferior quality sometimes create price floors beyond which they refuse to shop (Hyginus et

al., 2019).

1.6.9 Differential pricing

It involves offering selling the same item to different customers for varying prices. This suggests that

diverse market sectors are susceptible to varied costs (Hyginus et al., 2019). (Hyginus et al., 2019).

1.6.10 Demand-based pricing

This method steps back from the manufacturing process to analyze customer needs and responses to

different pricing tiers (Hyginus et al., 2019). These prices are set by the market and change as needed

to meet supply and demand. Costs are determined based on supply, demand, and the overall market

environment (Hyginus et al., 2019). This is similar to how prices rise when demand exceeds supply in

a supply and demand market. Price setting must be in accordance with consumers' opinions about the

product when adopting this pricing method; otherwise, the product's pricing either be overpriced or

under-priced for the target audience (Hyginus et al., 2019).

1.6.11 Bundle pricing

Hyginus et al. (2019) specifies that many products are sold in bundles to save customers the effort of

having to find and purchase each component separately. Several different products are bundled

together and sold at once in this situation. This is comparable to making bulk purchases and saving

28
money. The most common approaches to price consumable goods are markup, competitor-focused

pricing, cost-plus pricing, demand-based pricing, and packages.

1.6.12 Pricing policy for new products

Many more considerations than the costs themselves go into setting a price (De Toni et al., 2017).

There are two broad buckets from which a corporation may choose when establishing its pricing

strategy, and either will provide the same result: the establishment of the final price. Listed below are

their respective names:

1.6.12.1. Price skimming

An individual's willingness to pay for something from the outset depends on how much they want it

(Hyginus et al., 2019). Here, the product's overall quality and ability to meet the customer's needs are

more important than the price. By charging extra for innovative products, businesses may profit from

the purchases of a select few customers while still meeting their needs (Faith & Agwu, 2018).

1.6.12.2. Penetration pricing

This new pricing strategy encourages businesses to release previously unreleased products at reduced

prices (Hyginus et. al., 2019). Penetration pricing is used when a business wants to grab a large chunk

of a market by giving a low price (Faith & Agwu, 2018).

1.7. Assumptions

The research is conducted on the assumption that all strategic practices have common underpinnings.

The study was developed based on four main premises.

29
Examining the strategies used by SMEs in South Africa to set prices is the major objective. While

assessing the profitability and competitiveness of SMEs, this factor is taken into account. SMEs in

South Africa rely heavily on their growth and development strategies to stay up with and sometimes

even surpass their rivals.

Furthermore, many people think that if they are given the proper resources and support, they may start

a company that will thrive and eventually employ many people. Yet, this doesn't prove that only micro-

and small-sized businesses can and will provide new employment opportunities in the future. Even if

the economy does recover, it will be difficult for the illiterate and the low-skilled to find steady

employment. Working for yourself in the rapidly expanding SME sector is one such option.

Strategic growth in SMEs is the study's third pillar. To increase output, they might test out alternative

product pricing models. This study will analyze SME profitability to find the optimal pricing strategy

for SMEs. At the end of the day, it is thought that SMEs in South Africa use a broad variety of pricing

techniques when determining the rates, they will charge for their goods. When deciding what to charge

for their goods and services, many companies first check what their competitors are asking for

comparable ones (Hyginus et al., 2019). So, this study will examine the financial stability of SMEs

and their employee retention rates.

1.8. Organization of the study

Chapter 1: The importance and value of SMEs in South Africa, along with the challenges they

confront, were introduced in the thesis's introductory chapter. The problem statement articulates a

specific area of concern and the nature of the problem that requires fixing; it also serves to frame the
30
research questions and provide context for the thesis's intended findings. The following sections

establish the thesis's framework and outline the research's assumptions and bounds.

To answer these issues and more, this chapter will explain in depth how the thesis was written. Just

what are these research techniques called? Which approach was used, and why did it win out? How

do you define research methods? Which strategy was chosen, and why did it win out? What research

methods do you think would work best for this study? Why did you choose it? Where did you look for

this information, and how did you go about analyzing it? To what extent can we trust the findings?

Chapter 2: The second chapter explains the study's setting by detailing the geographical region,

economic sector, and target market. Research scope and issues facing SMEs will be outlined in the

context section.

Chapter 3: The theoretical underpinnings of the argument will be executed in Chapter 3. This theory

will help us comprehend the state of SMEs today and, more importantly, provide the groundwork for

creating new ways of doing business to solve the issues caused by the parameters within which prices

are set and the strategies used by SMEs. The findings from the theoretical study will also be

incorporated into the operational strategy.

Chapter 4: In the fourth chapter, we'll look at the antecedents of pricing strategies for SMEs, covering

factors like rivals, market share, customers, items, and revenue. Afterwards, the current situation of

pricing strategies will be analyzed.

31
Chapter 5: After a review of the current state of affairs, the fifth chapter builds a theoretical,

empirical, and conceptual foundation for the inquiry. The proposed causal connection is modeled

based on the underlying conceptual framework. In this chapter, we'll argue for both of those

possibilities.

Chapter 6: here is a whole chapter dedicated to different ways of doing research in the sixth section.

To answer these issues and more, this chapter will explain in depth how the thesis was written. Just

what are these research techniques called? Which approach was used, and why did it win out? How

do you define research methods? Which strategy was chosen, and why did it win out? What research

methods do you think would work best for this study? Why did you choose? Where did you look for

this information, and how did you go about analyzing it? To what extent can we trust the findings?

Chapter 7: The outcomes of the data analysis are discussed in this section. We'll talk about descriptive

statistics in this chapter. The validity and reliability of the tests will be shown in this section.

Chapter 8: The results of the study are shown here. Both the research topic and the stated objectives

will be represented, as well as their connections to the existing body of knowledge.

Chapter 9: Conclusions and recommendations are executed in the last part of this thesis. By

discussing the study's primary findings and addressing the research questions and objectives, this

section will serve as a useful conclusion. An explanation of the research's contribution to knowledge

will be given. The study's restrictions, and any suggestions for future research for further investigation

will be discussed here as well.

32
 CHAPTER 2

CONTEXT OF THE STUDY

2.1 Chapter overview

The objectives of the South African NDP include ending poverty and inequality and lowering the

jobless rate to 6%. A large disparity exists between these numbers and the existing financial condition

in South Africa, where household poverty is at 57% and unemployment at 27%. South Africa

consistently ranks among where inequality is greatest as measured by the Gini index of 0.691.

(StatsSA, 2019). Inclusive growth has to be expedited if South Africa is to make major strides in

reducing poverty, inequality, and unemployment.

In South Africa, the importance of SMEs in fostering long-term, broadly shared economic growth and

development is widely acknowledged. The National Development Plan highlights the significance of

SMEs, with the objectives of having SMEs account for 90% of employment in South Africa by 2030.

If these businesses are able to combine and expand, a long-term solution to the problem of low wages

and income inequality may emerge. If you're out of work and looking for something to do, you may

want to look into starting your own company.

The literature from throughout the world supports this stance. For instance, Block et al. (2017) show

that entrepreneurs are a major source of job creation and that entrepreneurship has positive, long-term

spill over effects that lead to greater employment growth rates. Furthermore, promoting the expansion

of existing SMEs may encourage innovation and employment creation inside these organizations.

According to the 2018 SME Growth Index, 52 percent of SMEs on a strong growth trajectory

expanded employment in the prior year, compared to just 12 percent of SMEs seeing a decline in

33
revenue.

Since it is so challenging to collect reliable and representative data on businesses in South Africa, this

research draws its information from a wide range of sources. Nevertheless, as various sources employ

various techniques to identify SMEs in South Africa, direct comparisons across datasets are tricky.

The profile of SMEs shown in Section 3 is based on individual-level LMD data (2013). The second

category defines SMEs by the number of employees they have. We may use this information to look

at the economy from a variety of perspectives, from lone entrepreneurs through corporations of

varying sizes. Companies with less than 49 full-time workers qualify as SMEs according to the World

Bank. Part 4 contrasts this with an analysis of the difficulties faced by SMEs, based on information

gathered from a variety of enterprise-level sources. Depending on context, "SME" may refer to a wide

variety of businesses, although often it refers to a firm with less than 99 people (Bhorat & Khan, 2018).

Thereafter, the current situation of SMEs in South Africa is discussed, along with the primary

challenges they face in terms of growth. It examines the significance of SMEs in South Africa from a

comparative perspective. This article looks at SMEs in South Africa from three angles: the company,

the owner, and the workers. Next, we differentiate between formal and informal SMEs to highlight

South Africa's distinct informality. Although South African businesses strive for expansion, they face

both internal and external obstacles, which are examined in this paper. Both internal (to the company)

and external (to the company) factors might contribute to problems (originating from outside the

organization). This chapter provides an overview of the results and outlines the main barriers to SME

development in South Africa, taking into consideration the variation in business size and informality

status.

34
2.2 Performance of SMEs in South Africa

SME developments in South Africa have shown a moderate parabolic form in relation to the global

economic crisis, 2008 and the most recent recession of 2019. In the fourth quarter of 2008, 255 742

SMEs existed. After falling to a low of 151 741 in the fourth quarter of 2014 as a result of the 2008

financial crisis, the number is projected to rise and reach a new high of 247 881 in the second quarter

of 2020. South Africa is projected to have 2.4 million SMEs by the end of the third quarter of 2020.

SMEs may feel the effects of the Covid-19 pandemic. According to polls conducted by Stats SA

(2020), the vast majority of the country's SMEs were unable to function during the closure (Stats SA,

2022).

2.3 Size and characteristics of SMEs in South Africa

Apart from agriculture and households, the number of SMEs in South Africa increased from 2.09

million in Q1 2008 to 2.17 million in Q2 2020. (BER, 2016). Around 667,400 of the 2.17 million

registered businesses in the United States are formal, while over 31% are informal (Figure 1). During

the first quarters of 2008 and 2015, there was a rise in the total number of businesses as a consequence

of the creation of 83 informal SMEs for every new formal SMEs (BER, 2016).

35
 755265
(28.9%)
Formal
SMEs
2.6
Million
SMEs in
1748031 June 2021
(66.9%)
Informal
SMEs

Figure 2.1. Number of Formal and Informal SMEs

SMEs in South Africa have a number of other traits with both their formal and informal counterparts:

2.3.1 Formal SMEs

For the purposes of the South African government, a "formal company" is defined as one with "a

clearly defined organizational structure that regularly employs personnel". Formal companies are good

locations to work due to their scheduled hours, salary, and tax payments. Registration provides formal

enterprises with security. The word "formal business" encompasses both public and private

companies. These corporations adhere to all relevant rules and regulations. These organizations are

well-structured and controlled.

Formal sector of the South African economy comprises all tax-paying and government-regulated

companies. The formal sector is home to the majority of well-known private companies. This umbrella

36
might include grocery stores, restaurants, petrol stations, banks, and insurance businesses. To be part

of the formal sector, a company must satisfy all legal standards and only employ legal employees. In

the broadest sense, this is the "known" contributor to the economy.

2.3.2 Informal SMEs

Untaxed or unmonitored economic activity is known as the "informal sector." People who are not

employed in the official economy run informal companies. The formal sector is dominated by sole

proprietorships and small local companies. Any enterprise that is unlawful or not subject to regulation

falls under the informal sector. The GDP excludes the results of these businesses' economic operations

(GDP). Those enterprises that don't "pay their dues" to the government are part of the informal sector.

The informal sector constitutes a major percentage of South Africa's economy. This comprises a

significant number of neighborhood companies and home-based enterprises. Many of South Africans

depend on the informal sector for low-cost food, clothes, and other products and services. For South

Africans who are unable to obtain employment in a more conventional context, the informal sector

offers an alternative source of income.

2.3.3 Characterisations and peculiarities of informal and formal SMEs in SA

2.3.3.1 Ownership of SMEs

Unlike formal SMEs, which are dominated by enterprises with an owner and a staff, the vast majority

of informal SMEs are owned by self-employed individuals (about 70 per cent of formal SMEs). The

majority of small company owners in Africa are Black and in the ages 35 to 44-year-olds with the

lowest educational attainment (Stats SA, 2021).

37
2.3.3.2 Provincial distribution

In terms of business, the provinces of Gauteng and the Western Cape are where it's at. The majority

of South Africa's unrecognized enterprises operate in the country's more outlying regions, namely

Limpopo, Mpumalanga, and the Eastern Cape.

2.3.3.3 Sectoral distribution

SMEs are common in many different industries, including commerce, hospitality, and the non-profit

sector. The construction industry is the second most common for unofficial businesses, but the

majority of formal SMEs work in the financial and business services sector. There are more than twice

as many unregistered manufacturing SMEs as there are officially recognized ones.

2.3.3.4 Value

The estimated R160 billion ($16.6 billion) turnover of South Africa's informal economy is 2.5 times

that of the country's entire agricultural sector (IERI, 2018). The R727 billion earned by legitimate

South African SMBs is only a fraction of the R100 billion earned by the country's unofficial sector.

2.4 Employment

Around 6.8 million persons, out of a total workforce of 15.8 million in the first quarter of 2016, were

engaged in the non-agricultural, formal sector. (Stats SA 2021) According to Statistics South Africa,

the informal economy has a tremendous effect on employment in South Africa, as 16.5% of all

employees are employed in the non-agricultural informal sector. It is anticipated that between 2008
38
and 2015, the number of people employed in the informal sector expanded at a rate roughly equivalent

to, if not faster than, the growth of informal firms throughout the country.

Most formal non-agricultural employment creators were found in community services, financial and

trade activities, and manufacturing (Stats SA, 2016). Employers in South Africa's non-agricultural

informal sector are heavily concentrated in the areas of trade, community services, and construction.

Community
Other Services
24.7% 18.1%

Contruction Trade
17.3% 39.9%

Figure 2.2. Sectoral Contribution to informal non-agricultural sector employment

Source: Stats SA (2021)

Employment in non-agricultural industries fell from 2008 to 2016, despite increases in community

services and construction. So, the 2,165,293 SMEs operating worldwide in 2021 need your focus.

Production in other industries that the mining industry contributes to include manufacturing (0.2%),

construction (7.3%), commerce (17.3%), transportation (39.9%), and finance (8.8%). The remaining

39
24.7% was mostly attributable to the importance of informal firms creating jobs in non-trade sectors

(18.1%).

2.5 SME concept in South Africa

Sometimes referred to be "micro" or "small" businesses, SMEs are crucial to the health of any

economy. They may play a significant role in promoting economic growth, the introduction of

innovative products, and the production of new employment opportunities. Earlier this year, the

government of South Africa established a Ministry of Small Business Development to further support

the country's flourishing small business community. It is the Ministry's intention to streamline the

processes involved in advertising and expanding small enterprises. There is a lot of data to suggest

that companies like this are great for the economy (The DTI, 2018). South Africa's startlingly high

unemployment rate of 25% is at least in part attributable to the country's chronic manpower shortage

(Statistics South Africa, Quarter 2: 2020). The government is now engaged in a number of initiatives

objectivised at developing rules, procedures, and programs that will help small businesses and

entrepreneurs thrive.

SMEs are increasingly crucial to national economies and employment levels, according to Korley

(2018). (MNCs). This article also acknowledges that this is the case in both economically prosperous

and less developed countries (Korley, 2018). Due to their increasing economic significance, SMEs

have become a hot topic in global policy debates. Governments on all levels have responded to the

rising importance of SMEs by enacting strategies and initiatives meant to foster the growth of the

industry.

40
There is a broad range in the total amount of money that SMEs in South Africa contribute to the

economy. It is safe to say that South Africa's SMEs are largely responsible for the country's robust

economic growth (GDP). According to projections made by the South African Reserve Bank (SARB),

formal enterprises would contribute between 52% and 57% to GDP in 2020/21.

SMEs may include both well-known and less-publicized businesses (The DTI, 2008). While the

phrases are sometimes used interchangeably, there is a distinct difference between official micro-

enterprises and family-run businesses with more than 100 employees. This second group consists of

people from lower socioeconomic backgrounds who have chosen self-employment as a method of

making a living. Top tier is typical of the SMEs found in developed nations. SMEs in South Africa,

like many other businesses throughout the world, are at the bottom of the economic food chain (Berry,

2021). Businesses like selling goods on the street, setting up makeshift workplaces in people's

backyards, and providing services on demand are all viable options that might arise from the absence

of a traditional 9 to 5. The informal sector is home to a greater number of SMEs, with a higher

proportion of survival firms (The DTI, 2018).

South Africa's SMEs were first mentioned in the country's 1995 White Paper on SME Development.

To achieve these objectives, the Integrated Small Business Growth Plan established a set of measures

to be taken. Increasing demand for products and services provided by SMEs; lowering regulatory

restraints; Increasing financial and non-financial help (The DTI, 2018). Several organizations have

been established as a direct result of this plan to carry out the strategy for expanding small businesses

(GEM, 2014; GEM, 2020).

41
2.6 Challenges faced by formal and informal SMEs

SMEs in South Africa face a wide range of challenges. The following sections focus on the most

significant difficulties encountered by SMEs; many of these difficulties are shared by both formal and

informal Businesses. The evaluation results for South Africa's Enabling Environment for Sustainable

Companies were used into the design of these interventions (ILO, 2021). The following sections focus

on the most significant difficulties encountered by SMEs; many of these difficulties are shared by both

formal and informal Businesses. The evaluation results for South Africa's Enabling Environment for

Sustainable Companies were used into the design of these interventions (ILO, 2021).

2.6.1 Access to finance and credit

For many companies, the lack of available money is a serious issue (Financial Services Regulatory

Task Group, 2017). Because South African banks are so risk-averse, it seems to reason that they would

favor investing in small businesses that are closing their doors. Banks and other lending institutions

care little about start-up SMEs (Financial Services Regulatory Task Group, 2019). The intensity of

these preferences, however, may vary for a variety of reasons, location being one of the most

significant. Finscope's Small Business Survey found that when compared to other provinces, SMEs in

Gauteng and the North West had the greatest availability to finance (Finmark Trust, 2018). More than

half of South Africa's technically constituted SMEs are headquartered in the province of Gauteng,

according to recent statistics from that region (DTI, 2018). SMBs in Mpumalanga and the Northern

Cape have a hard time getting capital. Furthermore, the mostly rural character of these areas is a

contributing factor.

42
2.6.1.1 Access to credit is hampered by a number of factors

The GEM South Africa 2014 survey found that poor profitability and inadequate access to finance

were two of the main reasons of SME failure in the country. The GEM study also found that falling

profits were a major factor in the growing number of business failures. The absence of a solid credit

history or enough collateral on the side of the entrepreneur (Financial Services Regulatory Task Group,

2017), the incapability to develop an acceptable business plan in the eyes of banking systems,

unreliable market data, a dearth of marketable products or services, and restricted market penetration

all contribute to the inability to launch a successful company are all common obstacles when it comes

to securing financing for a small business (Financial Services Regulatory Task Group, 2017; GEM,

2014).

2.6.2 Poor infrastructure

Expansive businesses face significant obstacles, such as the high cost of conducting business and the

difficulty in securing the requisite physical infrastructure. Investments in the country's infrastructure

are a crucial role in the development of SMEs, according to study conducted by GEM South Africa in

2016. It's not just about having a place to set up shop; new companies may also benefit from

inexpensive utilities, transportation, and communication systems. Investments in the country's

infrastructure was found to be a significant influence in the expansion of SMEs by the Global

Entrepreneurship Monitor (GEM) in 2016. Existing and developing SMEs depend on these services

to continue operating and expanding.

As the results showed, it is more challenging for small enterprises in the province of Gauteng to acquire

acceptable commercial real estate (Finmark Trust, 2018). Northwest SMEs have voiced concerns

43
about utility issues such electricity transmission outages. Many people in Mpumalanga and Northern

Cape had wildly different interactions with the police. SMEs often insist that they have sufficient

infrastructure and room to operate.

2.6.3 Low levels of research and development

Organizations of all sizes may benefit from investing in R&D since it can help them grow. Figure out

whether it's possible to turn ideas into working businesses. Businesses might potentially get access to

new, ground-breaking ideas via the discovery process if they allocate resources to this area of their

business. Tassiopoulos et al. (2016) found that compared to other types of startups, creative businesses

grew at a much faster rate. Research showed that South African SMEs lacked the inventiveness of

their wealthy-country peers. Small businesses' inability to form robust upward ties with larger

organizations, as argued by Anning-Dorson (2021), is a major issue limiting innovation in the

American economy. The failure to do so has cost them opportunities to transfer technology to other

parts of the world. For the government to provide incentives for R&D is a recommendation of the

GEM (2020). The plan's end goal is to foster creativity by fostering new connections between domestic

and international firms that rely heavily on intellectual capital.

2.6.4 Intricate labour laws

The legislation in this country substantially restricts business expansion due to limitations on firing

large numbers of employees (OECD, 2015). The rule makes it hard for small business owners to let

people go, even if the company can't afford to keep them and/or they aren't doing anything to help the

business succeed. In times of economic hardship, small firms have no protections from labor

44
regulations (GEM, 2020). Berry et al. characterized manufacturing SMEs as those that depend largely

on human labor (2021). SMEs in South Africa are unable to survive due to the high cost of labor

necessitated by worker protection laws. Having to pay employees the minimum wage in South Africa

is a huge financial burden for new businesses. Small firms may not be able to afford to hire anybody,

regardless of how much experience they have.

2.6.5 An under-educated workforce

According to the National Development Plan (NDP), a lack of service sector specialists has a negative
impact on small companies throughout the nation. This is particularly true for scarce but essential
resources, such as accounting and sales knowledge. SMEs are especially prevalent in sales-driven
sectors like retail and the hospitality industry in South Africa. DTI (2018) recognises that lack of
skilled employees and lack of entrepreneurial potential are important barriers to growing the
workforce.

2.6.6 Lack of access to markets

The long-term success of SMEs is jeopardized by their incapacity to expand into new markets. Having

ready access to markets is crucial for attracting investment and seasoned mentors (as determined by

credit providers). Rural small enterprises have more challenges than their metropolitan counterparts

(Watson & Netswera, 2019). SMEs have unique challenges when trying to improve their collective

market strength as a group because of their smaller size and more scattered locations. Therefore, they

lobby government agencies relentlessly to meet their requirements. Naude et al. advocate for

geographical groupings (2017). Instead, cluster development is highly recommended after a SME has

outgrown the start-up phase. In today's highly competitive industry, clustering might be harmful to

small enterprises.

45
A thriving SME sector is crucial to the economic and social development of any nation (Sefiani et al.,

2018). SMEs are becoming more important in many African nations (Zainol et al., 2018). According

to studies conducted by Jang and Kim, SMEs are responsible for more than 55 percent of employment

and 22 percent of GDP in South Africa (2018). Hence, it now boasts Africa's highest per capita income

(2018). According to Shubin (2018), SMEs have a significant effect on the economy and the labor

market. The vast majority of SMEs are one-man operations with little resources. It is estimated that

between seventy percent and eighty percent of start-ups fail, according Wiid and Cant (2021). Many

SMEs in South Africa fail due, in part, to a lack of financial resources, which is said to arise from a

lack of human and consulting resources. Overall Early-Stage Activity in South Africa was 8.9% lower

than the average of all participating nations (11.9%), according to Herrington and Coduras (2019).

This placed South Africa at position number 27 out of 59 countries. Lekhanya (2016). (2016).

One must shut shop if they are unable to maintain their company sustainable throughout its infancy. It

takes more than just keeping the doors open for a small company to maintain competitiveness or gain

an edge in today's market. According to Poole, entrepreneurial activity in South Africa is much lower

than in other sub-Saharan African nations like Angola and Botswana (2018). So, compared to other

African nations, South Africa has a much lower rate of entrepreneurship. Keeping one's wealth stable

over time is the strongest indicator of competitiveness (Grimbald & Nchang, 2019). As economic

globalization has occurred along with the reduction of trade barriers, South Africa needs to become

internationally competitive. It's no secret that there have been some rather significant changes in the

global economy over the last few years (Imanto et al., 2019).

There is a high percentage of failure among SMEs, and growth is uncommon in the country (Meyer

& Meyer, 2017). Few first-time company owners are able to see their companies through the
46
challenging early years and go on to achieve long-term success and growth, according to studies.

Businesses of any size need to expand if they want to maintain or improve their position in the market.

Poole (2018) objectives that South Africa has substantially less entrepreneurial activity than other Sub-

Saharan African countries like Angola and Botswana (2018). Among African countries, South Africa

has one of the lowest rates of entrepreneurship. It has been suggested that a nation's long-term

prosperity is the pinnacle of its competitiveness (Grimbald and Nchang, 2019). As a consequence of

economic globalization and the lowering of trade barriers, South Africa requires a global competitive

strategy. As a result of the financial crisis which started in 2008, the global economy has changed

dramatically (Imanto et al., 2019).

To ensure the health and stability of the global economy in the long run, it is essential to investigate

the factors that lead to the failure of SMEs (or flourish). Governments in many regions of the globe

are generally positive about the potential contribution of SMEs to the creation of new employment.

There should be no time or money invested in a project that has a high probability of failing. When a

business of any size fails, it costs more than simply money; it costs lives. Given this, it is important to

get insight into the causes of start-up failure. Bowen stresses the need of studying the factors that

ensure the long-term viability of 2020.

2.7. Economic and Social factors influencing Pricing strategies:

2.7.1. Economic factors:

The major indicator of the economic attractiveness of foreign markets is the level of GDP. As GDP

rises, so does the demand for products and services. Businesses also analyse the distribution of income

within a country when identifying specialty and segment markets. Marketers constantly monitor not

47
only a country's current economic prosperity, but also its future development in terms of population

and density, inflation and economic growth, age and income distribution, level of urbanisation, and

other economic activities that will affect markets and pricing.

Pricing considerations are influenced by the foreign or host country's economic environment. It has a

substantial impact on a firm's costs, as well as determining the demand potential for a specific

product/service and the pricing that local customers can afford and are ready to pay (Whitelock &

Pimblett 1997). Some articles that are considered necessities in Western countries are considered

luxury items in my country (Rwanda) and most SubSaharan African countries. This supports the idea

that demand for a product/service at different price levels is influenced by the purchasing power of

targeted customers, which is dictated by the country's level of economic development (Jain 1989).

2.7.2. Social Factors:

People from various cultures have distinct tastes, purchase different things, and react differently to the

same service or product. As a result, the demographic structure of a foreign market should be taken

into account. Another ongoing trend that will effect worldwide marketing is the ageing of the

population in major Western markets, as well as the expansion in population in various nations such

as India and China. As teens worldwide become a global market segment, and Sub-Saharan Africa

becomes a part of the global market, marketing methods, including international and export pricing,

will need to adjust to social variables. That is, while pricing for international markets, one must

consider local material culture, language, aesthetics, education, religion, and attitudes and

values. Firms must thoroughly evaluate the features and purchasing habits of the target market

country to choose an effective pricing approach. Consumers utilise price level as a key criterion when

48
comparing competing products. Customers value other variables such as product quality and

performance (Douglas and Wind 1987). As a result, corporations must consider foreign consumers'

preferences, attitudes, and behaviour while creating pricing strategies and purchasing habits in relation

to different price levels (Theodosiou, 2000).

2.8 Chapter summary

In this part, we explored the literature that provided the background for our inquiry. In this chapter,

we looked at the argument that SMEs are crucial to the success of South Africa's growing economy.

South Africa's government sees supporting SMEs as crucial to the country's economic success. In

South Africa, SMEs account for 36 percent of GDP and 56 percent of private sector employment.

Government estimates place the unemployment rate in South Africa at 24.5% of the working-age

population. Using and fostering the expansion of small businesses is one of the most effective methods

for lowering the unemployment rate. Yet with all of its progress, South Africa still has a high rate of

SME failure. Around 75% of new Enterprises in South Africa fold during the first five years. South

Africa has the lowest chance of a new SME surviving after 42 months among all GEM countries. This

exemplifies the value of long-term strategic planning for South Africa's SMEs in securing a stable

place in the market and boosting the country's economy.

49
 CHAPTER 3

THEORETICAL REVIEW

3.1 Introduction

The theoretical underpinnings of the inquiry are laid forth in this section. The theoretical

underpinnings are provided at the beginning of the chapter as context. It also provides supporting data

and background on the need of theory synthesis. Using the theoretical lenses of profit maximization

theory, resource-based theory, and the marketing-mix model, firm pricing strategies are analysed. This

chapter illustrates the importance of integrating the three ideas by combining them. Typically, chapter

summaries appear at the conclusion of each chapter.

3.2 Theory of the firm – profit maximisation

Profit maximisation theory is the guiding notion that all firms should maximize profits (Schmoll &

Ostberg, 2021). Maximizing revenue or profit is the process of maximizing revenue or profit. Strategic

level is the level of sales at which earnings are highest. It serves as a benchmark for ideal situations

and strategic preparation. To maximize profits, or ROI, involves using a product in a way that

maximizes its value (Schmoll & Ostberg, 2021). Profit maximization requires attending to two primary

principles: minimizing expenses and increasing revenues. The breakeven point is the most popular

standard for profit maximisation, thus if a firm can boost sales over this threshold, it will not only

maximise earnings but also generate prospects for future expansion (Xaba, 2018).

Higher pricing and reduced manufacturing costs are two strategies for a prosperous firm to improve

sales and profits. They are able to do so because they have access to resources that other firms lack

(Meng & Zhou, 2021). Many examples of effective profit maximisation in the workplace have resulted

50
in greater compensation for employees. According to profit maximisation theory, a business will

choose the optimal course of action to maximize its profit margin (Nasreen & Ruming, 2019).

According to another economic principle, enterprises will pick the option with the lowest production

costs, even if other choices result in lower overall costs or greater total benefits. As a consequence of

this hypothesis, economists have a greater grasp of how corporations make decisions (Nasreen &

Ruming, 2019).

This theory is a cornerstone of microeconomics, and its assumptions and consequences have been

widely investigated by several economists (Zouboulakis, 2019). According to the profit maximisation

hypothesis, a company's primary goal should be to increase its bottom line. It presupposes that a

business's decision-making process is rational and efficient, and that in order to maximize profits, the

organization would exploit market opportunities and use its resources effectively (Zouboulakis, 2019).

The idea of the company is discussed in a broad and diverse professional literature that is constantly

increasing. It is, however, commonly acknowledged to be in a chaotic and unstable condition; there is

no consensus over the theory's objective. According to Archibald (2018), "the subject matter and scope

of 'the theory of the company' are neither evident nor easily articulated." When discussing a company's

budget, profit maximization refers to the management team's ability to bring in as much money as

possible while cutting costs as much as possible. Profit maximization or Earnings Per Share (EPS)

optimization is a financial management method designed to boost a company's bottom line.

Making the most money possible is the ultimate goal while making financial and investing choices.

Although "maximizing profits" may be the "goal," this statement stresses the importance of "the

methods to attain this purpose" and "differentiating a firm in the corporate world and market"

(Henrietta, 2019). In 1759, Adam Smith advanced the theory that supply and demand play a key

influence in establishing price for products and services. Important variables like as competition,
51
product quality, and the introduction of new items are thought to have significant impacts on price

setting, making this hypothesis crucial to the study's objectives (Yannelis & ZhGonang, 2021). This

idea is consistent with the historical practice of establishing prices via negotiation of an equilibrium

between supply and demand.

Organizations, according to the economic theory, should objectives to maximize their total income as

much as possible. Similarly, businesses know both the expected volume of a certain product's

manufacturing and the price at which it will sell. Profit maximization occurs, then, when marginal

revenue equals marginal cost (Filippas & Gramstad, 2016). Not many entrepreneurs would really

believe these assumptions. According to the theory of demand, when the price of a good or service is

lower, consumers are more likely to make a purchase. This is also challenging because of inflated

expectations. The market's response to a change in pricing is called "demand elasticity," and it is

crucial knowledge for marketers to have (Yannelis, 2016).

These days, pricing theories take into account the fact that businesses care about more than simply

making a profit; they also want to increase their sales, customer loyalty, market share, and positive

employee relations. Consumers' decisions are heavily influenced by their demographics (income,

education, occupation, etc.), the marketing they're exposed to, and the way things are presented in

stores (Chepkemoi, 2020). The theory holds true in an ideal market, but in practice, factors like product

quality, customer satisfaction, and brand loyalty may all have an impact on price. Because the current

market is so fluid, many economists and entrepreneurs believe that the consumer is no longer the

central focus of pricing strategies.

SME management may decide against expanding despite the fact that profits are essential for success

in a cutthroat industry. The cost of goods sold is necessary but not sufficient for sustainable profit.

Profits might be impeded by obstacles to entry, but they could also be decreased by innovative
52
management. The risk and reward associated with growth may be excessive for a high-profit firm,

such as a "lifestyle" SME, compared to a low-profit company. Profits from today may be traded for

gains from tomorrow. An early decline in profitability may be required to get a higher market share.

The inter-temporal profit trade-off will likely be dictated by the preferences of the SME manager's

personal schedule.

The (static) neoclassical profit function of a fully competitive company relies on output and input

prices and 'technology' or, in the limited form of the function, fixed inputs as well. It is vital to

standardize profit performance depending on the size of an activity or its resources. Most return-on-

investment equations include a specification derived from portfolio theory (Kumburu, Kessy &

Mbwambo, 2019). It is anticipated that systemic risk would cause cross-sectional returns to vary across

sectors. Capital-intensive enterprises will need increased accounting profitability. Under this

circumstance, it is difficult to determine rates of return using accurate (or any) metrics of capital.

Hence, a profit–turnover dependent variable generated from output-selecting Cournot-Nash 5

businesses is used here (Kumburu et al., 2019).

Both the cost-plus pricing strategy and the competition-based pricing strategy are analyzed

theoretically as part of this study's framework. It shows the connection between SME pricing strategies

and results, which helps researchers determine the best approach for pricing the products in question.

3.3 Resource-based view theory

In the 1990s, the resource-based view (RBV) of the organization, often known as the resource-

advantage hypothesis, was the prevailing school of thought in corporate strategy. Concerns have been

raised regarding the positioning school's prescription-based approach to management and its focus on

53
external issues like industry structure. This so-called "placement school" dominated the market in the

1980s. On the other side, the resource-based approach emphasized building up one's strengths rather

than trying to overcome weaknesses.

The RBV defines a resource as a "source of competitive advantage" if it contributes to the company's

success, stands out from the crowd, and is hard to replicate (Chumphong et al., 2020). Valuable, rare,

unique, and irreplaceable (VRIN) resources are essential to a company's success and long-term growth

(Mat et al., 2022). Intellectual assets that are difficult to reproduce are more common in businesses

that depend on precious, costly, unique, and non-renewable resources (Chumphong et al., 2020).

Careful hiring, greater opportunities for skill development, and increased motivation are all examples

of human resource management techniques that may help businesses generate such assets in-house.

The cumulative effect of these methods is substantial (Chumphong et al., 2020). With using their own

resources, small businesses may produce higher-quality goods and services, ensuring their continued

success and growth (Mat et al., 2022). These in-house assets might be important in keeping a company

afloat and inspiring new ideas.

A detailed conceptual framework linking resource-based vision to SME performance was offered by

Barney et al. (2021). (Hitt and Ireland, 2017; Penrose, 2020; Wernerfelt, 2016). According to the

aforementioned scholars, a company's competitive advantage and profitability are influenced by a

wide range of factors, just one of which is the enhancement of the efficiency of its auxiliary resources

(Makadok et al., 2018). According to RBV, the ability to give something that no one else can is

essential for creating long-term value. Although there is a wealth of literature on the topic of strategic

and marketing capacity, very few studies have examined the emergence and evolution of pricing

capabilities, much alone established an empirical connection between these factors and performance.

54
The RBV is a novel, multidisciplinary strategy for dealing with difficult problems. The resource-based

strategy has its roots not just in marketing and supply chain management, but also in economics, ethics,

law, and management. For the sake of efficiency and competitive advantage, RBV may assist a

business determine how best to use its internal resources. Valuable, rare, imperfectly imitable, and

irreplaceable resources are the basis of sustainable competitive advantage (Zaini et al. 2018). (Now

often referred to as "VRIN criterion"). It is recommended by the resource-based approach that

organizations develop unique, firm-specific core capabilities in order to compete successfully.

Management's principal job is to understand and arrange resources to generate a sustainable

competitive advantage, according to the "resource advantage viewpoint," a term with several

connotations in the academic literature. A company's resources consist of its money, legal protections,

employees, systems, data, and connections. Jay B. Barney, George S. Day, Shelby D. Hunt, G. Hooley,

and C.K. Prahalad are just few of the prominent figures who have made significant contributions to

their respective fields (Barney, 2001; Day, 2014; Hunt, 1997; Hooley et al., 1998; Conner & Prahalad,

1996).

Edwards (2021), a London School of Economics economist, conducted two interviews with British

manufacturing company leaders to learn more about how prices are established there. An example

quote from a director: "If we know that a rival model sells for £X and our features are worth a bit

more, we may estimate that the maximum price we are likely to get for our product is £X + £Y."

[Edwards, 2021). If you've read anything by Nagle and Holden, you know that their notion of

economic value is quite similar to the idea of consumer willingness to pay (2016). According to

Edwards (2019), the second director under scrutiny, the amount that consumers are willing or obliged

to pay is one of the most important parts of price-fixing (Edwards, 1952, p. 303).

55
Soon after, Bau et al. (2019) brought to light how the business graveyard is littered with the remains

of organizations who tried to set prices based only on costs. It has long been acknowledged that pricing

based on value enhances performance, while price based on cost reduces profitability (Ingenbleek et

al., 2019; Monroe, 2016). Yet, empirical evaluations of these concepts are scant: "little research is

available that compares the utility of different pricing strategies" (Myers, 2014 p74). In the subsequent

investigations, inconclusive results were discovered.

In an analysis of 404 US exporting firms, Cavusgil et al. (2020) found a second highly profitable

cluster of firms that used demand-related information for pricing purposes and avoided cost-plus

pricing approaches; the authors also found a third highly profitable cluster of firms that used demand-

related information for pricing purposes and avoided cost-plus pricing approaches. Hattie et al. (2004)

found that companies are more successful when their pricing strategies are in line with their long-term

objectives, whether those objectives are related to increasing sales, increasing profits, or increasing

market share. Success of new products was investigated by Ingenbleek (2015), who found a correlation

between price strategy and sales. Can you explain the role that pricing strategy plays in determining a

company's bottom line? To begin with, we will look into this inquiry. How does pricing strategy relate

to a company's bottom line?

Most literature on strategic management and strategic marketing focuses on creating a long-term

competitive advantage. Utilizing a strategy based on resources, strategists may discover factors that

might be used to create a market advantage. From a resource-based perspective, we observe that not

all resources are equally valued or capable of giving a sustainable competitive advantage. Competitive

advantages can only be maintained if they can be duplicated or replaced. Barney and others note that

it may be challenging to draw the links between benefits and successful remedies. As a lot of

management effort is required, it's important to identify, analyze, and classify essential skills and

56
knowledge. In order to maintain the company's most valued resources throughout time, leadership

must invest in their education and growth.

The firm's RBV is acknowledged as the most prominent framework for understanding strategic

management (Alverez & Barney, 2017) and is used to characterize and operationalize competitive

advantage constructions. The key to competitive advantage is sustaining the advantages earned from

better resources. The resources and skills of a corporation provide a consistent competitive advantage.,

which include managerial skills, organizational procedures, and skills, data, and knowledge (Barney

et al., 2021).

The success of certain companies in a given industry while others struggle is partially explained by

resource-based ideas (Miller, 2019). The company has been working to get an edge in the areas and

industries it serves by using its own internal resources. The idea holds that a company may maintain

its competitive advantage without using all of its available resources. Valued, distinctive, non-

substitutable, and non-transferable assets are essential for a company to maintain a competitive

advantage and generate above-average earnings over the long term (Barney et al., 2021, Gamble et al.,

2019). Companies have varying levels of resources and competencies, which is why they perform in

various ways. Having a momentary edge in a certain market or business, such as earning above-

average pay, may be seen of as a definition of short-term success. According to Fahy and Jobber, the

theory's fundamental tenets include a company's ability to sustain a competitive advantage over the

long term, the characteristics of advantage-generating resources, and the strategic decisions made by

top management (2019).

Businesses nowadays mix many resources to get a competitive edge. Than et al. (2019) quote Black

and Boal, who argue that different organizations have different resources and competencies, which

might lead to improved performance and, ultimately, a competitive edge in the market. In business,
57
strategic resources are those that are indispensable yet either hard to replicate by rivals or impossible

to sell. The three most prevalent forms of assets that organizations have and employ for their

operations are physical assets, intangible assets, and external assets, as stated by Hunt and

Madhavaram (2014).

Tangible assets are those that can be seen, handled, and evaluated (Evaldo Fensterseifer & Rastoin,

2013). shares of stock and financial assets are examples (Debtors and creditors, funds on hand and in

the financial institution). There are real and intangible assets in the world, like as trademarks, patents,

brands, and goodwill. Reputational resources include networks, individual and group talents,

interactions, and the organizational routines and processes used to organize and manage these

resources (Evaldo Fensterseifer & Rastoin, 2013). In addition to relationships with and information

obtained from suppliers and customers, competitors and other organizations, external resources also

include information from suppliers and customers, rivals and other organizations.

3.4 Marketing-mix model

Jerome McCarthy proposed the marketing-mix concept in 1960 (Zhang, 2021). He recommended that

businesses prioritize their ambitions to expand into new markets and improve their customers'

experiences. Although though most SMEs face price difficulties, very little study has been done on

pricing, since most studies have focused on items, marketing, and positioning.

Product, distribution, promotion, and pricing make up the four pillars of the marketing mix and must

all be present for the strategy to be considered successful. The marketing mix is the set of coordinated

actions used to achieve a company's marketing objectives by satisfying existing customers and

attracting new ones. A company's marketing mix is comprised of many tools and strategies used to help

58
customers achieve their (local) needs and the company's objectives (Iorait, 2015). A company tries to

sell its goods and services using a number of the marketing mix solution variables identified by Garg

et al (2016).

The marketing mix is developed from the one P of microeconomic theory (price) (Thabit & Raewf,

2018). With the "marketing mix" or the "4Ps," you may implement your marketing plan. Rather than a

scientific theory, it is a framework for considering how organizations modify their goods to satisfy

consumers' preferences and requirements. With these techniques, both long-term and short-term

strategies may be built (Thabit & Raewf, 2018).

In order to achieve marketing objectives, the whole marketing mix must be used, beginning with the

development of the product and ending with the satisfaction of the client. The extent to which a firm

is able to attain marketing excellence is directly related to the quality of its marketing management.

The "marketing mix" refers to a set of seven interrelated marketing components. If you want to achieve

many market objectives and get the intended outcome, you need an effective marketing mix. A

marketing system's competitive advantage may be broken down into its constituent parts: product,

price, location, promotion, people, process, and hard evidence.

Hence, in order to fulfill client demands, a corporation must make judgments about the product, its

pricing, where and how it will be disseminated and promoted; these four aspects are collectively known

as the "4P" marketing mix (Gunawan, 2018). This marketing mix is enhanced with people, procedures,

and physical proof by scientific publications and some writers. In scholarly literature, this is

characterized as a "7P marketing complex." Marketing activity planning may be used in all aspects of

the marketing strategy.

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There are still many challenges that await those who take the risk of starting their own AMEs. When it

comes to promoting products, the old methods are still in use. They include advertising just a small

selection of products, prioritizing low costs over high-quality goods, and promoting with an air of

unplanned spontaneity. Restrictions on advertising and rivalry also pose a serious concern. According

to the Central Statistical Organization (2018), marketing is especially difficult for SMEs.

Studies show a connection between strategy and performance, even if there is frequently overlap

between the firm and functional levels (Madsen & Walker, 2017). They first looked for overarching

strategies that could be applied to a variety of situations, and then they built a theoretical framework

for building industry-specific strategic groupings and used it as a guide. Similarly, the generic strategy

typology proposed by Rathwatta and Samudrage (2019) has been extensively researched in both

competitive and marketing settings. According to Porter, low-cost manufacturing and product or service

uniqueness may both boost a company's success, and a concentration on a certain market sector can

supplement either strategy. In order to set themselves apart from the competition, businesses that have

an edge in the market should make marketing a top priority. A product's positioning and demographic

are in line with Porter's idea of focus orientation.

The marketing strategy and tactic, customer impact, customer association, customer attitudes and

attachment, customer experience, marketing assets, and market impact such as elasticity literally less

small, degree of retention, and length of allegiance are all outlined in Madsen & Walker's (2017) chain

of marketing productivity model. Performance marketing, as defined by Madsen and Walker (2017), is

defined as the contribution of marketing strategies and the production of value to the profitability of an

organization as measured by sales, operational profits, and market share.

60
According to Ebitu, Glory, and Alfred (2016) and Haghighinsab and Nabizadeh, growth, market share,

and profitability are the three pillars around which success is built (2018). As market indicators go up,

business is doing well, and vice versa. SMEs are measured not only by their efforts but also by their

outcomes. This reason takes into account both meeting expectations and finishing an unbiased appraisal

and setting. When proper management is in place, expected production levels are reached, and when it

isn't, they aren't. This ties along with the idea of putting the client first. In other words, it's a tactic that

facilitates two-way communication between a company and its customers, turning marketing into a

potent competitive weapon. The effectiveness of SMEs is increased when management's views on

marketing approaches are consistent. The success of a company may be influenced by a number of

factors, including product quality, pricing, marketing promotion, product delivery efficiency, and

relationship marketing.

3.4.1 Product development and SME performance

Kotler et al. (2017) define a product as everything that may be offered to consumers in an effort to

satisfy a demand or need in that market. For the purposes of this article, "product" will be used to

describe any tangible good or service that is sold to a paying consumer. Includes both material goods

(like furniture, clothing, and food) and immaterial ones (like services) (Othman, Harun, De Almeida

& Sadq, 2021). The product, say Ndegwa et al. (2020), is the marketing strategy's lynchpin. Products

are "what may be offered to the market in order to draw attention, to be the purchase of used or used,

and to meet the needs or requirements," as stated by Nasution et al. (2020). To better understand the

nature of the product, the literature was found to be dominated by a narrow "product" definition of

perception.

The product's impact on sales is substantial (Gbolagade, et al., 2020). But quality must ever be at odds
61
with the other elements of the marketing mix. A premium price approach may need a high-quality

product. Consumers shop often, often in advance, and form opinions about businesses based on a

variety of factors, including cost, quality, and aesthetics. The price, brand, size, and availability of a

product all play a role in determining whether or not a consumer decides to make a purchase (Kotler

et al., 2017). The outward appearance, packaging, and labeling of a product may all have an effect on

how customers respond to it (Mustapha, 2017). Impacts of products have been demonstrated to have

a significant influence on business outcomes in several research (Owomoyela et al., 2018).

3.4.2 Pricing strategy on marketing performance of small business

The marketing idea includes everything in the marketing mix, from research and development of

products to service after the sale, with the goal of satisfying customers. Marketing management plays

a crucial role in determining whether or not a firm achieves marketing greatness. The marketing "mix"

consists of seven interrelated marketing elements. There are various objectives that may be

accomplished in the market, and an effective marketing mix is the mixture of marketing strategies that

best accomplishes those objectives and produces the intended result. The marketing mix includes the

following elements: product, price, location, promotion, people, process, and proof.

A fair price for such a high-quality product is reflected in the asking price (Khrueanugool &

Chetthamrongchai, 2022). According to Kotler and Armstrong, pricing entails determining how much

customers are willing to spend on a product or service and what concessions they are willing to make

in exchange for that price. Hence, the cost of bringing in a new consumer is an example of a direct

expenditure. "The price may also be regarded as the monetary representation of value that the client

agrees to pay," writes Entrepreneurship Academy (2012). The price of a product is determined by a

variety of factors, including the amount the customer is expected to spend. Everything else in
62
marketing is determined solely by price. Buyers place a high value on price information since it helps

them determine whether or not a product is really a good deal. The price that businesses set to

distinguish and maintain control over their products is another metric that may be used to establish

value (Hunelegn, 2019).

The "price" of an item is the sum total of its production, transport, and advertising expenses. Lee and

Chan (2018) defines that a product's price has a major role in how much it is valued. Specifically,

Amin and his colleagues found a strong correlation between price and a company's financial

performance (2021). What you charge for your goods or services might have a major impact on how

well they sell in the marketplace (Daniel, 2018). Sales volume changes in response to price changes

occur more quickly for widely available and accepted products and services (Kalaignanam et al.,

2021). An item or service's price elasticity is affected by supply and demand, the availability of

substitutes, and their prices (Agrawal & Yadav, 2020). Your prices will be pushed down if there is an

overabundance of supply on the market from competitors and substitutes (Daniel, 2018). Price

elasticity is high when demand is higher than supply, which means you may charge more for your

goods or services without losing customers (Taurus et al., 2016).

The entrepreneur has some influence on the pricing element. Even if there are several value

propositions, small firms may have the greatest chance of success by competing on pricing and

offering clients with superior value. Customers might be provided with "additional value" through

upgrading customer service, enhancing product expertise, or expanding strategic locations (including

going directly to the customer). Price at the high end may also be a successful market entrance strategy

for a new firm, particularly if the client perceives that the product or service provides better value. In

some circumstances, business owners may think their clients would always purchase based on the

lowest price. Contrary to common assumption, consumers will often pay much greater rates for

63
superior service, superior quality, a preferred brand or image, and customer convenience.

3.4.3 Promotion strategy and performance of SMEs

Using the right marketing communication strategies seems to be the key to successfully conveying a

product's message and brand to the consumer. Promotions are an essential part of any comprehensive

marketing strategy, and small businesses are no exception. Integrated marketing is an approach that

seeks to coordinate all of a business's promotional efforts under one umbrella. Amin (2021) agrees,

defining marketing as "the process of influencing customers to spread the word about a product." It

seems to be a difficulty for the promotion to find the best marketing mix to carry the product's message

and brand from the producer to the consumers. Product marketing mix elements such as the company's

special mixture of advertising, personal selling, sales promotion, public relations, and direct marketing

are more important, as stated by Kotler (2013).

According to Mustapha (2017), a small business might benefit from specific sales campaigns that help

boost sales in new regions. Another successful strategy for attracting new customers is to advertise.

The vast majority of small firms rely on in-house staff to promote their wares. Bakers use labels and

flyers to advertise and distinguish their products. It was found by Ogundele, Fadel, Braitstein, and Di

Ruggiero (2021) that the companies they studied used selective appeal in their marketing. Promotion

consideration has a strong but negative correlation with company success, as shown by Gbolagade et

al. (2018). In the business world, there is a strong negative correlation between thinking about one's

career path and the success of the organization as a whole. One possible reason for this is because

customers who see an item advertised heavily may assume that it is of lower quality, has already

expired, or is being sold at a discount. Consumers' persuasive knowledge is another factor working

against ads (Lee & Joo, 2021). So, budget shoppers could be put off by all the promotion, thinking the
64
products are being sold for more than they are worth.

3.4.4 Distribution strategy and SMEs business performance

Amanah and Harahap (2018) state that there is a plethora of channels via which consumers may

purchase goods and services. The word "distribution" is part of their definition as well. They define

that the purpose of the marketing mix is to provide customers with several options for purchasing

goods and services. According to AlJazzazen (2019), the placement or distribution of a product entails

a number of different parties working together to make the product available to the final consumers.

Marketing distribution channels, such wholesalers and retailers, are essential to the placement strategy.

According to Amin, a company's location is one of the most important factors determining its success

(2021). When it comes to the marketing mix, some companies base crucial decisions on where to set

up shop.

Wanyonyi, Gathungu, Bett, and Okello (2021) argue that the pricing strategy component of the

marketing mix significantly affects a company's bottom line. Market mix theory also covers products,

promotions, and places of business. While pricing theories may provide light on fundamental

economic connections, they are not beneficial for addressing practical pricing problems. Because of

the importance that company owners place on pricing decisions, more research has to be conducted in

this area so that pricing strategy decisions may be informed by the best available data. Price is a

fundamental problem in the banking industry, and hence this hypothesis is significant to the study (Pai

Bir & Mayur, 2019). Price, in addition to product, promotion, and positioning, has a vital influence in

expanding customer base and market share, which leads to increased profits, as stated by Wanyonyi

et al. (2021). How price fits in with the other three Ps (product, promotion, and place) is a topic

explored in the market mix hypothesis. Because it discusses pricing as an element of the market mix,
65
this theory draws no correlation between cost and output. That's why it's crucial to investigate how

various pricing strategies affect a company's bottom line. The theory emphasizes the relevance of

pricing as a marketing concept, which is crucial. Yet rather of linking prices to profits, it emphasizes

advertising. Hence, it is important for a company to assess how its pricing methods affect its bottom

line.

Each of these concepts, then, adds to the theoretical foundation upon which this investigation rests.

As a company or corporation can't function without profit, that's where the maximization of profit

hypothesis starts. The survival of a business is inextricably linked to its financial viability. Using a

Resource-based Perspective emphasizes the value of an organization's assets and capabilities in

achieving success. Profit efficiency, as opposed to more traditional financial or accounting metrics, is

a more accurate way to quantify the heterogeneity of a company's performance due to the limited

mobility of its assets and skills.

3.5 Chapter summary

The research here integrates resource-based and profit-maximizing perspectives. This study

incorporates ideas and theories from a number of different fields of study. The primary goal of this

study is to explore the processes through which businesses evaluate and improve their pricing

strategies, as well as the effects of these strategies on their bottom line. A company's ability to set or

adjust prices is seen as a strategic asset in the resource-based pricing approach. Although it's true that

a company's market worth increases as it finds new ways to delight its customers, we argue that this

doesn't mean it can keep all of the profit it earns by setting fair prices. Instead, businesses need to

figure out how to use these abilities into their pricing systems to be successful. For a firm to make

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informed pricing decisions that won't hurt its bottom line, it's important to understand all the variables

that play a role in setting prices. To better understand how to develop pricing strategies that are in line

with company development and positively affect the overall performance of SMEs, it is important to

combine elements of Resource-Based Theory and profit-Maximization Theory.

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 CHAPTER 4

EMPIRICAL LITERATURE

4.1 Introduction

Below, we will take a look at the studies that formed the basis of this investigation. An overview of

the pricing literature is provided to kick off this chapter. It highlights the need for, and the dearth of,

study on pricing practices among SMEs. Previous research that has been published in the relevant

literature supports pricing objectives, pricing strategies, and the factors that effect these areas. Here,

we focus on SMEs and the unique pricing challenges they face. The focus of this research is not on

the nature of SMEs per such, but on the methods, they use to set prices.

4.2 Price

Price, as defined by Gundlach et al. (2017), is the sum for which something is offered for sale or

exchanged, regardless of its value to the buyer. Even if a monetary value is not ascribed, products that

are traded may nevertheless have a price. The price of a product or service is directly proportional to

the value it provides to the buyer (Ahmed et al., 2021). Moreover, they contend that the price may

already contain items that were traded in (Brand et al., 2018). According to Waheed et al. (2017),

pricing decisions within an organization should be seen as a trade-off between the potential gains for

the business and the person and the cost of inaction.

Experts agree that a company's capacity to make smart price decisions is fundamental to its success.

Moreover, Vosooghi and Hemmati (2021) state that pricing is the only part of the marketing mix that

generates income, while the rest of the mix is mostly concerned with cutting expenses. According to

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Indounas (2020), adjustments in pricing may be done far more quickly than changes in other parts of

a marketing strategy. Establishing prices based on what customers are prepared to pay means

businesses miss out on opportunities to shape their image in ways that boost sales and satisfaction

(Indounas, 2020).

Notwithstanding the fact that a monetary equivalent or value may be ascribed, the definitions

demonstrate that prices can include the transferred items. Automobiles, for instance, might be traded

for comparable deals. In other words, the price of an item reflects the amount the seller expects to gain

by selling the item to the buyer. Depending on the context, the word "price" may have a number of

different meanings. There are price comparisons for an apartment, a doctor's charge, a toll on the road,

a broker's commission, and taxes for the government (Indounas, 2020). Several organizations use fees,

charges, and subscriptions, among other terminology (Arthur et al., 2018). On both sides of a

transaction, the word "price" has a variety of distinct connotations. There are various factors to

consider when determining pricing, including the amount of profit a supplier, manufacturer, service

provider, or retailer will earn. In addition, it notifies the buyer of the price, but often not in terms of

immediate cash payments (Elena, 2018).

Price is understood differently by the vendor and the purchaser. The significance of price depends on

the buyer's and seller's perspectives. The buyer's expenses may include monetary, time, energy, and

psychological charges. The seller's perspective takes into account both internal and external factors.

Internal effects include pricing targets, marketing mix objectives, and information technology. Market

structure and competition are examples of external factors. Price objectives may be business-, market-

related or competitive-related. Selling strategies that include setting prices often help businesses

succeed. Customers with less disposable income have to pay more for items. This highlights the need

of defining pricing from the perspective of a variety of audiences and settings. Regardless of the seller's

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and buyer's pricing stances, it is important to assess whether or not sufficient value is being extracted

to justify the price. It is the duty of the vendor to enhance their wares so that the purchaser is satisfied

with the purchase. While setting a pricing, a company is trying to keep some of the value it produces

in the market via the other two parts of the marketing mix (promotion and product features) (product,

promotion, and distribution).

4.2.1 Importance of pricing

According to some experts, price has long been regarded as the most crucial marketing strategy

variable. Price choices are influenced by a range of variables and are crucial to a company's market

performance (Sunarni & Ambarriani, 2019). Price-quality connection, product line pricing,

explicability, competitiveness, negotiating margins with intermediaries, influence on distributors and

retailers, political issues, making better profits and charging lower prices (Werner, Carlsson, Ahlstrom,

& Bostrom, 2021). Price has traditionally been the most influential element in shaping customer

choices for commodity items and disadvantaged countries and groups. In the case of non-profit

organizations, the price has a second impact on whether or not the group can generate sufficient funds

to reach its goal. Due of these two functions, setting a product's price is a vital marketing choice

(Kunjal, 2021). No matter how skillfully the product is delivered or how successfully it is conveyed,

all other efforts will be in vain if the price is wrongly established. The long-term success of a business

hinges on making prudent price selections. Regarding cost, Baker (2017) describes it as "the moment

of truth."

Cant et al. (2017) argue that pricing is the most important factor in the marketing mix since it directly

impacts the number of units sold and the money made. The fact that it may have a tangible effect on

profits is what makes it so important. As pricing has such a significant impact on a company's income
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and profits, Jain and Hazra (2019) suggest that it is an important strategic choice for businesses

worldwide. Often, the cost of an item reflects how well it is made. To make a profit, according to Jain

and Hazra (2019), a company's standard selling prices must be above its total operating expenses.

Management must pay close attention to pricing since it has a direct impact on profits, say Marx et al.

(2019). According to Asare, a company's gross profit margin is influenced by both selling prices and

inventory expenses (2016). According to Doyle, a company's short-term and long-term success depend

on its pricing strategy (2021). As stated by Mistry et al. (2010), "return on investment is proportional

to price" (2018). The success of a firm is directly proportional to the accuracy of its product and service

pricing (Czinkota & Ronkainen, 2022).

Its capacity to produce income via price, as well as its breakeven point, profitability, and success or

failure, are all impacted by pricing. Controlling the company's overall objectives is also facilitated by

pricing. To everyone involved in the deal, it's a treasure trove of data. Consumers might use the price

to evaluate whether or not they are able to purchase the item. If buyers believe that all of the products

are of same quality, they may use price as both a value signal and a differentiator. Consumers will

choose to spend less for identical things in the banking industry, for example, if they perceive that the

service would remain the same (Czinkota & Ronkainen, 2022). While deciding on a strategy, it's

crucial to keep these things in mind. As a result, it is crucial to understand the connection between

price and pricing strategy before making any changes to the business. The management of SMEs must

understand that effective pricing is possible only when the right pricing methods are used. In order to

create interest, sales, and revenue, a product's price must be commensurate with its worth.

Pricing presents a unique challenge since consumers often use price as a surrogate for the real expenses

and quality of a product. In order to create interest, sales, and revenue, a product's price must be

commensurate with its worth. When there is a large range in price or quality within a given product

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class, or when it is otherwise difficult for consumers to make a distinction, the price may serve as the

most reliable indicator of quality to the customer. Product pricing has to be carefully considered

because customers see price as a quality indicator and because pricing plays a role in setting

consumers' expectations for product quality (Czinkota & Ronkainen, 2022).

Demand is significantly affected by the price of products. Product pricing is a major factor in consumer

decision-making (Hind & Smit, 2018). Chung (2021) argues that price has an effect on demand and is

therefore a powerful tool for increasing market share. Companies with a track record of market

domination may use such strategies to keep new entrants out of the market or drive out established

ones. This may depend on a range of factors beyond just cost (Lewis et al., 2020). Predatory pricing,

as described by Cronje et al., is used to deliberately harm other businesses in an effort to force them

out of the market (2018). Airline companies often use this pricing strategy to keep up with the

competition brought forth by new entrants to the industry.

The price paid substantially facilitates a buyer's capacity to make an educated selection. A product's

perceived worth may assist purchasers in determining whether they are willing and able to pay for it.

A product's pricing may also increase demand and assist managers in estimating demand at a particular

price. Pricing based on perceived value may play a significant influence in influencing whether a

consumer will purchase a product. Costs are essential, but they must be examined with the product's

value in the marketing mix. Consumers may be discouraged from joining the market by the price

techniques used by SME management. In addition, businesses need to make sure that their prospective

competitors don't have any advantages that might set themselves apart from them or drive them to

lower their pricing to compete.

An individual's perception of worth may be especially important to sellers in such a market. The

company has to create market value before it can maximize its financial outcomes by raising revenues
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and profits. To do so, it may be necessary to take into account both prices and customer interest.

Consumer interest is the driving force behind a product's sales and bottom line. It's been common

knowledge since the dawn of time that prices set the pace for economies. Prehistoric works address

research on what a fair price should be. Economic activity is still largely determined by product prices

(Boone & Kurtz, 2017). It has been shown by Stiglitz and Driffrill (2017) that when supply and

demand are allowed to find their own equilibrium, prices accurately represent scarcity. To rephrase,

pricing levels tell us a lot about the state of the economy. Businesses and individuals alike have more

reason to practice cost-cutting measures as the price of both inputs and outputs continues to rise. When

resources are scarce, prices incentivize the economy to make the most of them in these and other ways.

In Varian's view, there are two distinct purposes for market pricing (2019). There is an allocative

function and a distributive function that prices play. When there is a mismatch between supply and

demand, prices may be adjusted to level the playing field, say Gattorna and Ellis (2022). The pace at

which general prices rise and fall on a yearly basis is known as inflation (Fourie & Umeh, 2017). The

nation's competitiveness improves when inflation slows. Because of price volatility, autonomous

forces partially negate the revenue mechanism. Competitiveness is determined by how domestic prices

compare to those of other countries; a country with a trade deficit often has falling inflation (Kreinin,

2021). Mohr et al. (2016) state that national accountants may utilize product prices to determine

production value.

Cost is a general term in economics (Mitchell, 2018). It provides data crucial to understanding the

economy. The news educates the public about current economic issues. Price terms include inflation

and gross domestic product. Manufacturing parameters may be inferred from price. Money made

through rent on land and water, interest on investment, wages for employees, and sales are all

necessary costs for every business (Mitchell, 2018). As prices go up, people have less money to spend,

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but when they go down, they have more. In economics, these phenomena are referred to as inflation

and deflation, respectively. The contribution reflects both pricing strategies and the value consumers

place on products, even if the economic data does not define price approaches. The national economy

may be affected by pricing policies. SMEs (SMBs) may have an effect on inflation, GDP, and other

economic indicators via the prices they set.

The SME factor's contribution to the national economy might be impacted by a change in pricing

strategy. The inflation rate might be affected by a variety of pricing strategies. The technique's efficacy

should be reflected in the product's marketability and financial success. It is possible that pricing

strategies that do not optimize profits need to be adjusted. Prices in economics and commerce reflect

the worth that individuals place on various goods and services. Customers' ability to see value may

have a negative impact on demand, sales, and profit. It is surprising that pricing has not been discussed

more extensively in marketing journals, given the obvious importance of price to a company's bottom

line. Less than three percent of papers in Industrial Marketing Management dealt on pricing (Murfield

et al., 2021). As Indounas points out, price is often overlooked in the marketing mix (2015).

4.2.2 Pricing objectives

Alschner et al. (2017) mention a failure to prioritize price as a problem. Pricing objectives in a

marketing strategy are quantitative and qualitative operational objectives. Often, new firms have a

variety of objectives, some major and others secondary. Then there are long-term effects. Price

objectives may include discouraging new entrants, avoiding price reductions, and stabilizing market

pricing. The ultimate objective of pricing, according to Strydom et al. (2021), is to accomplish the

enterprise's objectives, profitability, and social duties. Business objectives and market factors impact

the selection of pricing targets.

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According to Avlonitis and Indounas (2005), price objectives are what ultimately guide pricing

strategies and methods. It's possible for a company's stated objectives to include both quantitative and

qualitative price targets. The fundamental benefit of quantitative objectives is their quantifiability,

which includes profit, sales, market share, cost coverage, and production output. But a company's

long-term market position might suffer if its leaders just focus on quantitative objectives.

Relationships with customers, competitors, and distributors; the continued existence of the business;

and broader social and ethical objectives are examples of qualitative objectives that are more difficult

to quantify.

Pricing objectives direct pricing strategies, policies, and methodologies. Price objectives direct action.

They should contribute to the company's and marketing objectives. Pricing techniques may become

ineffective if inaction is taken. Price objectives should be defined openly so that pricing techniques

may meet pricing objectives and, ultimately, corporate objectives. If the pricing targets and prices are

reasonable, it is possible to generate adequate demand. The generation of value should be included

into pricing objectives and choices.

Phalan et al. (2016) argue that pricing objectives should be clear, attainable, and quantitative. Price

objectives that are more realistic need regular strategy reviews. Differentiating between profit-driven,

sales-driven, and status quo pricing objectives is possible. Optimal profit, acceptable profit, and return

on investment objectives all fall under this category. Market share, monetary value, and unit sales are

employed as sales-driven price objectives. Pricing in line with the status quo attempts to keep prices

at or below those of competing products.

A marketer's decision to establish a certain pricing is informed by a number of factors. To name a few:

demarketing, cost recovery, enlarging the pool of potential users, promoting social justice, and

maximizing profits (Dura & Turrión-Prats, 2022). Reaching low-income or vulnerable groups is
75
crucial for social justice, and pricing structures should reflect this. The de-commercialization of a

social good via the use of market pricing (Fachmi et al., 2021). Price strategies may be used to achieve

objectives including expanding market share, becoming the industry standard in terms of product

quality, and staying in business, as stated by Dinsmore et al. (2014). Product positioning in the context

of rivalry is discussed by Paley (2019). To this, picture upkeep is included by Van der Westhuyzen

and Van der Menve (2017). According to Doole and Lowe (2020), a product's price acts as a barrier

to entry and a means of quick cash recovery.

Objectives in pricing vary on the industry and the preferences of the management. In order to make

money back on the goods, a high price may need to be set. To increase sales, decrease competition,

and entice potential buyers, you need to provide a low price (Craven et al., 2020). Objectives other

than profit maximization, cost recovery, market incentives, and suppression of the market might

inform pricing strategies. In the marketing of non-profit organizations, cost is frequently a deciding

factor. It's possible that a price strategy may help these companies reach their objectives. While not-

for-profits aren't required to do so, they generally try to squeeze as much money as possible out of a

single or series of fundraisers. It's a constant struggle for many of these groups to even break even. In

order to increase product consumption, some businesses provide below-average prices or a free

service. The high cost might discourage customers from using the product. In addition to covering the

cost of goods, high prices may also help achieve social objectives (Wong & Zeng, 2015).

4.2.3 Pricing strategies

Pricing strategies are techniques and policies for determining prices. Yet, the study focuses on market-

skimming and market-penetration techniques. The pricing of new products permits price umbrella

building and price skimming. Short-term skimming pricing is effective when a new product is highly
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unique, difficult to replicate, and offered to a quality-conscious market with no significant

competition. To create a cost advantage, a penetration strategy may be necessary. Skimming and

penetration pricing are influenced by costs. To maximize profits, their pricing strategies are cost-

based, market-driven, and competitive. Management of SMEs may employ the methods to get an edge

over rivals and attract consumers via value and pricing.

Hinterhuber (2017) argues that a company has to determine where the price fits into the bigger picture

of the product's marketing strategy before setting a price. The terms "skimming," "penetration," and

"neutral pricing" come to mind. Pricing may be used to attract a certain demographic of clients, as the

primary strategy in expanding the company's customer base, or as an afterthought. As the name

implies, skim pricing is charging more than is reasonable in the hopes of profiting from the

insensitivity of a small percentage of potential buyers to price. These prices are much lower than their

true value in an effort to boost sales volume or market share. When prices are neutral, neither the seller

nor the buyer is using them to gain or lose market share. Adopting the appropriate price at the ideal

time is crucial to the success of a pricing strategy, say Miano et al. (2019).

4.2.3.1. Skimming and prestige pricing

Price skimming is a tactic used to market luxury goods to price-sensitive buyers. At higher price points,

if demand is inelastic, skimming is more attractive. Profits may be maximized for new items by

skimming, particularly if there is no competition. Some opponents say that corporations shouldn't

attempt to maximize profits by under-pricing a new product with substantial societal significance (Jin

et al., 2020). It involves fixing a price within a suitable range, sometimes for a little period of time and

sometimes for a longer period. It is often connected with new items, although not necessarily (Elena,

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2018).

The practice of charging a premium to indicate superior quality or prestige. Some target consumers

are willing to pay more for the finest. Pricing is essential, but quality concerns prevent them from

purchasing. The most popular prestige items include watches, jewellery, and perfume. Consumers who

cannot examine a thing beforehand depend on its price to determine its quality (Jin et al., 2020). Both

of them are skimming. They are both the market leaders. One provides premium products with less

risk. The second performs the same function, but leverages the price to enhance status and prestige

(Baker, 2017).

Price skimming is used by businesses when they anticipate that potential customers will view their

items as distinctive (Lamb et al., 2011, p. 665). It only works if the company understands its clients

are prepared to pay a premium (Lamb et al., 2011, p. 665). In the early stages of a product's life cycle,

demand is inelastic (Pride & Ferrel, 2020, p. 600). Following the increase, the enterprises will drop

their pricing (Lamb et al., 2011, p. 665). Most buyers are aware of the idea of price skimming (Toptal

& etinkaya, 2015, p. 552). Surprisingly, most customers do not wait for the price to be reduced before

purchasing goods (Toptal & etinkaya, 2015, p. 552).

Price skimming is used by marketers when "production cannot be rapidly expanded due to

technological difficulties, shortages, or constraints imposed by the skill and time required to produce

a product" (Lamb et al., 2011, p. 665)."If demand exceeds supply, skimming is a viable strategy"

(Lamb et al., 2011, p. 665). When the breakeven threshold is reached, the corporation can recover the

expenditures of product development and teaching (Lamb et al., 2011, p. 665).

They can target both high-priced customers and those on a tight budget by using price skimming

(Lamb et al., 2011, p. 665). More rivals will enter the market because the price is high (Lamb et al.,

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2011, p. 665). Price skimming strategies must be used with caution since they may give competitors

the idea that the product is thriving more than it is. Furthermore, there is a danger of underestimating

demand and failing to sell enough at a higher price (Pride & Ferrel, 2020, p. 600). When pricing fresh

products, it is best to evaluate both their value to customers and the prices of equivalent products

offered by competitors (Pride & Ferrel, 2020, p. 600).

A price-insensitive niche only makes financial sense if there is more gain from selling to the larger

market at a lower price. Customers that value a product for its special qualities are usually willing to

pay any asking price. Skimming pricing is most efficient when additional unit expenditures make up

a significant amount of a product's price, since even a little price premium increases the contribution

margin. In order to maintain sustainable profits over the long run, a company needs shielding from the

competition. Copyrights and patents provide some defense against rival businesses (Danes &

LindseyMullikin, 2012).

Skimming the cream with care is required. They cannot disregard perceived worth, demand, and

profits. They should be vigilant against rivals providing the same goods or a cheaper alternative. What

counts is the price-to-value ratio of the product. Skimming is a method for pricing that captures value.

The price objective should justify the pricing approach.

Prestige pricing is charging an exorbitant price in order to portray uniqueness and superior quality

(Lamb et al., 2011, p. 652). To be effective, a prestige pricing strategy must link the retail price with

the quality that clients anticipate to experience (Lamb et al., 2011, p. 652). When clients prefer to buy

quality or durable things, a high price is a powerful indicator (Lamb et al., 2011, p. 652). Price

increases can spur more innovation and the development of new technology (Kent, 1979, p. 4).

Because pricey products are linked with superior quality, they elicit clients' joy, thankfulness,

amazement, amusement, and serenity (Lamb et al., 2011, p. 652). The previously indicated hedonistic
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effect is attributed by experts (Lamb et al., 2011, p. 652). High costs may be preferred by utilitarian

consumers to reinforce their self-worth and gratify their egos (Lamb et al., 2011, p. 652). People that

buy these items want to belong to a high class and own rare objects that no one else has access to. This

means that the price is exorbitant. One popular motive for purchasing luxury products is to demonstrate

one's financial status to others (Lamb et al., 2011, p. 652). "Prestige products, such as selected

perfumes and jewellery, sell better at higher prices than at lower prices" (Pride & Ferrel, 2020, p. 565).

"The last factor influencing marketers' prestige pricing is the allocative effect" (Lamb et al., 2011, p.

652).

The last factor impacting marketers' prestige pricing is the allocative effect (Lamb et al., 2011, p. 652).

Because of the allocative impact, customers must allocate their expenditures among various goods and

services (Lamb et al., 2011, p. 652). Individuals who prioritise economic issues are less likely to

indulge in expensive expenses such as fine jewellery, extravagant vacations, and other products that

normally necessitate a higher income level. As a result, selling these goods or services in countries

with large populations makes sense, and the upper class is a prominent target. For example, in Turkey,

the overall populace is impoverished, yet there is a sizable upper class eager to pay for prestige items

(Seker & Jenkins, 2015, p.402).

High-status products are monopolistic or oligopolistic (they have pricing control) (Kumcu & McClure,

2003, p. 51). When it comes to prestige pricing, it's important to remember that the demand curves

aren't the same as they are under regular conditions. After reviewing numerous marketing textbooks

on prestige pricing, it is widely assumed that the demand for luxury items is one-of-a-kind (Kumcu &

McClure, 2003, p. 49). Unlike the conventional demand curve, demand for these products increases

as prices fall but finally reaches a point where demand falls as prices fall further (Kumcu & McClure,

2003, p. 49).

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It is crucial to emphasise that the notion that higher-priced products will necessarily result in lower

consumer demand is only occasionally correct (Solomon & Stuart, 1997, p.410). Other aspects, such

as perceived value, brand reputation, and unique selling qualities, might impact purchasing decisions

and trump pricing considerations. As a result, firms must do extensive market research and analysis to

identify the best pricing approach for their products. In the case of prestige items, people demand a

product more as the price rises (Solomon & Stuart, 1997, p. 410). This indicates that the demand curve

for these products is sloping higher (Solomon & Stuart, 1997, p. 410). On the other side, lowering a

product's price may have the unexpected consequence of decreasing its perceived worth, ultimately

leading to a decrease in demand (Solomon & Stuart, 1997, p. 410). The demand curve graph that bends

backwards exemplifies the concept (Solomon & Stuart, 1997, p. 410).

4.2.3.2 Penetration pricing

By setting an initially low price, or "penetration price," a company may quickly gain market share.

Competition is discouraged in areas where large economies of scale may be gained. To be effective,

this strategy obviously relies on a significant increase in demand brought about by reduced prices.

When a company has cornered a market thanks to penetration pricing, it might be tough for new

entrants to break through (Sije & Oloko, 2013). Because of economies of scale, the more tickets you

sell, the less it will cost you per unit. In the first few months after launching, a business can expect to

face stiff competition (Jin et al., 2020).

According to Baker (2017), "penetration pricing" is when a company significantly undercuts the

market, preventing competitors from responding. This causes a dramatic increase in business. In

theory, the idea seems great, but in practice, it typically ends in disaster for companies who adopt it.

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Penetration is a high-risk strategy, but with the right leadership, it may pay off. A pricing strategy that

generates large volumes of sales but low margins may be more attractive under certain conditions.

Costs of entry are relatively low in relation to potential benefits. Buyers' perception of a product's

value in relation to its cost is crucial to increasing its market share and penetrating new markets.

Penetration pricing can only work if a sizable fraction of the market is open to switching suppliers.

Competition forces businesses to set prices that are competitive across a wide range of customers.

Penetration pricing is only viable if competitors either refuse or are unable to undercut the strategy via

price cutting. When incremental expenses are modest and each additional sale contributes significantly

to profit, penetration pricing is more cost-effective. Even in the absence of a sizable contribution

margin, penetration pricing may be useful if it results in significant savings in variable costs, allowing

vendors to give discounts without reducing their profit margins.

The ultimate purpose of this strategy is not to maximise earnings, but to establish a new product or

brand in the market (Vikas, 2011). Penetration pricing is the main method for all providers, regardless

of whether the topology is close or random (Oliver et al., 2001). With this technique, the firm initially

implements cheap prices to accelerate adoption or create a de facto market position standard de facto

(Gottfried and Hans, 2008). Penetration strategy is successful at organisations that Scale provides a

cost benefit (Tellis, 1986). The enabling circumstances for penetration low product difference,

minimal product change, elastic demand, and a low factor all contribute to pricing capacity use (Noble

and Gruca, 1999). Most frequently, penetration pricing is related with a marketing goal of expanding

market share or sales volume. In the short run, penetration pricing will most likely result in lesser

earnings than if the price were set higher. However, there are also major long-term benefits to having

a larger market share, thus the price strategy is typically justifiable.

Penetration pricing is frequently used to assist the launch of a new product, and it works best when a

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product enters a market with minimal product difference and where demand is price elastic - therefore

charging less than rival products is a competitive weapon (Jim, 2012). Another area where research is

lacking is the ability to demonstrate the connection between SME performance and the penetration

pricing strategy. Additionally, empirical study is still needed to determine whether the performance of

business organisations as a whole and penetration pricing strategy are strongly correlated.

4.2.3.3 Neutral pricing strategy

Many companies' upper echelons believe that there are more effective or cost-effective ways to

promote their products in the marketplace. As neither a skim nor a penetration strategy is suitable, the

company opts for a neutral price attitude. For example, if the products are so similar that no sizable

market is willing to pay a premium, the marketer may be unable to use skimming pricing. When a

company is new to an industry, consumers may wrongly assume that a low price indicates a low-

quality product. In addition, competitors may respond aggressively to any price that undercuts the

current price structure, making it impossible for the company to implement a penetration pricing

strategy. The sensitivity of consumers to price prevents skimming, whereas the sensitivity of

competitors to growth in customer base blocks expansion. Neutral pricing is advocated for several

reasons, including maintaining brand cohesion across a range of products. Neutral pricing may not be

as proactive as skimming and penetration pricing, but it is just as tough and important. It's not

necessary to match or even come close to the pricing of competitors. Depending on the market, it

might be either the highest or lowest price available while still being considered neutral (Orlov et al.,

2019).

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4.3 Factors influencing pricing decisions

According to Benoit et al. (2020), marketing theorists have focused heavily on pricing. How

management should settle on a pricing strategy is a matter of some debate. While studies disagree on

certain details, they generally agree that efficient pricing requires juggling a number of moving parts.

Good pricing, say Piercy et al. (2010), requires knowledge of the transaction itself. Product quality

interacts with R&D cost recovery, distribution channel earnings, advertising budgets, and consumer

perceptions of pricing as status or value.

Market price ceilings in any country are governed by three primary factors, as stated by Egilman et al.

(2019). To begin with, there is the base price of the product. Second, a price floor is determined by

the going rate for items that are otherwise equivalent. Each product's ideal price is set by the

willingness and ability of potential purchasers to make a purchase. According to Machado and Cassim,

(2020) cost and competition are the primary determinants of pricing.

According to Horngren et al., (2002) important impacts on price choices include customers, rivals,

and expenses. In price decisions, managers should constantly put themselves in the shoes of their

customers. It has an impact on price choices. To meet manufacturing expenses, goods are priced

excessively. The analysis of cost behavior patterns reveals the revenue earned by different pricing and

production quantity combinations for a specific commodity. According to Rysavy et al., (2021)

numerous strategic aspects impact price. Legal and moral limits on substitutes. These include political

acceptability, customer willingness to pay, and perceived replacement prices in the pricing activities

of rivals. George (2016) recognizes both internal and external factors on price. They include business

objectives and the marketing mix.

External factors like as demand, price elasticity, and consumer opinion must be taken into account

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when setting a selling price. The marketer has less sway on pricing because of how external factors

impact it. The external pricing constraints, the price suppliers charge, and the price consumers are

prepared to pay are all identified by Burtraw et al. (2020). Pricing is based on factors such as

government regulation, market forces, economic value, consumer demand, and consumer preferences.

Price is affected by several factors, including marketing objectives and the product life cycle, as stated

by McNamee et al (2015). Product variety, rivalry, advertising approaches, and market conditions all

have a role in setting prices, as stated by Assarlind and Gremyr (2014). There are certain products for

which changing prices doesn't seem to affect demand.

Price sensitivity, buyer and seller leverage, and psychological factors are all identified by Bradshaw

et al (2020). Along with the rest of the marketing mix, price influences and is influenced by the other

components. The design, marketing, and distribution of a product all have an impact on the product's

price. Business objectives, customer behavior, market conditions, market structure, and external

factors all have an impact on pricing, as stated by Czinkota et al., (2022). Seldom do businesses get to

set their own prices. For various reasons, they could be forced to arrive at certain pricing conclusions

and methods. Cost, demand, competition, government regulation, and other factors will all be taken

into account when setting prices. But, the secret to successful pricing is in familiarizing yourself with

your own company and the industry. SMEs will be aided by this in setting fair prices for their goods.

Erwee and Price (2006) argue that external factors (such as the economy) have a greater influence on

international pricing than do internal factors. Price controls, inflation rates, and currency rules are all

good examples of regulations. External factors consist of rivalry, sales, and the nature of the market,

whereas internal factors include price objectives, production costs, and distribution expenditures.

Pricing is affected by the economy and the firm's and product's reputation, as stated by Paudel et al

(2019). Global competition and value-chain integration are two major environmental influences on

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pricing, as stated by Razm et al (2019).

Perfect competition, monopolistic competition, oligopoly, and monopoly are the four basic forms of

markets, as described by Richardson et al. (2014). They are price takers when they let the dynamics

of demand and supply to determine the cost of their products. The remaining three categories of

markets are price-setters because they may adjust prices to achieve their objectives. In a perfectly

competitive market, all companies sell the same good or service at the same price, as stated by Begg

et al. (2021). According to Kreps (2014), a firm operating in an environment of intense competition is

a price taker. In a market with perfect competition, Haydarn (2018) agrees with Kreps (2016) that the

only thing a company can do is pay whatever price the market would bear in order to maintain control

over its production.

In addition to cost, customer demand, and competition, other factors can influence price decisions.

These and other factors should not be ignored, since they may determine the success or failure of a

small or medium-sized company. Understanding the costs involved and how they affect the company's

viability and profitability is essential. Understanding the competition and the value perception and

market demand is crucial in order to avoid pricing a product out of the market. Furthermore, crucial is

abiding with the legal guidelines set out by the government in regards to setting prices. Government

intervention in pricing is sometimes referred to as "price administration" or "price control."

A market structure is a collection of rules governing how firms establish pricing. These market

structures impact price as well. Despite this, all market structures have an impact on price, and pricing

methodologies should account for various market structures. Even under these market configurations,

SMEs must show that their items are of sufficient value to justify their cost. After identifying price

targets and strategies, SME managers may determine the most effective methods for achieving those

objectives. The next section will identify and examine several pricing strategies used by SMEs.
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4.4 SMEs

SMEs are the intended market. To be specific, we think about SMEs. The problem is that pricing

strategies often used by SMEs tend not to optimize profits. Companies' financial situations may be

improved if the pricing strategies now in use were analyzed, and the obstacles to more efficient pricing

were removed. Pricing is defined and analyzed in this chapter with a focus on micro, small, and

medium businesses. This piece isn't meant to be a sweeping indictment of SMBs, but rather a

demonstration of how they approach price.

Over two million businesses and 45 million people call South Africa home, according to Juul (2014).

Small businesses make up more than 95% of all establishments. Around 40% of South Africa's GDP

comes from SMEs (or simply small companies), which also account for well over 50% of all jobs in

the nation. Economists and public servants all agree: small businesses are effective. It's a top strategy

for bringing down unemployment and boosting the economy. Despite the abundance of task groups,

forums, and representative organizations, small businesses continue to need substantial aid and

encouragement. Two-thirds of South Africa's GDP is still generated by large corporations, according

Mmbengeni et al. (2021). SMEs are crucial to the economies of developed countries since they account

for as much as 85 percent of the workforce.

Because of this, SMEs in South Africa need to play a more significant role in the economy than their

counterparts in Japan, Singapore, the United States, and other countries (Das et al., 2020). In South

Africa, almost all new firms fail within the first several years. Fifty percent of micro-enterprises in

Asia, South America, and West Africa succeed to become successful SMEs (Bushe, 2019). Bushe

(2019) states that in East and Southern Africa this figure is 10%. The importance of SMEs to South

Africa's economy, along with the high failure rate of these enterprises, prompted the study of critical

factors influencing their performance (Kiran & Reddy, 2019). One of these factors is the pricing
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strategy that is used to generate sales, cover costs, and turn a profit. Because of price's impact on the

economy, researchers have focused on methods SMEs may use to increase their bottom line.

SMEs "are afflicted by high failure rates and poor performance levels," despite their many benefits

(Musiki & Wasike, 2014). Understanding the factors that contribute to certain SMEs more success

than others is crucial if the sector is to continue growing. Extensive analyses of the existing literature

on SMEs suggest that strategic planning, or the absence thereof, is a crucial component in the success

of an organization (e.g., Makwara, 2017; Talahmeh, 2020; Haleem et al., 2014;).

Organizational long-term objectives are the primary emphasis of strategic planning (Tshienda, 2021;

O'Regan & Ghobadian, 2005). Strategic planning includes actions like allocating or re-directing

resources as well as preparing for their use. The whole point of strategic planning is to get a benefit

over the competition.

This view is supported by data in the academic literature. Successful SMEs are more likely to engage

in strategic planning than their less successful counterparts. Or, put another way, SMEs that engage in

strategic planning are more likely to see gains in revenue, ROI, margins, and headcount.

Participating SMEs are more likely to be innovative, have products that have been patented, use

cutting-edge process and management technology, and grow on a global scale (Mirvahedi et al., 2021;

Grynko & Yehorova, 2020; Kachaner et al., 2016; Stoi, 2020). One major benefit of strategic planning

for small businesses is that it reduces the likelihood of failure (Galli-Debicella, 2020; Perry, 2019).

Research generally supports the idea that strategic planning has more advantages than negatives, even

if strategic planning is not the only element that contributes to the success of SMEs. Despite this, most

people would recognize that strategic planning is either rare or non-existent in SMEs. Every company,

no matter how big or little, has the same problem: they focus too much on the here and now and not

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enough on the big picture, and they react to events rather than anticipate and prepare for challenges.

To wit: (Jones, van Auken, & Manning, 2021; Brouthers, Andriessen, & Nicolaes, 2018; Jones, van

Auken, & Manning, 2021; Brouthers, Andriessen, & Nicolaes, 2018) Even though they plan to

prepare, many small businesses instead depend on ad hoc strategies and gut instincts instead of written

strategies (Kelmar & Noy 2020).

For reasons that are not entirely evident, only few SMEs engage in strategic planning (O'Regan &

Ghobodian, 2014). Researchers have concentrated on finding the "barriers" that prohibit or discourage

planning to explain the low rates of strategic planning among SMEs. Robinson and Pearce argue that

the strategic planning process for small businesses may be hampered by factors such a lack of time, a

lack of specialized skills, an inability to grasp the planning process, and a reluctance to discuss

strategic strategies with employees and external consultants (2014). Environmental turbulence

(Shrader, Mulford, & Blackburn 2019; Matthews & Scott 2015; Yusuf & Saffu 2015), company size

(Stonehouse & Pemberton 2021), sector (Shrader et al., 2019), and internal implementation barriers

(O'Regan & Ghobadian 2020), among others, have all been cited as possible causes of businesses'

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"anaemic" performance.

Lack of Strategic
Planning Due to:
Lack of Time
Lack of Expertise
Lack of Owners-
Managers personal and
non-rational motivations
Lack or Low
Insufficient planning Levels of
Profit Strategic knowledge Strategic
Maximisation Planning
Unwillingness to discuss Planning in
strategic ideas SMEs
Sixe of Business
Type of Industry
Internal Implementation
Barriers
Business Life-cycle

Figure 4.1 Lack of strategic planning in SMEs

Many obstacles make strategic planning ineffective, which is why such efforts are rare in SMEs. As

said before, studies objectives to identify bottlenecks in organizational planning. To improve the

overall quality of strategic planning among SMEs, understanding constraints would enable "more

careful and accurate help" of other firms on how to overcome such hurdles (Robinson & Pearce, 2014).

Most owner-managers of SMEs do not place a high enough value on profit or growth maximization

to see the need for planning at any level, much alone a strategic one. Just around 5–10% of SMEs are

"gazelles," or rapidly expanding firms, while the rest are more likely to be "trundlers," or businesses

that are barely holding on (Storey 2014; Peacock 2017). This suggests that the alternative reason for

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the general lack of strategic purpose and strategic planning activities deserves serious consideration.

Nevertheless, there are a number of drawbacks to this approach. The issues raised above will be

discussed in the following paragraphs.

As Storey (2014) points out, most recent studies imply that "most, if not most, SMEs desire to thrive

but are inhibited by barriers." This perspective is supported by an economic stance that considers

maximizing profits to be "rational conduct" and regards corporate expansion as a natural means of

doing so (Shepherd & Wiklund 2015). As compared to owner-managers' other, non-financial

objectives, like as independence, personal fulfillment, career advancement, work-life balance, and

community engagement, profit maximization often falls short.

It is common practice for owners and management to forsake economic gains in favor of social or

environmental objectives (Gordon and Smart 2017). To use Holmes's (2014) term, "economic

irrationality" is a better descriptor than "economic rationality" for this kind of action (Schumpeter,

2019). Small business owners/managers "are most obviously not economic [individuals], " one may

add. It is based on studies of the expansion objectives of SME managers (or lack thereof).

Most SMEs are content with "limited," "incremental," or "satisfactory" growth, according to research

by Rosa, Carter, and Hamilton (2020), Holmes & Zimmer (2014), and Sexton (2019), and Gray (2018).

Of the SMEs surveyed, 33% were growth-oriented, while 67% were growth-averse, exiting, retiring,

or selling their businesses.

The idea that SMEs do not participate in strategic planning because of planning "barriers" has to be

re-examined, as does the assumption that SMEs pursue profit and growth maximization in an

economically reasonable sense. Owner-managers of SMEs may not engage in strategic planning

because their "irrational" personal motivations for running the business make it seem unnecessary.

There might be a number of intertwined factors that lead to the inception of the company's founders
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and their families (LeCornu et al. 2016; Culkin & Smith 2018). When owner-managers have a strong

desire to join a small firm, this is known as a pull factor, whereas when owner-managers have a strong

want to enter a small business, this is known as a push factor, which is driven by external unfavorable

conditions such as political and technical reasons.

Previous research has mostly focused on highlighting challenges that SMEs have while engaging in

strategic planning. Research is mostly conducted to provide "best practice" management techniques

for SMEs, as stated by Gibson and Cassar (2015). Academics in the field of strategic planning would

do well to recognize that the motivations of owner-managers are key to the fundamental operations of

SMEs, given the importance of’ real world' relevance and application of research. Thus, these factors

have an immediate impact on managers' attitudes about their work, the composition of their

organizations, the decisions they make, and the growth of their businesses (Beaver 2013). The great

majority of SME owner-managers have "capped" or "limited" expectations for the performance and

growth of their businesses since they are not in it for the money (LeCornu et al. 2016). With time,

these owner-managers will lose interest in "best practice management activities" (such strategic

planning) that might increase profits and expansion (Storey, 2014; Beaver & Jennings 2019; Shepherd

& Wiklund 2015).

4.5 Pricing in SMEs

Certainly, under-pricing has been a major factor in the demise of a number of small businesses. While

competing against larger companies, it's often desirable for a small business to focus purely on price.

A small company may compete with larger ones by giving the lowest possible price for a product. A

small business may sometimes undercut larger rivals by offering more affordable prices. Keeping

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prices low for longer periods of time may be possible for a company with low overhead costs. Several

start-ups compete on price since the proprietor may hire workers for a low wage. In addition, there is

apprehension that government subsidies, which are meant to help a new business get off the ground,

would be abused to gain an unfair advantage over rivals. A company may maintain an advantage over

its rivals only if it achieves economies of scale that their competitors cannot match. Price competition

will force businesses to lower their pricing, cutting into their bottom lines (Stokes & Wilson, 2016).

Consequences for the company in the long run as a result of new competitors.

Small businesses seldom reap the benefits of economies of scale because of their limited resources.

Savings in the near term are most likely responsible for the decreased expenditures. If this stops

working, it might be difficult for a business to increase pricing. There is a chance that this will fail in

the long run. As Katz and Green point out, it is common practice for start-ups to launch with rock-

bottom prices on their wares (2017). A corporation shouldn't let the reality that price cuts are

sometimes unavoidable influence its pricing strategy. Earnings maximization is the best business plan

for a start-up or growing company. This doesn't mean you have to shell out for the most expensive

option, but it does suggest that you should charge more than the industry standard. Including this in

the bottom line is a simple way to increase profits.

The price of a product or service has to be high enough to generate a profit for the company, as stated

by Longenecker et al (2016). The fundamental behavior of expenses should be taken into account

while setting prices. That's why it's important for the price strategy to detail how much will be spent

on manufacturing and advertising. Hogan and Lucke (2017) state that having a well-thought-out

pricing strategy in place is crucial for a company's bottom line. An increase in revenue and profit

margins might be the outcome of implementing an effective and value-based pricing strategy. A

company's success in the market depends on its pricing strategy.

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When Beaver looked at successful and long-lasting small enterprises, he found that they had some

common characteristics. (2017). Their financial situation was entirely within their control. They went

back to the drawing board to review the original business plan and double-check the projections for

sales and cash flow. As a result of their superior credit management system and/or factoring, they were

able to significantly reduce the sum of money owed by their customers. Some people made the

conscious decision to settle on a price. These tiny businesses' strategies are particularly unique to each

owner or manager, and are thus profoundly influenced by their actions and abilities. In order to be

successful, they have begun taking risks in a more creative and calculated manner.

Kenning et al. (2018) note that despite the abundance of research on the topic, very little is known

about price awareness across industries. It is surprising that this has not been discussed more often,

given the significance of price strategy to both consumers and sellers. Consumers in poor nations have

a limited knowledge of pricing, say Schneider and Schneider (2017), even when there is little price

variation on the market. According to Maxwell (2016), customers were less price-conscious

throughout the '60s and '70s. As a result, American marketing courses have started placing more

emphasis on the other parts of the marketing mix outside pricing.

There was a lack of marketing activity during the 1980s and 1990s, when customers became more

price-conscious and businesses shifted their attention to maximising profits at the expense of other

considerations. This shift in consumers' valuation of price is already being discussed in marketing

classes. Recent research indicates that the percentage of American universities offering courses in

marketing has increased from 4% to 13% in only the last two years, and that another 22% are

considering introducing pricing classes in the near future. Peterson (2014) argues that managers are

aware of the legality of certain minor operations, such as changing a product's pricing, but are

uninformed of the legitimacy of other major activities, especially those impacting price. Managers at

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smaller companies tended to have less expertise than their larger counterparts.

A loss-making product line would not cause an immediate catastrophe at a large firm, but it very well

could at a small one, suggests Analoui and Kararni (2019). If a company is not making money, it will

eventually fail. In commodity-based industries, price is generally the primary competitive factor.

Manufacturing expenses will rise if the company cannot keep them low. Careless pricing that fails to

account for essentials like time, travel, and packing may have catastrophic results. Having accurate

costs but thin markups may cause your business to struggle month after month. There are many factors

to think about, yet small businesses seldom benefit by taking the most cost-effective route. A winning

formula includes providing high-quality, personalized service at a reasonable price (Macleod &

Terblanche, 2017).

Hatten (2018) argues that cost should not be the primary factor in deciding which product to buy. Price

cuts are a common marketing strategy for small businesses. An essential factor in the success of SMEs

is pricing. Since it results in money and profit, it helps enterprises. SMEs may only acquire sufficient

funding via profits. It's very uncommon for start-up companies to have little cash reserves, meaning

they'll need outside investment to fulfil their full potential. Price decisions have a direct impact on

revenue and profitability, making them particularly important for start-ups. For certain businesses,

they might make or break the operation. In spite of Hatten's (2018) findings that price plays no

significant role in the purchase selection process, consumers still use price as a proxy for the product's

value. Expense and demand consolidation has the potential to increase earnings and fortify the firm's

financial footing.

According to Hatten, many owners and managers of small businesses make poor pricing decisions

(2018). Barrow (2015) argues that a common mistake made by young company owners is setting

prices that are too low. This error occurs when one either gives in to the first temptation to undercut
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the competition or one fails to fully comprehend the breadth of production and marketing expenditures,

which are nearly always larger than planned. Although most writers agree that SMEs should

investigate all the factors that influence pricing for their larger competitors, most managers instead

use cost-plus pricing while taking into account a variety of secondary effects (Gilmore & Carson,

2015). It has long been assumed that smaller businesses use less sophisticated approaches to pricing

because of their limited resources. Yet, it now seems that micro pricing techniques are more nuanced

than was originally supposed.

Both theoretical and empirical studies of small company pricing have found a significant research gap.

To maintain price stability, many small businesses looked elsewhere and focused on serving a specific

customer base (Slok, 2018). An entrepreneur sets the price of a product in relation to its value, as

stated by Longenecker et al. (2013). In spite of appearances, this task is not easy. Never forget that

both unit sales and selling price have an impact on your total profit. All costs and a reasonable profit

margin should be included in the price. So, pricing should reflect an understanding of how costs will

change over time. For SMEs, price is a major consideration in all marketing efforts.

A product's life cycle pricing and marketing strategy may help a SMEs attract and retain customers

and increase sales. Value is the monetary value of an item that might influence buying decisions.

Several companies strategically set prices to increase profits and market share. Reason #1 is because

we use a streamlined process for establishing prices. Reduced prices are the only effective and quick

marketing tactic. Entrepreneurs shouldn't base their decisions just on product pricing but rather on a

range of factors (Xiao, 2020). Minovi et al. (2018) state that in the anarchic 1990s, keeping one's

competitive edge is crucial to one's survival. Companies willing to re-evaluate their competitive

portfolios and experiment with new strategy combinations may now take advantage of the few

occasions when prices are used as a strategic instrument.

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According to Marsh (2018), firms should take into account consumer pricing habits in their respective

regions. There is a need for a technique of microenvironment analysis to be developed in order to learn

how enterprises could use pricing to gain a competitive advantage. Successful management requires a

methodical strategy. Without treating price with the seriousness and attention it deserves as a critical

part of success, organizations will continue to underperform. It might be a serious mistake for

managers of SMEs to concentrate just on costs. Yet, there are downsides to cost-based pricing. It might

be ignoring important factors in establishing prices. When finding a fair price using appropriate pricing

methods, these factors must be taken into account.

4.6 Pricing responsibility

The manager or entrepreneur of a SMEs shouldn't have complete pricing authority. The technical

entrepreneur or employee who plays a substantial part in creating the new product idea should not

only promote the cost of the product, especially in high-tech SMEs. The group discount option is the

better choice. Members of the technical staff, the marketing team, and the accounting team might all

make up this group. When deciding on a product's pricing, it's important to look at things from three

angles: the viewpoint of the product's creator and owner, the product's financial viability, and the

product's marketing, or goal, customer, or member base (Xiao, 2020). When made by a single person,

the process of establishing prices may be fraught with subjectivity. He or she may employ subjective

methods like guard feel or thumb suck instead of being objective and applying the numerous pricing

techniques. For this reason, it is crucial for managers of SMEs to include other people in the pricing

process. This might remove the element of subjectivity and provide the marketer insight from the

people who determine prices. Managers are responsible for making pricing decisions and should be

updated on company happenings and customer feedback on price changes.

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4.7 Pricing strategies and pricing approaches of SMEs

When pricing a new product, small company owners should strive for product adoption, market share

maintenance in the midst of intensifying competition, and despite a profit, according to Asare (2016).

Management of SMEs must ensure that their product prices generate sufficient demand. The produced

income should be adequate to cover all expenses and make a profit. Pricing may be a significant source

of income, if not the only one, that enables a firm to fulfill its full potential. Even in the face of intense

competition, maintaining or expanding market share is essential. Gaining market share may increase

the company's long-term income and profits. Given that price may decide the ultimate destiny of a

firm, it is essential that pricing targets be defined and achieved from the outset.

SMEs should factor in costs, profit objectives, market rivalry, and customer perceptions of value when

setting prices (Murphy, 2016). Companies of all sizes should benefit from cost-market- and

competition-conscious pricing strategies. According to Schaper and Volery (2018), SMEs may choose

from many different pricing strategies, including the going rate, cost-plus, maximum, perceived, and

loss-leader. If the seller thinks they can get that much, they'll ask for it. As a result, shop owners may

charge whatever they choose for their goods. Dynamic pricing is a situation in which a product's price

fluctuates based on the perceived worth of the product to potential purchasers. Intentionally cheap

charges are common practice for many businesses. Some companies use loss leaders to get customers

to buy other products with a higher profit margin.

To compete, SMEs need to employ their own unique pricing strategies. The growth of the company's

bottom line is aided by these strategies. In a cutthroat business environment, they might assist a

company do everything from gaining ground to holding its own or even increasing profits. It is

acceptable to consider both immediate and distant objectives in this context. Discounts may be a useful

tool for getting rid of old or unused inventory. Correct pricing is the best way to increase sales (Tung
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et al., 2017). Companies have embraced a basic pricing strategy because of the importance of price in

generating sales and profit. In order to identify and address marketing difficulties, SMEs have

increasingly turned to cost-based pricing. Notwithstanding its merits, cost-based pricing has failed to

gain traction in today's complex and competitive corporate environment.

Pricing at a cost plus a margin is often utilized by SMEs. The market demand approach and the cost-

plus method are common pricing strategies used by small businesses. Percentages of cost-plus pricing

also responded to market competition and consumer demand (Gilmore & Carson, 2015). SME

management should be aware of competitors' prices. Businesses can only succeed if they keep tabs on

the activities of their competitors and respond with better products, services, or settings. Finding out

which of two things is better is necessary before making a comparison. Managers should look into

their competition to see who is successful and what they are doing differently (Strauss et al., 2021).

Managers of SMEs, according to Asare's (2016) research, have a choice between three primary pricing

strategies. Sliding the demand curve, penetrating the market, and skimming prices are all examples.

Entrepreneurs may set prices for popular products using a variety of pricing strategies, including the

"price line," "leader pricing," "regional pricing," and "multiple pricing." Volume discounts may be

offered to customers via many price tiers. Many approaches of pricing are available to SMEs. All price

policies should be in line with the company's overall marketing approach. There are a variety of pricing

options that may help small businesses boost their revenue. There is profit potential in each strategy,

and many of them are grounded in the price-to-volume relationship. There are occasions in which one

method is preferable to another, since each has advantages and disadvantages. A variety of pricing

techniques and methods may help small businesses achieve their objectives. It is possible to reduce

prices for products using a variety of pricing schemes (Xiao, 2020).

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Pricing decisions for a small firm may rely on the manager's instincts and expertise. It is conceivable

that the founder's intuitive market sense is the sole guidance. Lack of marketing expertise and

orientation may explain managers' dependence on intuition when determining pricing. Some writers

suggest that pricing should be viewed as a management art since small enterprises lack a scientific

approach to pricing. Not only do small companies deal with pricing, but so do all enterprises (Li et al.,

2022). According to Strauss et al., (2021) product price is "part art, half talent, and entirely a matter

of perception". If a person believes that a thing is valuable, they may be prepared to pay for it.

Otherwise, no transaction will take place. Find the balance between what consumers believe they are

receiving for their money and what small company owners believe they are receiving.

The level of competition is usually higher for SMEs than for larger businesses. Areas with a

concentration of retailers and wholesalers tend to have a high concentration of small businesses. Just

a few of companies of this magnitude now operate. You can quickly and easily reach local SMEs. The

consumer community may easily compare and contrast prices. Price might be low if consumers see

the product's benefits as being on par with those of similar options, or it could be high if they see

significant value in the product. The market will determine whether this is feasible. Quantitative and

qualitative considerations must go into pricing in today's market. When deciding on a price for a

product, it's important to think about both the bottom line and sales. Managers must use effective

pricing strategies to remain competitive in today's industry.

4.7.1 Factors affecting pricing strategies of SMEs

According to Kadim et al. (2020), small company owners should price new items with three objectives

in mind: market acceptability, market share retention, and profit. Management of SMEs must

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guarantee that their pricing generates the required product demand. The income should cover all

expenses and generate a profit. This is crucial for SMBs since price is often their only or only income

source, allowing them to develop. In a competitive climate, attaining market share is essential.

Growing market share may enhance long-term income and profit. Considering that price may decide

the direction of a firm, pricing objectives must be lucid and realizable from the outset.

The lack of clear and rapid laws makes pricing difficult for most managers of SMEs. Due to pricing's

importance in the marketing mix, it's crucial to do in-depth research and make a well-considered

strategic pricing decision. Cost and profit are included into pricing. There are two crucial factors to

consider when setting pricing: the prices set by competitors and the perceptions of the company's

prices held by customers. Nonetheless, keep in mind that value is relative. What works for one

company isn't always the best strategy for another. When deciding on a price for a product, it's

imperative that managers think about how it will affect the bottom line (Andersson et al., 2017).

There is more to pricing than just what customers are prepared to pay. It's also about whether or not

the business can support itself and make a profit that's satisfactory to the shareholders. Intelligent

business owners may benefit from familiarity with pricing ideas when setting a price that is

competitive in the market and consistent with their own financial objectives. It is recommended that

management do a breakeven study to determine whether the company is profitable. If revenue rises

over that mark, it will be considered profitable. That's the moment that the company starts losing

money if sales are weak. The upper echelons of management need to realize the need of equitable

pricing. Businesses should use the optimum pricing method if they want to succeed.

While cost-based pricing seems to be the preferred pricing model for managers of SMEs, alternative

pricing models may be more appropriate. They should know what factors affect prices in their industry.

They need to set pricing targets that make sense for the organization as a whole. It is important that
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the price policies be laid out in detail. The pricing strategies of "skimming the cream" or "penetration"

of the market should be used. It's important to have a range of pricing to draw in and retain customers.

Within the next chapter, we conduct an empirical study to back up the literature. In order to learn more

about how small businesses set their prices, we spoke with several of their managers.

4.8. Chapter summary

Several studies have examined the economic impact of the many problems faced by South African

SMEs. Yet it's well accepted that there's a lack of data on pricing. There is a plethora of pricing models

that have been recognized and investigated. The many methods of pricing may be grouped into one of

three broad categories: cost-based pricing, buyer/demand-based pricing, and competitive pricing. This

data suggests that cost-based approaches predominate. Yet, as was said before, it does have drawbacks.

A product's price should reflect the market's needs. Determining whether or not consumers will

purchase a product at a certain price is crucial. Competitors can't be disregarded in a market with so

much cutthroat behavior. While it is hard to differentiate one's items based on price alone, competitors'

pricing provides a useful benchmark. Yet, if you match your rivals' prices, you could avoid a price

war, but you'll also limit your company's ability to increase profits.

There are a number of reasons why alternative pricing strategies are just as crucial. They might help a

business enter a new market, get a larger share of an existing one, or set itself apart from the

competition. When all the relevant aspects are taken into account, pricing with a marketing emphasis

seems to include just about every approach. For many SMEs, this pricing strategy may be the best

option. Yet, the price goal may dictate the pricing strategy. Another pricing method that deserves

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greater attention is the use of dynamic pricing. The internet delivers several financial advantages that

management should be aware of.

The pricing strategies discussed in this chapter may provide managers of SMEs additional leeway in

setting prices. They should use prudence while selecting a plan. Several aspects must be taken into

account in order to arrive at an appropriate price for a product. The price strategy should help the

company meet its overall objectives as well as its pricing objectives. Managers can quickly choose the

appropriate pricing strategy since several pricing methods and price points have the same name. The

success of a business depends on its pricing strategy. The price may be set after deciding on a pricing

strategy.

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 CHAPTER 5

CONCEPTUAL FRAMEWORK

5.1 Introduction

After outlining the background, posing the research question, and reviewing the relevant literature,

this chapter constructs a conceptual framework with a theoretical perspective for this investigation.

Many concepts, such as "concept," "frame," "framework," and "construct," need to be defined before

a conceptual framework may be developed. A concept is a representation of an abstraction that is

generated from specifics (Imenda, 2014). Because ideas are abstract, they can only stand in for so

much (Shurair & Pokharel, 2019). Understanding concepts as mental representations of a network of

related components or thoughts is possible.

The word "concept" refers to the act of classifying something under a wider heading (Mugizi, 2019).

In other terms, a concept represents the manner in which a phenomena, an idea, or a phrase is

subdivided. Using research instruments (questionnaires) that demonstrate how words have been

broken down may make it much simpler to locate ideas in research (dimensionalised). Framing refers

to a concept that, like a physical frame, surrounds and provides context for an investigation's subject

matter. Clarifies or justifies the study's objective and methods, clarifies to the reader what the study is

and is not about, and enables researchers to defend and interpret their findings (Casanave & Li, 2015).

So, the conceptual framework is a set of connected ideas (concepts in a frame) that allows for a holistic

comprehension of the situation. Each notion in a conceptual framework contributes to the whole, has

its own phenomena to represent, and works to build a philosophy unique to that framework (Tamene,

2016). Concept maps and contextual frameworks are graphical representations that help researchers

see the interconnections among the many variables in a study, such as the independent, non-dependent,
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and dependent variables, as well as any other variables that are relevant to the study's objectives. One

may define their research questions and methodology with the help of a conceptual model

(Lewandowski, 2016). An event's most important aspects may be highlighted by using a conceptual

framework, which is a set of related concepts and assumptions. Hence, conceptual frameworks are

like road maps that improve the consistency of empirical research by laying out all the stops along the

way (Hudon, Gervais & Hunt, 2015).

5.2 Conceptual model

The following conceptual framework is derived from the preceding chapters and illustrates the

predicted relationships between Price antecedents, pricing strategies, and SME success.

Pricing Objective and Pricing Capabilities

H4

Pricing Antecedents / H1 Pricing Strategies H2 SME Performance

Conditions

H3

SME Age and SME Size

Figure 5.1: Conceptual model

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Figure 5.1 provides a summary of the predicted correlations. These correlations are outlined below

and serve as the basis for the hypothesis of the research.

The framework postulates that a firm's pricing strategies have a direct bearing on its ability to compete

in emerging markets. It posits that the theoretical knowledge and breadth of pricing and performance

among SMEs from developing countries may be improved if the reasons that contribute to the adoption

of various pricing methods are identified, tested, and impacted. This study essentially generates a

performance-oriented pricing model to back up managerial and theoretical (research) efforts.

With a pricing system model, one can visualize the factors that lead to price changes and the

subsequent consequences on both end-users and the business itself, as well as on any other measurable

variables. An equation system may be represented graphically using a system flow diagram. "to many

practical managers, a well-constructed flow diagram is preferable to a set of equations for describing

the structure of a system," Satchwell et al. (2020) write. A graph bridges the gap between an

explanation in words and an expression in math.

Business-to-business (B2B) price strategists might benefit from the visual depiction. In concentrating

on the causes and effects of price changes and decreasing complexity, this model omits crucial causal

links impacting target variables. Importantly, it does not account for the known gains in market share

and profit performance generated by increases in a company's product quality compared to that of its

rivals (Satchwell et al., 2020).

5.3 Hypothesis development

5.3.1 Antecedents and considerations of SME pricing strategies and SME choice of pricing strategies
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In this section, theories explaining the origins of price are explored. Corporate and market-related

antecedents, customer-related and competition-related antecedents have been chosen as independent

variables (Indounas & Avlonitis, 2010). Prior research demonstrates that all framework factors are

interrelated (Ghali-Zinoubi & Toukabri, 2019). Using this empirical foundation, we present a model,

nomological network in which price sensitivity is affected by the other four factors.

Events that set the stage for the application of price strategies, the building blocks of pricing strategies,

are known as pricing antecedents. A company's pricing choices are crucial to its market performance,

and they are affected by a wide range of factors (Sunarni & Ambarriani, 2019). Pricing decisions are

influenced as a result of a variety of elements, not all of which need to be taken into to: price-quality

relationships, product-line pricing, explicability, competitiveness, negotiating margins with

intermediaries, sway over distributors and retailers, political concerns, profit maximization, and cost-

cutting (Werner et al., 2021). Maybe this would be supported by the resource-based perspective

(Mattos et al., 2021). According to this approach, placing more emphasis on price antecedents might

help informing pricing choices and decreasing uncertainty. RBV asserts that an organization's pricing

strategy may be traced back to its forerunners (Johansson et al., 2012). Antecedents in pricing provide

a guide for what and how to accomplish with your price strategy. They are in charge of the whole

pricing strategy process, from formulation to execution, and they determine how the business will

adapt to external factors. Data from the price environment may help formulate effective pricing

strategies.

Rapid uptake of the new service, sales of existing services at higher pricing, dissuasion of new rivals

joining the market, and decreases in telecommunication costs are all market circumstances, as stated

by Indounas and Avlonitis (2010). Consumers' price sensitivity, demand stability, price elasticity, and

market knowledge are all intertwined with the service's popularity. The market is highly competitive

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because of several factors, including the high number of existing competitors, the way prices are set

by the market itself (via supply and demand), and the abundance of similar services.

Situational factors have a significant impact on the pricing strategies used by SMEs. SMEs often use

three distinct pricing approaches: cost-based pricing, competitive pricing, and value pricing. There are

several moving parts to a cost-based pricing strategy, such as variable product and service costs, a

break-even price, product/service investments, a target margin on investment, and a target margin on

sales (Rapaccini, 2015). Market structure, the level of competition in the market, the competitive

advantage of the rival, and the prices supplied by rivals are all factors that should be considered when

developing a competitive pricing strategy. Value-based pricing takes into account the product's relative

value to alternative choices, the customer's willingness to pay for the product's unique benefits, the

customer's perception of the product's worth, and the price at which the product is sold. (Rapaccini,

2015). The intended relationship is significant; yet, there is a lack of concrete pricing information. No

research has been conducted to specifically address this connection within the context of SME pricing.

Price antecedents' impact on pricing strategies has been studied extensively in the literature on SMEs.

The pricing literature uncovered by Kuratko (2005) supports their assumption that price conditions

affect pricing strategies and business outcomes. External variables, such as the economy

(Diamantopoulos, 1991), internal variables, such as business objectives and consumer preferences

(Tellis, 1986), and internal variables, such as the current pricing environment, have all been

demonstrated to have an impact (Noble & Gruca, 1999). Tung et al. (1997:53) argue that selecting the

appropriate pricing structure is the most efficient and effective strategy for a business to maximize

profits.

Price predictors and pricing strategies are linked in the study of Indouns and Avlonitis (2010). The

study elucidated a variety of factors that have an effect on pricing policies and procedures. Despite
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price's obvious significance in driving revenue and profits for a business, traditional approaches to

pricing have been quite basic. To address marketing challenges and opportunities, many SMEs utilize

a pricing strategy based on their costs. While there are benefits to using a cost-based pricing approach,

it is insufficient in today's complicated and competitive business environment. As a result, it's clear

that strategic pricing has no effect on the expansion rates of SMEs. Successful pricing strategies will

be developed and implemented since the firm wants to maintain its competitive edge and expand its

operations. As pricing strategies characterize a company's success in the market, this research implies

price antecedents may have the most significant effect on the pricing decisions made by SMEs. This

led the researchers to propose the following theory:

Hypothesis 1: Pricing antecedents will positively influence the Pricing strategies of SMEs

5.3.2 Pricing strategies and SME performance

Price strategies have been shown to affect the financial health of SMEs. Prior to this discussion, the

reasons for a positive correlation between price antecedents and pricing strategies were presented. The

pricing strategies of SMEs) have been linked favorably to improved financial outcomes. Each ideas

have their own unique characteristics that set them apart. One key differentiation for businesses is their

capacity to set prices competitively, as stated by the RBV. Formulating effective pricing strategies is

essential (Dutta et al, 2003). If we use RBV as a yardstick, we can quickly infer that effective pricing

has a direct impact on the bottom line.

Several studies have also shown that proper pricing is the bedrock of a successful firm (Al Badi, 2018;

Ingenbleek and Van der Lans, 2013). Many newly opened businesses compete on pricing since the

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owner's time is so inexpensive. Long-term price advantages are unusual unless a company has highly

developed economies that its rivals do not have access to. The bottom line of every business will suffer

as a result of price-cutting rivals. Your rates will likely decrease if competitors do so (Dutta et al,

2003). Pricing must cover costs and provide room for profit in order for a company to thrive (Rao,

1984).

Without a shadow of a doubt, inadequate pricing has been a major contributor to the demise of

numerous start-up companies. Price reductions may seem like the only viable strategy for a small

business trying to compete with larger ones. In order to make a sale, a tiny company could offer its

goods at rock-bottom prices. For small businesses, offering cheap prices may be a strategic advantage.

A company with low operating expenses may sometimes stay competitive for longer while offering

lower prices. There is data to suggest that many freshly launched enterprises compete on price thanks

to the low cost of the owner's labor. It's unlikely that pricing strategies alone could generate a durable

competitive advantage for a firm unless it has achieved economies of scale that are inaccessible to its

competitors. Companies in the industry are likely to react by lowering their own pricing, which can

only lead to lower profits for the company (Stokes & Wilson, 2006:127). Longenecker et al.

(2006:300) state that a company can only turn a profit if it charges enough to cover all of its expenses

plus a reasonable profit.

Knowledge of basic cost behavior should inform pricing decisions. That's why it's important for the

price plan to detail how much will be spent on production and promotion. Other factors include the

firm's competitive stance and pricing skills, such as its product pricing expertise, familiarity with

rivals' pricing strategies, price tracking capabilities, willingness to use a two-price list, and capacity to

control discounts. SME The ability to conduct value-in-use analysis or total cost of ownership; the

ability to design and implement specialized pricing training programs; the ability to measure and

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quantify customers' willingness to pay; the ability to measure and quantify products' differential

economic value in comparison to the competition; the ability to measure and estimate prices'

elasticities; the ability to design proprietary tools to support pricing decisions; the ability to measure

and quantify customers' willingness to pay; and the ability to measure and quantify prices' elasticities.

The cost of making, shipping, and selling a product is reflected in its price (Kotler et al., 2017). If

you're a SMEs, you should definitely consider using the penetration pricing plan. A low starting price

is often included into the pricing strategy for a new product or brand. This strategy's objective is to get

a foothold in a crowded market. This method may also be used to break into a new market with an

existing product or to increase the reach of an established product into a new market segment (Vikas,

2011).

The impact of price as a competitive strategy on the sales performance of pharmaceutical companies

was also studied by Odhiambo (2013). Fifteen different businesses represented the study's sample

population. The study's findings revealed that a firm's pricing policies had a major impact on revenue.

A company's bottom line may be significantly affected by adopting price leadership as a marketing

strategy.

Moreover, several academic studies have shown that pricing play an important impact in the

commercial successes of firms (Colpan, 2006; GbolagadeAdewale & Oyewale, 2013). The pricing

strategy has been determined to be the only variable in the marketing mix that directly impacts sales

revenue, whereas all other variables have an impact on the bottom line (Wawira 2016).

Separate research by Mustapha (2017) found that the prices set by a business had a significant impact

on that business's success. Your product's ability to sell is directly related to the price you set for it.

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Furthermore, Mustapha (2017) conducted study and came to the conclusion that pricing thought has a

major and positive impact on the entire performance of businesses. Thus, the hypothesis is correct:

Hypothesis 2: Pricing strategies will positively influence the performance of SMEs.

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5.3.3 The moderating role of SME characteristics on the relationship between SME pricing Strategies
and SME Performance

Factors such as the firm's age, size, and industry have a role in shaping the pricing methods used by

SMEs. Several authors have argued that a company's length of existence is a crucial factor in predicting

its level of success (Essel et al., 2019). New research (O'brien et al., 2019) shows that businesses with

a shorter history of operation grow at a faster rate. When comparing firms of varying sizes, it is clear

that the expansion rates of the smaller ones are higher (Appiah et al., 2019). It's often known that the

chances of success for a small business are minimal.

Age and experience are typically considered identical in the empirical study on SME performance

(e.g., D'Angelo et al., 2013), or at least age is used as a proxy for experience when data on the latter

are unavailable. This is problematic because although the influence of experience is generally

accepted, the influence of age is far less definite, and the two impacts may even be contradictory.

Although seniority is often seen as a positive trait in a management team or an organization as a whole,

it may also be a sign of inflexibility and a lack of innovation if the team or the business has become

too complacent with age. As a result, people are at risk of falling into "competency traps" and repeating

ineffective behaviors that worked well for them before but are now counterproductive in a different

context (D'Angelo et al., 2013). A few studies show a positive correlation between firm age and SME

performance (Majocchi et al., 2005), while others find a negative one (Miesenbock, 1988), and yet

others find no correlation at all (D'Angelo et al., 2013).

Organizational size acts as an adjusting factor in the connection between strategic planning and

business growth. Carr et al. (1999) proposed using company size as a moderating element in studies

of the correlation between pricing strategies and long-term profitability, and they conducted research

to test this hypothesis. Several studies have looked at how company size affects the connection

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between price and long-term profits. A company's size may have an impact on its ability to put its

strategic objectives into action, since larger businesses often have more resources at their disposal than

their smaller rivals.

Managers of companies of varying sizes need to draw from a toolkit of approaches tailored to the

specific needs of their enterprises. There used to be widespread consensus that a company's internal

management practice was a crucial factor in whether or not a SME was committed to sustainability.

This was only one of many reasons why a focus on sustainability among SMEs was essential. Along

with these challenges, a smaller organization's ownership, administration, and operation are often

concentrated in the hands of a single person or a small number of people. The following idea was thus

put out by the study:

Hypothesis 3: SME age and size significantly intervene in the relationship between pricing strategies

and SME Performance.

5.3.4 The moderating role of pricing objectives and pricing capabilities on the relationship between
pricing strategies and SME Performance

There is a consensus among scholars of strategic management that a company's prosperity is tied to

the quality of its resources and skills. The theoretical (Hyvonen & Tuominen, 2006) and empirical

evidence of a direct relationship between a company's resources and its financial success is

overwhelming (see Ortega, 2010; Wu, 2010). According to Dutta et al., pricing capabilities are crucial

to a company's success (2003). Capabilities in this area include a wide variety of elements, such as

methods, tools, systems, information, and means of cooperation.

The capacity of a business to establish prices in response to market forces and customer demand

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depends on both of these factors (persuading consumers to accept new pricing, and discussing price

adjustments with key clients). Pricing expertise was shown to positively correlate with company

success in this and subsequent qualitative study settings (Berggren & Eek, 2007; Dutta et al., 2002;

Dutta et al., 2003; Hallberg, 2008). Few quantitative research exists at present that examine the

connection between pricing competence and business success.

Competence in pricing is an integral part of a company's overall competencies and a major factor in

its success (Dutta et al., 2003). The bulk of the studies conducted recently on the value of pricing

expertise have used a qualitative approach. Moreover, the organizational forerunners of pricing

capacity are little understood. This study is crucial from a managerial perspective. Despite managers'

knowledge of pricing's relevance, they often ignore its place in the bigger picture of their organizations

or depend on ineffective rules of thumb (such cost-based pricing) when determining prices

(Hinterhuber, 2004; Liozu et al., 2012). It has been shown that champion behaviors, pricing capacities,

organizational confidence, and organizational change capacity significantly affect company results.

Large antecedents of pricing capacities were found to include center-led price management,

promotional behaviors, and the capacity for organizational transformation (Liozu & Hinterhuber,

2016). The relationship between these factors was analyzed in this research. Business objectives such

as market stability, customer-related pricing objectives, service quality-related pricing objectives,

financial objectives, achieving satisfactory profits and sales, market share and capacity-related pricing

objectives, competitive-related pricing objectives, and profit maximization all mitigate the impact of

strategic pricing on SME performance (Liozu and Hinterhuber, 2016).

Bygrave points out that improper price prioritization is a problem (2017). Avlonitis and Indouns state

that price targets are the compass by which pricing strategies and methods are navigated (2005). Both

quantitative and qualitative price targets may be part of a company's overarching strategy. The primary
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advantage of quantitative objectives is their quantifiability, which can be seen in the ease with which

financial metrics like revenue, market share, and expenditures incurred can be tracked. Nonetheless,

it is possible that a company's long-term success may suffer from an overemphasis on measurements.

Relationships with customers, competitors, and distributors, as well as the sustained success of the

business and the betterment of society, are all examples of qualitative objectives that are difficult to

quantify. In order for a business to meet its objectives, make a profit, and fulfill its social duties,

effective pricing is essential, as stated by Strydom et al. (2021). Which pricing objectives are selected

is heavily influenced by both internal and external factors. Successful businesses, as stated by Lamb

et al. (2016), have well-defined, achievable, and quantifiable price objectives. Thirdly, and most

importantly, we hypothesize that the presence of the following objectives and skills is evidence of the

firm's capacity to establish and nurture its competences.

Hypothesis 4: Pricing objectives and capabilities will significantly moderate the relationship between

pricing strategies and SME performance.

5.4. Summary of Hypothesized Relationship:

H1: There is a significant relationship between Pricing Antecedents and Pricing Strategies.

H2: There is a significant relationship between Pricing Strategies and SME Performance.

H3: SME age and size significantly intervene the relationship between pricing strategies and SME

Performance

H4: Pricing objectives (H4a) and pricing capabilities (H4b) will significantly moderate the

relationship between pricing strategies and SME performance.

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5.4 Conclusion

This chapter developed and presented the conceptual framework that resulted from the research

framework, which was based on the assessments of ideas and theories provided in the preceding two

chapters. This chapter laid forth the whole theoretical framework. Each topic woven into the

conceptual framework was briefly discussed in this chapter. Topics addressed included pricing

strategies, antecedents affecting these strategies, SME performance, and moderators of the link

between pricing strategies and SME performance. The criteria and standards for evaluating the

concepts were discussed at length throughout the chapter. Furthermore, possible connections between

the concepts were highlighted.

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 CHAPTER 6

RESEARCH METHODOLOGY

6.1 Introduction

Common parlance is that research methodology is the process of systematically seeking new

information. It may also be seen as as a scholarly endeavor and the deliberate pursuit of information

on a particular topic. Research technique, according to Engels and Schutt (2014), comprises

identifying and redefining issues; developing hypotheses or suggested solutions; gathering,

organizing, and analyzing data; drawing inferences and testing hypotheses; and ensuring that findings

are in line with the study's objectives.

6.2 Research philosophy

The advent of quantitative analysis may be traced back to the positivist viewpoint. "Rationality,

objectivity, predictive ability, and control" are valued highly in the positivist worldview (Bloomfield

& Fisher, 2019). There is just one, objective reality, or so goes the ontological presupposition

(Bradshaw et al., 2017). The underlying epistemological premise is that knowledge may be defined

and analyzed by quantitatively measuring the phenomena of interest. Academics assert that all human

actions can be dissected into their component parts and measured (Bradshaw et al., 2017). Assessing

the effectiveness of an intervention entails determining the prevalence and characteristics of a concept,

testing the association, defining the cause-and-effect connection between variables, and evaluating

research questions or hypotheses (Coughlan et al., 2009). The researcher has to find or develop an

instrument or technique for measuring the phenomena under investigation while maintaining

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objectivity and detachment to avoid letting personal values and prejudices influence the study's

outcomes (Coughlan et al., 2009).

Data collection is the first step in the research process, followed by analysis using statistical methods.

While doing quantitative research, it is common practice to oversimplify the issue or perspective,

implying that the whole cannot be studied without first being broken down (Coughlan et al., 2009).

The authors note that "quantitative research involves control to detect and reduce the problem, as well

as assessment of the influence of irrelevant or unrelated elements" (Bradshaw et al., 2017). To

guarantee that the study findings correctly represent reality and to increase the generalizability of the

results, researchers often use a variety of control, instrument, and statistical analyses (Bradshaw et al.,

2017).

6.2.1 Ontology

Conceptually, ontology is a study of the building blocks of human society (Saunders, Lewis, &
Thornhill, 2003). Studying how and why the current social order came to be is what ontologists call
"social ontology" (Given, 2008). According to Schwandt (2007), the meat of the study subject should
be where ontology's attention is directed. Blaikie (2018) argues that ontological presumptions apply
to social phenomena, the contexts in which they occur, and the relationships between them. Hence,
ontology considers the assumptions, both subjective and objective, of the researcher.

6.2.2 Epistemology

The study of what constitutes reliable information in a certain field is called epistemology (Saunders,

Lewis, & Thornhill, 2015). An epistemology is a body of beliefs about the nature and transmission of

knowledge, including the criteria for determining the veracity, validity, and acceptability of

information (Holden & Lynch, 2004). Because of the interdisciplinary nature of this research, it is
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acceptable to use a wide range of data sources, from hard numbers to narrative descriptions, from hard

facts to subjective interpretations. Method selection autonomy may be seen in a wide variety of

epistemologies. What scientists consider researchable is determined by their epistemological beliefs

(Thakurta, 2017).

6.3 Research Design

The objectives of quantitative research can be measured, and they are inextricably linked to the

variables and hypotheses that inform the study. Variables are concepts that can take on a number of

different values, and hypotheses are conceptualised about the relationship between variables that have

not yet been proven to be true. Surveys, post hoc analyses, case studies, and experiments make up the

backbone of quantitative research, as stated by Thakurta (2017). Survey research is the approach used

in this thesis.

Neuman and Robson (2014) state that surveys may be traced back to ancient censuses, in which

governments gathered data from the whole population of a certain region. Data collection is crucial to

the descriptive part of survey research, it necessitates information from a large enough subset of the

population to be used to draw conclusions about the entire. Questionnaire and interview-based surveys

are the two most comprehensive methods. A survey may be used to gather information for statistical

studies. Technology has advanced at such a quick rate in the previous decade that it has completely

revolutionized survey methods. Visitor input may be solicited via a variety of channels, including

interactive internet polls, electronic kiosks placed strategically around public spaces, and pre-recorded

phone calls.

Neuman and Robson (2014) state that the government has been conducting censuses, which entail

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gathering information from the whole population of a given geographical area, since ancient times. A

descriptive survey relies on data collected from a statistically-valid subset of the total respondents so

that results may be extrapolated to the whole population. In quantitative studies, the questionnaire and

the in-depth interview are the two most often used techniques of data gathering. Rapid technological

adoption in survey research in recent years has caused profound changes in the discipline. Online

surveys are available to website visitors, while automatic phone surveys employ random dialing

methods to contact customers for their opinions.

6.3.1 Exploratory design

The exploratory design is employed when there is insufficient background knowledge to make any

predictions (USCL, 2016). The purpose of an exploratory research strategy is to collect data and draw

conclusions that may inform future studies. It is used during the stage when preliminary examinations

of research difficulties are being conducted. Exploratory designs are often used to determine the best

approach to an investigation or the most appropriate strategy for information collecting (Daniel &

Harland, 2017). There is a lack of information regarding what influences a company's pricing strategy

and how that approach impacts profits in South Africa, making this research all the more crucial. Thus,

it is prudent to use an exploratory study methodology in order to ascertain the extent to which pricing

conditions affect strategic pricing and its impact on firm performance.

6.3.2 Descriptive design

Descriptive art objectives to express "what is happening" using visual means. Descriptive research

approaches allow for the answering of questions such "who," "what," "when," "where," and "how"

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(Daniel & Harland, 2017). To the question "why are things happening as they are?" descriptive

research is inadequate (p.23). A phenomenon's present condition may be ascertained via descriptive

inquiry, which helps to characterize "what existing" in terms of causes or circumstances (USCL,

2016). Descriptive art objectives to express "what is happening" using visual means. Descriptive

research approaches allow for the answering of questions such "who," "what," "when," "where," and

"how" (Daniel, 1996). The goal of descriptive research is to describe "what existing" in terms of causes

or conditions, thus researchers collect data about the present state of the phenomenon they're studying

(USCL, 2016).

6.3.3 Explanatory design

Answering the question "why?" is a top priority while designing such diagrams. Developing causal

explanations (causality) that say that one phenomenon (Y) is effected by another phenomenon (X) in

either a direct or indirect manner is necessary for answering "why" inquiries (X). Explanatory

diagrams are used to examine how a proposed shift might affect already accepted norms and

procedures (USCL, 2016). Identifying probable causes is a fundamental focus of scientific research

since doing so is what drives scientists to put their hypotheses to the test. In a causal effect, the

variation of one phenomena (the independent variable) is the typical or typical source of variation in

a second phenomenon (the dependent variable) (Daniel & Harland, 2017). To answer the research

question of "do pricing strategies affect company performance?" an explanatory research approach is

required. The explanatory research strategy is the best option for meeting the stated objectives of the

investigation.

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6.4 Research approach

Creswell (2014) argues that research methods include a wide range of presumptions and procedures

for gathering and analyzing data, as well as for drawing conclusions from that data. Creswell (2009)

distinguished between a mixed approach, a qualitative methodology, and a quantitative methodology

for doing research.

6.4.1 Quantitative Approach

Quantitative research is a method for validating objective hypotheses and enabling statistical analysis

of numerical data by analyzing the relationship between variables that are often checked using

equipment. Due to its origins in the natural sciences for analyzing natural occurrences, the quantitative

approach mostly adopts a scientific method (Myers et al., 2013). Quantitative researchers lay a heavy

focus on the use of numbers, which almost invariably represent the values and intensities of theoretical

concepts. From theory to results, the quantitative research approach follows a sequential, linear

process. Normally, participants in a large-scale survey complete a questionnaire or take part in an

interview. This kind of study depends on a large sample size or population to reach broad conclusions.

The quantitative research approach, which includes quantifies data collection and analysis, emphasizes

the connection between numerous clearly defined pieces (Bell et al., 2022).

For this kind of investigation, numbers are your friend. The study's overarching goal is to test many

hypotheses on the connection between pricing policies and company fortunes. A large amount of data

was gathered via surveys, analyzed using quantitative statistical techniques, and then the results were

extrapolated to the whole population. When faced with the research challenges discussed in the first

chapter, the quantitative approach is the most effective means of solving them. And because

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quantitative researchers share the study's ontological, epistemological, and axiological views, they

were the ones to conduct the study.

6.4.2 Qualitative research approach

Scientists probe societal and cultural issues by using qualitative research techniques (Myers et al.,

2013). Action research, case study analysis, grounded theory, and ethnography are just a few examples

of the qualitative research approaches that may be used. In-depth interviews, focus groups, and

observation are the most common forms of data collecting in qualitative studies. Research of this kind,

when carried out in a social and cultural setting, provides investigators with a richer picture of human

beings and the social reality to which they belong (Blaikie, 2018). In qualitative studies, the emphasis

is on how a small number of variables interact within a larger environment. understanding how people

in a certain setting interpret the world around them. Generally speaking, the purpose of qualitative

research is to generate hypotheses rather than test them. Qualitative researchers are value-constrained

on the axiological level, subjectivist on the ontological level, and interpretivist on the epistemological

level. The perspective of the qualitative method is quite different from the reason for this study. That's

why there's no attempt at a qualitative methodology in this study.

6.4.3 Mixed method approach

A "mixed methodology" refers to a research strategy that employs both quantitative and qualitative

methods (Sedofia et al., 2018). According to Cameron (2011), mixed methods research is any study

that collects, analyzes, and draws findings from both quantitative and qualitative data. It should now

be evident that quantitative and qualitative methodologies are combined in mixed-methods research.

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Some seek to blend the two schools of thought to avoid the limitations of employing just one study

approach, while still others do so to get a more thorough knowledge of a topic (something that would

not be achievable in quantitative or qualitative investigations alone). Creswell (2009) says that

integrating quantitative and qualitative data in a single study might provide researchers a better

understanding of a phenomena. A mixed-methods strategy would not be appropriate because of the

study's focus on collecting and analysing quantitative data and the widespread relevance of its findings.

6.5 Research strategy

A quantitative study sample method was used for this investigation. Fundamental differences exist

between quantitative and qualitative sampling procedures. The ability to generalize results is essential

in quantitative research, thus researchers ensure that they are selecting participants at random in their

samples. Researchers that use quantitative methods often collect data from large samples to

corroborate with the objectives of generalizability. The purpose of gathering data from a substantial

sample is to provide findings that are indicative of the whole population.

6.6 Research method

The research presented in this thesis is mostly quantitative. Researchers' methodologies should

account for the time spent on background research, as stated by Apuke (2017). Research results need

the quantification and analysis of several variables.

Using and analyzing numerical data based on certain statistical methods to answer questions like

"who," "how much," "what," "where," "when," "how many," and "how." Quantitative research

techniques, as defined by Grant (2017), are a way to gaining insight into a subject or phenomenon via
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the collecting and statistical examination of numbers.

Quantitative studies are distinguished by their emphasis on gathering and analyzing numerical data

via the use of statistical techniques. Yet, as Apuke puts it, "quantitative research necessitates the

collection of data to enable the quantification and statistical examination of information in order to

support or refute alternative knowledge statements" (2017).

Ryder et al. (2020) add that the initial stages in doing quantitative research are to explain the problem,

establish a hypothesis or research question, review the relevant literature, and conduct a quantitative

analysis of the data. Quantitative research, like qualitative research, collects information using

instruments like questionnaires and experiments to fill out standardized forms (Apuke, 2017).

6.7 Research time horizon

A cross-sectional study method was used for this investigation. There are several kinds of

observational studies, and one of them is the cross-sectional study. Researcher in a cross-sectional

study looks at participants' results and their experiences at the same time. Individuals in cross-sectional

studies are chosen solely according to predetermined inclusion and exclusion criteria. After selecting

volunteers, the researcher will keep tabs on their level of exposure and the outcomes of the study. Most

population-based surveys utilize cross-sectional designs to find out how common a problem is. Such

probes may sometimes be executed fast and at little cost. They may be done before a cohort study is

designed, or they can serve as a starting point for an ongoing investigation. Cohort studies may benefit

from the prevalence data that these designs provide. Since that the exposure and outcome are only

being measured once, cross-sectional research presents challenges in drawing conclusions about

causation. We may also use this strategy to analyze the association between exposure and outcomes

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by calculating odds ratios.

6.8 Research technique and procedure

6.8.1 Data collection

In order to assess the hypotheses, primary data was collected from a representative sample of SMEs

using the census method. According to the University of South Africa's Office of Research, 1,334

individuals make up the study's accessible population; these individuals represent a subset of the

study's intended audience, which is restricted to SMEs in the province of Gauteng. The number of

participants is fixed at 500. The sample size of this study is large enough to draw inferences about the

whole population, thus the results may be trusted. In the first step, researchers made direct contact

with participants to introduce themselves and explain the study's objectives.

Afterwards, using the intercept method, questionnaires with a 5-point Likert scale were sent to

Businesses in Gauteng. Researchers made sure that the people they surveyed were appropriate for their

studies by doing background checks. A common tool in survey research is the questionnaire (Sim et

al., 2018). Moreover, questionnaires are one of the most convenient means through which respondents

may answer to questions (Bhuyan et al., 2016). Also, the respondent may choose a response from a

list of options shown in a particular structured question thanks to the question's architecture (Sim et

al., 2018).

6.8.2 Data collection instrument

A 5-point Likert scale questionnaire comprises both organized and unstructured items. The first

section addresses the number of workers, Standard Industrial Classification, firm structure, annual
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revenue, and role of the pricing manager. This section uses the nominal scale approach, in which the

individual answering the questionnaire must choose just one response that applies to their or her firm.

The remainder of the questionnaire is devoted to price issues, including pricing conditions, pricing

strategies, pricing targets, pricing capabilities, and business performance. Below is an explanation of

the important variables and how they are measured.

6.8.2.1 Pricing conditions

Based on their research, Indounas and Avlonitis (2010) identified three distinct groupings of variables

that influence pricing decisions: corporate and marketing strategy elements, consumer circumstances,

and competitive factors. The participants' performance was rated on a Likert scale from 1 to 5.

6.8.2.2 Pricing strategies

This research employed a classification of three pricing schemes. There are three pricing strategies:

value-based pricing, cost-based pricing, and competitor-based pricing. They were ultimately assessed

using 5-item Likert scales for each item. Adapted from the works of Rapaccini (2015) and Liozu and

Hinterhuber (2013).

6.8.2.3 Pricing objective

In their study, Avlonitis and Indounas (2005) provided eight price objectives. Market stability, pricing

objectives related to customers, pricing objectives related to the quality of services provided, financial

objectives, achieving adequate revenue and profit, pricing objectives related to market share and

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capacity, pricing objectives related to competitors, and pricing objectives that maximize profits are all

on the table. Ultimately, a 5-point Likert scale was used to evaluate these objectives' success.

6.8.2.4 Pricing capability

Companies' pricing capabilities include their accumulated management tools, know-how, informational

resources, structural tenets, and coordination devices (Dutta, Zbaracki, & Bergen 2003). Alternatively,

according to Rapaccini (2015), pricing power is "an organization's capacity to set its own prices and those of

its goods and services in relation to the market and its consumers" (persuading consumers to accept price hikes,

and discussing price adjustments with key clients). Ten questions based on a modified version of Liozu and

Hinterhuber's 5-point Likert scale were used to evaluate this quality (2013).

6.8.2.5 SME performance

The respondents were asked to provide an objective assessment of company success based on their

actual sales and profits over the last three years. Yet, fewer than 3% of respondents volunteered this

information. Recognizing that this was a potential conclusion, the data gathering tool sought an

alternative method of assessing success objectively in terms of the three-year percentage increase in

profit, sales, and market share. As this was seen to be less intrusive than the actual numbers,

respondents volunteered the percentage increases in these categories. SME Performance was measured

by standardizing the three-year average growth rate. This method was deemed more objective and

assessed performance more accurately than the subjective metrics used in prior research (e.g., Anning-

Dorson, 2023).

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6.8.3 Reliability of research instrument

Reliability may be assessed in three different ways: test-retest, alternate-form, and internal consistency

(Shukla et al., 2018). Consistency and homogeneity over time will increase the questionnaire's

dependability. In order to evaluate the study's objectives, we need to build each scale item. Cronbach's

Alpha was calculated as an internal consistency indicator (Shukla et al., 2018). It estimates the average

dependability coefficient for each feasible approach to dividing a set of items in half. This research

objectives were to explore the importance of keeping the Alpha value within the recommended range

of 0.70 to 0.95. In addition, consistency was improved by the standardization of measuring conditions

(Kothari, 2016). Test-retest reliability was used in the study, therefore the same surveys were sent out

again at different intervals. This will help check whether the exam takers have been consistent over

time. The study also ensured that no people were miscoded or given confusing instructions.

6.8.4 Validity of research instrument

According to Shukla (2018), to the extent anything is true or the difference in observed scale scores

corresponds to the actual difference between objects being assessed. Asenahabi (2019) explains that

validity quantifies the extent to which the outcomes of data analysis accurately reflect the topic under

investigation. The content validity guaranteed that measurement tools adequately address the subject

of the study. The respondents' completed questionnaires represented a representative sample of mall

customers. The validity of the scale was enhanced by asking questions that best answered the study

premise, ensuring that the instrument was free of bias, and focusing on the appropriate respondents.

The supervisors then assessed the questionnaire's validity by determining if the instrument measures

the topic under investigation.

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6.9 Data analysis and interpretation

Having accounted for descriptive statistics, the remaining data were examined using the two-stage

approach to structural equation modeling. The process is described in great length in the data analysis

section of the book. Data was collected via questionnaires and then checked for accuracy, coded, and

input into SPSS for evaluation, interpretation, and analysis. Frequency tables, bar charts, and graphs

will all be used to display the data.

6.10 Partial Least Square Structural Equation Modelling (PLS-SEM)

PLS-SEM is a cutting-edge technique for linear multidimensional data analysis, which combines

structural equation modeling (SEM) with linear modeling (MDA). The statistical techniques in the

Structural Equation Modelling (SEM) toolbox objectives to examine the association between a set of

continuous or discrete independent variables and a set of continuous or discrete dependent variables

(Henseler et al., 2014). This MDA technique, which combines components of component analysis and

regression analysis, allow for concomitant exploration of correlation between measurement indicators

and constructs (Henseler et al., 2014). In the social sciences, it serves as a common method of testing

hypotheses (Hair et al., 2017, Henseler et al., 2014). Partial least-squares structural equation modeling

(PLS-SEM) and covariance-based SEM (CB-SEM) have both become widely accepted standards in

the academic community (Henseler, 2014; Hair et al., 2017). In this work, PLS-SEM was employed

for analysis.

PLS-SEM seeks to maximize the route model's R2 by adjusting the coefficients of underlying hidden

factors generated internally (Hair et al., 2017). PLS-SEM is a measurement and structural component
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hybrid model. The measuring model specifies the exact nature of the connection between the target

structures and the surrogates utilized to make the measurements. On the other hand, structural models

highlight the relationships between constituent parts. We tested the measurement models for

collinearity, internal consistency, convergent validity, and discriminant validity. Nevertheless, we

analyzed the structural models using path standardized coefficients, coefficients of determination, p-

values, t-values, point estimates, variance explained, and bootstrapping confidence intervals.

6.11 Ethical considerations in the methodology

Having the proper ethical approvals in place before doing research on humans is essential. It is

important to seek permission before beginning to collect data from human participants. The concept

of "informed consent" is crucial to doing research in a morally responsible manner (Denzin & Lincoln,

2011). The words "informed" and "consent" are crucial to the term and must be thoroughly examined

individually and together. All participants were fully informed of the objectives, the intended uses,

and the possible consequences of their participation. Participants gave their informed, consenting, and

explicit written consent to participate in the study, during which they were made aware of their rights

to access their data and their ability to withdraw from the study at any time.

A researcher and a subject may enter into a legally binding agreement via the informed consent

procedure. Participants should be "informed" about the researcher's identity, the research's purpose,

the types of data that will be collected from them, the methods by which those data will be collected,

the time commitment that will be expected of them, the ways in which their data will be used and

reported, and the risks that may be associated with their participation. Permission was granted after

participants read and signed a short, informative information sheet (about 1.5 to 2 pages) that was

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prepared in participant-friendly language and avoided academic jargon.

Participant identity will be kept confidential, data ownership will be made clear (participants own their

raw data, researchers own the analysis data), and the participant will have the right to withdraw at any

time without giving a reason (i.e., active consent as opposed to passive consent - the latter remains

highly contentious) (contact details of the researcher along with a line manager, or the chair of the

ethics committee). The information sheet and permission form must be thorough, clear, and accurately

stated. Inadequate protection for the participant or the researcher may come from a defective consent

agreement if the information sheet and permission form are ambiguous (Hashimov, 2015).

6.12 Chapter summary

This chapter focused on philosophical inference, or the underlying principles of scientific inquiry.

Being the connecting tissue between the research's objectives and its means of data collection and

analysis, the study design was the primary emphasis of this section. Combining descriptive,

exploratory, and explanatory methods was the topic of this chapter's discussion. Information about the

present state of a phenomenon is gathered via descriptive design. In murky regions, the exploratory

design may provide light on the best way to go further into the topic at hand and help researchers grasp

the nature of the underlying study challenge. Explanation design makes use of "why" inquiries to

identify potential causes and effects between variables.

In-depth discussions of qualitative, quantitative, and mixed approaches were covered in this chapter.

Qualitative researchers often use methods like case study and ethnography to get a more nuanced

understanding of social reality and cultural occurrences. To test and confirm hypotheses about

correlations between factors, quantitative researchers rely on statistical methods. Methods that

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combine quantitative and qualitative information are called "mixed methods," and they are used to

conduct the same research.

In the chapter, topics such as population, sampling frame, sample size, and sampling procedures were

discussed at length. Several methods and tools for gathering information were covered in this chapter.

Research methods, such as multivariate data analysis, were also discussed in this chapter. Exploratory

factor analysis was shown to compress a wide variety of construct indicators into a manageable

number of dimensions. In this chapter, we will be looking at partial least square structural equation

modeling (PLS-SEM), which was used to assess the validity and reliability of the measurement models

employed to measure the constructs.

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 CHAPTER 7

DATA ANALYSIS AND RESULTS

7.1 Introduction

This is the first of three chapters reporting the results of a study examining the connections between

price antecedents, pricing strategies, and the SME success. Both descriptive statistics and

confirmatory component analysis are discussed in detail throughout this chapter. Pricing

antecedents, pricing strategies, pricing objectives, and pricing capabilities are first described using

descriptive data. The results of the SEM path analysis are presented in this section. After the

chapter proper, a synopsis of that chapter is provided.

7.2 Descriptive statistics

Brief, informative statistical variables for describing a data set that may be used to generalize about

an entire population or to focus in on a specific subset of that population are known as descriptive

statistics (George & Mallery 2018). Both measurements of central tendency and measures of

variability are necessary for any descriptive statistics to be meaningful (spread). Central tendency

may be shown by the mean, median, or mode, while variability can be quantified by means of

standard deviation, variance, minimum and maximum variables, kurtosis, and skewness (George

& Mallery 2018).

7.2.1 Central tendency of the distribution

Central tendency, as defined by Douven (2018), is an evaluation of the "center" of a given set of

values. Traditional measurements of central tendency include the mean (the average) and the mode

(the most common value) as well as the median (the midway between the lowest and highest
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values) (a central value). Median, average, and mean are the most typical central tendency

measurements. According to Douven, the mean is the most often used and effective metric for

assessing core tendencies in data. To find out where most of the answers fall in terms of financial

performance, advertising spend, and asset value, we use the mean.

7.2.2 Variability of the distribution

According to Douven (2018), mean-variance index is calculated by taking the standard deviation

of each number and comparing it to the mean of the whole set. In other words, each time there is a

large change from the mean, variability is there. Variability, according quote NCSS (2018), is the

degree to which values deviate from the mean. Knowing how tightly or widely the remaining

values cluster around the mean is useful when using the mean to find the midpoint of a data set.

Simply expressed, variability is the degree to which values deviate from the distribution's mean.

The distance of an individual data point from the mean may be measured using dispersion

quantitative methods like range, sample variance, dispersion, and standard error (Renner, 2018).

Perpendicular variance measurements are those that are orthogonal to the median, whereas

correlated variance measures are those that are connected to the mean (Mordkoff, 2019).

Related to the median are two measures of dispersion: the range and the interquartile range. The

"interquartile range," which he defines as the space between the data set's 75th and 25th percentiles.

Instead, the range is just the middle and outer points of the data set (Jaggi et al., 2020). The

influence of outlying numbers renders the range and the interquartile range unreliable

measurements of dispersion.

Nonetheless, the standard deviation does a better job of representing the distribution of answers

than the median or the variance do in this study. For this reason, although the mean is a more

reliable and complete measure of dispersion than the range or interquartile range, both of which

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may be skewed by outliers, according to Douven (2018).

7.2.3 Pattern of Dispersion

Estimators of dispersion and central tendency cannot be used to provide an explanation for the

symmetry or clustering of values within a data set. As a result, it is clear that descriptive statistics

place an emphasis on the form factor. The form of a distribution characterizes how values fall along

a number line (NCSS, 2003). Whether a collection of data is considered normal depends crucially

on the distribution shape.

Two common measures of form are skewness and kurtosis (NCSS, 2018). A distribution's

skewness may be measured using the skewness measure. According to Mordkoff (2019), skewness

is a symmetry metric that may take on positive, negative, or zero values. Hence, a data set's

distribution might be skewed to the left, right, or neither. Like in other areas of mathematics, a

skewness score of 0 indicates a perfectly normal and symmetrical distribution. When the skewness

is positive, the distribution's tail is skewed to the right, indicating a more extreme outlier, and when

it's negative, the tail skewed to the left, indicating a more extreme outlier (Mordkoff, 2016).

Kurtosis, often known as the "normal curve," is the customary fourth moment of population

dispersion around the mean (DeCarlo, 1997). Hence, kurtosis gauges the significance of a

distribution's peaks and/or tails (Mordkoff, 2019). As with skewness, the numerical value of

kurtosis may be positive, negative, or zero. A positive kurtosis, according to DeCarlo (1997),

suggests an unusual distribution with lengthy tails and an exaggerated peak. A negative kurtosis is

characterized by slender tails and a flatter shape relative to the normal distribution. If the value of

kurtosis is zero, then the distribution may be considered "normal." If the kurtosis value is more

than three, the tails are heavier than in a normal distribution, whereas a value of less than three

indicates lighter tails (NCSS, 2018).

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Skewness and kurtosis are two prominent metrics of dispersion because of the information they

provide about the shape and size of outliers. Many methods have been developed to determine

whether or not a distribution is normal (DeCarlo, 1997). As such, it is crucial to guarantee the

consistent distribution of the study's core elements.

7.3 Analysis of descriptive statistics

7.3.1 Descriptive statistics: Demographics of the Participating Businesses

According to Table 7.1, this study surveyed 541 SMEs, of which 40.3%, or n=218 SMEs, were

classified as formal companies and 59.7%, or n=323 SMEs, were classified as informal firms. A

total of 319 SMEs have not registered, while 222 have. Companies and Intellectual Property

Commission data showed that 80% of SMEs were registered (CIPC). There are a few SMEs that

are members of the South African Council of Educators (SACE), Contact Centre Management

Group (CCMG), Financial Advisory and Intermediary Services (FAIS), South African Institute of

Chartered Accountants (SAICA), South African Informal Traders Alliance (SAITA), and Legal

Practice Council.

The bulk of the sample's firms, 415, or 76.9%, were established after 2017, while just 125, or

23.1%, were established between 2011 and 2016. The chart also reveals that the majority of

enterprises, 457 or 84.5%, were held by a single proprietor, while 84 or 15.5% were owned by

several proprietors. And 362 enterprises, or 67.2%, were handled by the owners directly, while 177

firms, or 32.8%, were controlled by managers rather than the owners.

In terms of educational attainment, 48.8% had postgraduate degrees, at least a quarter (29.2%) had

advanced certifications, and 11.1% had a high school diploma. 8.8 percent of company owners had

a National Certificate, while 1.7% have a Higher Certificate. Sixty-eight percent, or 68.6%, of

SME owners are in the retail and auto industry, while ten percent, or 14.2%, are in the community
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sector. Fewer than 5% of the workforce was employed in the construction and agricultural

industries, and less than 1% in other areas.

Seven out of ten enterprises (74.3%) had 1-5 workers, while one-fifth (23.1%) had 6-10 employees.

Fewer than 5% of the firms had more than 10 workers, seven out of ten (74.3%) were sole

proprietorships, 11% were partnerships, 7.8% were closed, and 5.9% were private corporations.

Table 7.1: Demographic characteristics of the firms

Variables Category n %
Is your business formal or Formal 218 40.3
Informal? Informal 323 59.7
Total 541 100
Is your business registered? Yes 222 41.0
No 319 59.0
Total 541 100
If yes, with which regulatory body? CIPC 176 79
ECSA 16 7.2
SACE 11 4.9
CCMG 9 4.05
FAIS 3 1.3
Legal Practice Council 3 1.3
SAICA 2 0.9
SAITA 2 0.9
Total 222 100
Not registered 319
In which year did you start your 2011 - 2016 125 23.1
business? 2017 – Till the data 415 76.9
Total 540 100
Is the business own by one person One 457 84.5
or multiple? Multiple 84 15.5
Total 541 100
Is the owner the same as the Yes 362 67.2
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 manager? No 177 32.8
Total 539 100
Missing 2 0.4
Total 541 100
What is the owner’s highest level Post-Graduation 247 48.8
of Qualification? Advanced Certificate 148 29.2
Matric 57 11.2
National Certificate 45 8.8
Higher Certificate 9 1.7
Total 506 100
Missing 35 6.5
Total 541 100
According to the Standard Agriculture 13 2.4
Industrial Catering, Accommodation 26 4.8
Classification, what sector would and other trade
you classify your business in? Community, Social and 77 14.2
other services
Construction 36 6.7
Electricity, Gas and Water 4 0.7
Finance and Business 1 0.2
Services
Manufacturing 5 0.9
Retail and motor trade and 371 68.6
repair services
Transport, storage and 3 0.6
communications
Wholesale, trade, 5 0.9
commercial agents and
allied services
541 100
How many people are employed by 1-5 403 74.3
your business? 6-10 125 23.1
11-15 7 1.3

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 16-20 5 0.9
21-30 1 0.2
Total 541 100
What form of Business are you in? Sole proprietor 402 74.4
Partnership 64 11.9
Close Corporation 42 7.8
Private Company 32 5.9
Total 540 100
Missing System 1 0.2
541 100

7.4 Descriptive statistics on items and constructs

The items and constructs in this research were also analyzed descriptively with the use of average,

sample variance, deviation, and measures of variability. The descriptive analysis of these items

and concepts is provided in this section.

7.4.1 Descriptive Statistics: Pricing antecedents

Table 7.2 summarizes the median, range, and distribution of the replies to questions on the causes

of price changes, as reported by the respondents themselves. The table's numbers represent how

significantly SME respondents valued each of the pricing antecedents.

The median scores range from 3.11 to 4.02 on a scale from 1 to 5, as shown in Table 7.2. Of the

fifteen items, only one has a mean score higher than 4, while the rest all have means higher than 3.

Overall, the average is higher than 2. It's often a very excellent performance. That's why it seems

like this distribution is the best possible one. In this way, all Businesses may confidently sell their

goods at the pricing listed.

The data set has a modest dispersion intensity, as shown by Table 7.2. Variability is low when

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measured against a standard deviation. Standard deviations vary from around 0.77 to about 0.87.

As a result, it seems that there is minimal room for error between individual surveys and the

average. As the standard deviation of a data collection goes down, it means that the values are

converging on the mean.

Table 7.2 displays skewness and kurtosis, two measures of dispersion, to define the distribution of

price antecedent indicators. The skewness of the distribution, as shown in the table, falls within the

interval [-0.107, -0.848]. If the numbers are within this range, the distribution is likely typical.

When the absolute skewness value is more than 2, as Mardkoff (2016) argues, there is a

considerable divergence from the normal distribution. The research demonstrates that symmetrical

skewness is more prevalent than asymmetrical skewness among the price antecedent indicators.

Also, the kurtosis values, which account for the heaviness of the distribution's peak and tail, are

shown in Table 7.2. Using absolute numbers, the price antecedents kurtosis may be found to be

anywhere from -0.944 to 0.817. Because of this, a kurtosis value below 3 indicates a distribution

with fatter tails than the normal distribution. According to the findings, the kurtosis of price

precursor indicators is more normal and has tamer tails than nonnormal distributions.

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Table 7.2: Descriptive statistics of antecedents of pricing

Scale Items Mean Standard Skewness Kurtosis

Deviation

Competition-related conditions
High possibility of new competitors entering 3.9205 .80229 -.784 .771
into the market
Large number of competing services 3.8946 .80161 -.132 -.775
Prices are determined by the market’s own 3.7948 .77487 -.203 -.365
mechanisms
Intensive competition in the market 3.9113 .87532 -.558 -.137

Corporate and marketing strategy-related

conditions
Attraction of new customers 3.8872 .80522 -.818 .793
Reduction of the price more easily in the future 3.8780 .83660 -.148 -.565
Achievement of a satisfactory market share 3.8115 .83085 -.472 .088
Need to make the service well-known 3.7893 .85416 -.387 -.320
Creation of a prestigious image 3.9150 .83676 -.848 .804
Ability to reduce the cost as the production 4.0000 .81650 -.225 -.944
increases
Coverage of the service’s development costs 4.1035 .79838 -.539 -.340

Customer-related conditions
Customers are aware of the specific service 3.9187 .78931 -.558 .469
Customers are aware of the prices offered in the 3.8373 .81387 -.107 -.633
market
High potential demand 3.7911 .78575 -.119 -.528
High price elasticity 3.9187 .79631 -.693 .817

7.4.2 Descriptive statistics: Pricing Strategies

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Table 7.3 shows a breakdown, by means of averages and standard deviations, of the answers to

questions on respondents' pricing strategies. SME respondents' opinions on the importance of

several price indicators are reflected in the table's numbers.

Scores on a 1–5 scale ranged from 3.74 to 3.97 on average (see Table 7.3 for details). The average

scores on all 15 measures are over 3. The average score for any item cannot be reduced to less than

2. The average performance is rather good. Hence, the distribution seems to be optimal. As a result,

all SMEs have an accurate understanding of the prices indicated for their products.

Table 7.3 results also show a low degree of dispersion. The standard deviation indicates that the

amount of variation is low. Values between 0.72 and 0.84 are possible for the standard deviation.

This suggests that there is little variation between individual responses and the overall average.

Hence, a smaller standard deviation is indicative of a tighter clustering of values in the data set

around the mean.

Table 7.3 shows the skewness and kurtosis distributions of the pricing method indicators. The

values of the distribution's skewness are shown in the table, where they range from -0.921 to -

0.030. Distributions are likely normal if they fall within this band of numbers. According to

Mardkoff's (2016) reasoning, a significant departure from the normal distribution occurs when the

absolute skewness value is greater than 2. According to the findings, there is more symmetry than

asymmetry in the skewness of the pricing method indicators.

Table 7.3 also includes the kurtosis measuring the heaviness of the distribution's peak and tail. The

absolute kurtosis values for the pricing schemes might range from -0.974 to 0.970. Hence, a

kurtosis value below 3 denotes a distribution with wider tails than the normal distribution.

According to the results, kurtosis indicators for price objectives had narrower tails and a more

typical distribution shape than non-normal distributions.

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Table 7.3: Descriptive statistics of pricing strategies

Scale Items Mean Standard Skewness Kurtosis

Deviation

Cost-based pricing
Variable costs of products/services 3.9501 .82063 -.150 -.974
Price necessary to break-even 3.9150 .78891 -.439 .338
Investments in products/services 3.8373 .80701 -.184 -.474
Target margin guidelines 3.8688 .81614 -.575 .340
Target return on sales levels 3.9501 .82063 -.150 -.974

Competition-based pricing
Price of competitors’ products/services 3.9723 .73609 -.656 .964
Competitors’ current price strategy 3.8152 .82047 -.030 -.735
Likelihood of competitors’ strength to react 3.7431 .82696 -.280 -.227
Market structure (number and strength of 3.8669 .84153 -.568 .173
competitors)
Degree of competition on the market 3.8817 .83934 -.528 .199

Value-based pricing
Advantages of the product compared to 3.9113 .76466 -.921 .970
competitors’ products/services
Customer perceived value of the 3.8540 .81816 -.234 .135
products/services
Customer willingness to pay for the unique 3.8817 .72830 -.276 -.124
benefits of
the product/services
Balance between advantages of 3.8133 .82568 -.334 -.286
products/services
and price
Differentiated value drivers of our 3.8577 .80512 -.399 .096
products/services compared to substitutes

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7.4.3 Descriptive statistics: Pricing objectives and pricing capabilities

Table 7.4 displays the mean, standard deviation, and distribution of answers to questions probing

respondents' pricing strategies. SME respondents' opinions on the importance of several price

indicators are reflected in the table's numbers.

The average rating on a scale from 1 to 5 is 3.80 on average, with a range of 3.80-3.93 shown in

Table 7.4. The average scores on all 15 measures are over 3. The average score for any item can

be equal to or greater than 2. The average performance is rather good. Hence, the distribution seems

to be optimal. As a result, SMEs have an accurate understanding of the prices indicated for their

products.

Data dispersion is rather mild, as seen in Table 7.4. The standard deviation indicates that the

amount of variation is low. Standard deviations may be anything from 0.72 to 0.99. This suggests

that there is little variation between individual responses and the overall average. Thus, a smaller

standard deviation is indicative of a tighter clustering of the information's values set around its

mean.

The skewness and kurtosis measurements of the distributions of price objectives and pricing skills

are shown in Table 7.4. The table shows that the skewness of the distribution may take on values

between -0.982 and -0.208. If the numbers are within this range, the distribution is likely typical.

When the absolute skewness value is more than 2, as Mardkoff (2016) argues, there is a

considerable divergence from the normal distribution. According to the results, symmetric

skewness was more common among the indicator variables included in establishing price targets

than asymmetric skewness was.

Table 7.4 also displays the values of kurtosis, a statistic that takes into consideration the weight of

the distribution's outlying points. Absolute kurtosis levels may range from -0.723 to 0.914% for

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both fixed-price objectives and pricing leeway. Hence, a kurtosis value below 3 denotes a

distribution with wider tails than the normal distribution. According to the results, kurtosis

indicators for price objectives had narrower tails and a more typical distribution shape than non-

normal distributions.

Table 7.4: Descriptive statistics of pricing objectives and pricing capabilities

Scale Items Mean Standard Skewness Kurtosis

Deviation

Pricing capabilities
Using pricing skills and systems to respond 3.9316 .72835 -.327 .246
quickly to market changes
Conducting value-in-use analysis or Total Cost 3.8299 .77741 -.648 .657
of Ownership
Designing and conducting specific pricing 3.9298 .78094 -.696 .709
training programs
Developing proprietary internal price 3.9057 .79605 -.822 .801
management
process
Doing an effective job of pricing 3.8577 .81427 -.208 -.398
products/services
Sticking to price list and minimizing discounts 3.9298 .78567 -.497 .235
Quantifying customers’ willingness to pay 3.8059 .81946 -.520 .325
Measuring and estimating price elasticity for 3.8780 .82546 -.662 .828
products/services
Knowledge of competitors’ pricing strategies 3.8004 .83048 -.372 -.149
Monitoring competitors’ prices and price 3.8743 .80214 -.439 .175
changes

Pricing Objectives

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 Target return on investment 3.8262 .99784 -.982 .896
Target markup 3.9501 .79774 -.218 -.723
Price stabilization 3.8521 .74557 -.426 .402
Market share 3.8281 .79234 -.626 .914
Match competitors’ pricing 3.8688 .84292 -.735 .904

7.5 Structural Equation Modelling – SEM

In this study, we used a two-stage approach to SEM employing Partial Least Squares - PLS to

analyze the expected relationships. SmartPLS 4 is employed as the analytical tool. The SEM

procedure begins with the measurement model and continues with the structural model. The

structural model examines the interrelationships between latent variables, whereas the

measurement model probes the connections between latent variables and the associated measures.

A confirmatory factor analysis (CFA) was conducted to check the measurement model's reliability

and validity prior to examining the anticipated correlations. Measurement models, including those

using data collected via tests, grades, and observations of conduct, are the primary focus of

confirmatory factor analysis (CFA), a kind of structural equation modeling (Brown & Moore,

2012). Methods for Measuring Dependent Variable (e.g., factor analysis) are used to determine

how many and what types of factors account for a collection of indicators' variation and covariance.

An unmeasured factor impacts and explains the relationships among several measurable variables.

In other words, if the latent concept were removed, there would be no relationships between the

observed measurements. As the number of factors in a CFA-based measurement model is less than

the number of measured variables, it allows for a more succinct understanding of the covariation

among a set of indicators. As the results of the confirmatory factor analysis showed, the model is

worth investigating further.

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7.6 Measurement model

Some kind of empirical assessment or estimate of the correlation between constructs and the

indicators used to monitor them is essential to any assessment of a measurement system (Purwanto

& Sudargini, 2021). The measurement models could prove the accuracy of the measurements

(Purwanto & Sudargini, 2021). So, the assessment of measurement model estimates may further

evaluate the construct's tenability and validity measurements. Reliability of internal consistency,

concurrent validity, divergent validity, and covariance are just a few of the metrics used by PLS-

SEM to evaluate the accuracy, validity, and trustworthiness of a measurement model (reliability

and validity).

Tables 7.5 and 7.7 provide tabular summaries of the results, collinearity, internal consistency,

convergent validity, discriminant validity, antecedents, and moderators of pricing strategies for

SMEs.

7.6.1 Reliability and validity

According to Bolaji and Adeoye (2018), a scale's absence of random mistake indicates its

dependability. Odoom & Mensah (2019) describe dependability as "the extent to which a

researcher may trust the outcomes of a study" and "an indication that the indicators are consistent,

stable, predictable, and accurate" (Hair et el., 2021). The precision of the measuring techniques

used is therefore an essential concept for this investigation. Basically, the predictors and construct

factors used in the research only have credibility if they hold up to replication. Measuring

something in a laboratory guarantees reproducibility. Using an internal consistency reliability test,

we confirmed the measurement model's results.

Internal consistency exists between the Reliability calculation and the latent construct set and its

variables (Hair et el., 2021). Price Antecedents, Pricing Strategies, and SME Performance are each

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subjected to a reliability study. The following table details the validity and reliability of the research

variables.

Table 7.5: Reliability and validity measures and dimensions of study constructs

Constructs/Measurement Items Loadings Composite Average

Reliability Value
(CR) Extracted
(AVE)
CR ≥ 0.70 AVE ≥
0.50
PRICING ANTECEDENTS
Competition-related conditions 0,928 0,763
High possibility of new competitors entering into the 0,878
market
Large number of competing services 0,834
Prices are determined by the market’s own 0,901
mechanisms
Intensive competition in the market 0,879
Corporate and marketing strategy-related conditions 0,912 0,598
Attraction of new customers 0,853
Reduction of the price more easily in the future 0,701
Achievement of a satisfactory market share 0,723
Need to make the service well-known 0,844
Creation of a prestigious image 0,709
Ability to reduce the cost as the production increases 0,789
Coverage of the service’s development costs 0,778
Customer-related conditions 0,800 0,501
Customers are aware of the specific service 0,728
Customers are aware of the prices offered in the 0,754
market
High potential demand 0,689
High price elasticity 0,655

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PRICING STRATEGIES
Cost-based pricing 0,880 0,597
Variable costs of products/services 0,881
Price necessary to break-even 0,723
Investments in products/services 0,712
Target margin guidelines 0,709
Target return on sales levels 0,821
Competition-based pricing 0,906 0,659
Price of competitors’ products/services 0,811
Competitors’ current price strategy 0,799
Likelihood of competitors’ strength to react 0,845
Market structure (number and strength of 0,810
competitors)
Degree of competition on the market 0,792
Value-based pricing 0,941 0,763
Advantages of the product compared to competitors’ 0,911
products/services
Customer perceived value of the products/services 0,878
Customer willingness to pay for the unique benefits 0,812
of the product/services
Balance between advantages of products/services and 0,897
price
Differentiated value drivers of our products/services 0,865
compared to substitutes

MODERATORS
Pricing capabilities 0,954 0,676
Using pricing skills and systems to respond quickly to 0,712
market changes
Conducting value-in-use analysis or Total Cost of 0,733
Ownership
Designing and conducting specific pricing training 0,865

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 programs
Developing proprietary internal price management 0,722
process
Doing an effective job of pricing products/services 0,756
Sticking to price list and minimizing discounts 0,778
Quantifying customers’ willingness to pay 0,924
Measuring and estimating price elasticity for 0,911
products/services
Knowledge of competitors’ pricing strategies 0,891
Monitoring competitors’ prices and price changes 0,889
Pricing Objectives 0,906 0,660
Target return on investment 0,712
Target markup 0,797
Price stabilization 0,860
Market share 0,768
Match competitors’ pricing 0,910

Composite reliability values greater than 0.70 indicate acceptable dependability (Eisinga et al.,

2013). In Table 7.5, the values show that the Composite dependability for all types of variables

(Pricing Antecedents, Pricing Strategies, and Moderators) is more than 0.70, showing that the

reliability has been built correctly. The overall dependability of all variables is more than 0.70, as

anticipated by Hair et al. (2021).

7.6.2 Internal consistency reliability (ICR):

An internal consistency test may be used to assess the validity of a research scale. Internal

consistency is the degree to which several measurements of the same concept corroborate one

another (Eisinga et al., 2013). Cronbach's alpha and composite reliability (CR) scores are common

ways for PLS-SEM internal consistency evaluation (Purwanto & Sudargini, 2021).

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7.6.3 Convergent validity

Two or more measurements of the same notion have convergent validity if and only if there is a

strong correlation between them (Hair et al., 2021). This stems from the idea that indicators

(measures) of a certain concept need to converge and have substantial overlap in their coefficients

of variation. By computing the AVE and the indicator outer loadings, PLS-SEM may be used to

evaluate the convergent validity of measurement models (IOL).

7.6.4 Indicator outer loadings

The indicator outer loadings (IOL) illustrate the connections between indicators and the structures

they quantify (Hair et al., 2021). In this study, we use the IOL to deduce the dimensions and

indicators of the relationships between pricing antecedents and pricing strategies, pricing strategies

and SME performance, and so on. To see an example of this, see table 7.4. A minimum IOL of

0.655 must be maintained. The indicator may be deleted even if it is not statistically significant if

doing so would raise the composite reliability or AVE and the IOL is more than 0.40 but less than

0.70. (Hair et al., 2021).

7.6.5 Average Variance Extracted (AVE)

The average variance extracted (AVE) is the geometric mean of the squared loadings of the

construct-related indicators, as stated by Hair et al. (2021). Using the AVE, this study dissects the

relationships between price antecedents, pricing strategies, and firm performance along each

dimension and indicator. Table 7.5 details the results of AVE. The arithmetic mean effect size

(AVE) of pricing antecedents that are related to the level of competition is 0.763%; the arithmetic

mean AVE of pricing antecedents that are related to corporate and marketing strategy is 0.598; and

the arithmetic mean AVE of pricing antecedents that are related to customers is 0.501. Average

revenue earned is 0.597 for cost-based pricing, 0.659 for competition-based pricing, and 0.763 for
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value-based pricing. The AVE for "Pricing Objectives" is 0.660, while the AVE for "Pricing

Capabilities" is 0.679. Hair et al. (2021) anticipated an AVE in PLS-SEM of at least 0.50. Every

single concept in this investigation had an AVE greater than 0.50. Convergent validity has been

shown for the measurement models used in this investigation.

7.6.6 Discriminant validity

Hair et al. (2021) say that discriminant validity (DV)is "the extent to which one thought is

objectively distinct from another." This implies that the reality recorded by one model construct

should be different from the reality captured by another model construct. Discriminant validity, as

it pertains to this study shows that pricing strategies, pricing causes, pricing objectives, and pricing

capabilities are all separate entities that correspond to particular events. Discriminant validity of

measurement models may be assessed by using PLS-SEM and its three criteria for doing so: cross-

loadings (CL), the Fornell-Larcker Criterion (FLC), and the Heterotrait-Monotrait Criterion

(HMC) (HTMT).

Table 7.6: HTMT discriminant validity

1 2 3 4 5 6 7
Cost-based pricing
Value-based pricing 0,428
Competitor-based pricing 0,690 0,789
Customer related conditions 0,823 0,689 0,656
Competitor-related conditions 0,652 0,598 0,831 0,673
Corporate & Marketing condition 0,772 0,721 0,698 0,635 0,713
Pricing Objective 0,547 0,600 0,484 0,639 0,657 0,755
Pricing capability 0,451 0,527 0,612 0,567 0,654 0,601 0,798

The HTMT is a weighted average of all correlations between indicators measuring various

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constructs (Hair et al., 2021). HTMT, as defined by Hair et al. (2021), is a measure of the estimated

true correlation between two constructs, provided that the constructions were assessed correctly.

Their findings suggested that a problem with discriminant validity exists the BCI of the indicators

or dimensions consists 1. In this study, we looked for BCI values of 1 or close to 1 across all

potential price antecedents, pricing methods, and pricing modifiers. The BCI values in Table 7.6

are all off by 1 on all dimensions. One might conclude that the measuring models used in this

investigation have good discriminant validity.

7.6.7 Collinearity assessment of dimensions and indicators

High levels of collinearity occur when three or more variables or aspects of a notion are closely

associated with one another. A collinearity risk exists when three or more indicators have a highly

correlated relationship (Purwanto & Sudargini, 2021). As collinear indicators result in inaccurate

estimates of the coefficient and significance of a construct's variables and measures, as well as an

increase in standard errors, they provide methodological and interpretive challenges (the difference

between the true value of a variable and the value obtained by a measurement). That's why it's

crucial to think about how your variables and metrics are correlated with one another.

In PLS-SEM, the tolerance level (TOL) and variance inflator factor are used to test for collinearity

(VIF). When attempting to quantify the degree of collinearity between indicators or construct

dimensions, TOL and VIF are useful tools. The total amount of a concept's volatility that cannot

be accounted for by correlations between its indicators or dimensions is called its TOL by Purwanto

and Sudargini (2021).

The VIF, per their definition, is the negative of the amount of unexplained variation in a given

indicator that can be accounted for by looking at other variables having similar properties. The

Variance Inflation Factor (VIF) measures how much the standard error is inflated when there is a

strong relationship between the elements of a given construct.

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Their results revealed that VIF values given as standard practice when examining the collinearity

of measurement models, even though Purwanto and Sudargini (2021) showed that TOL and VIF

convey practically the same information.

Table 7.7: Collinearity Statistics - VIF

Constructs/Measurement Items Loadings

PRICING ANTECEDENTS (CONDITIONS)
Competition-related conditions-(Indounas & Avlonitis, 2010)
High possibility of new competitors entering into the market 1,437
Large number of competing services 1,165
Prices are determined by the market’s own mechanisms 1,246
Intensive competition in the market 1,340
Corporate and marketing strategy-related conditions-(Indounas & Avlonitis,
10)
Attraction of new customers 1,251
Reduction of the price more easily in the future 1,155
Achievement of a satisfactory market share 1,123
Need to make the service well-known 1,263
Creation of a prestigious image 1,278
Ability to reduce the cost as the production increases 1,305
Coverage of the service’s development costs 1,127
*Fast rate of the new service’s adoption Deleted
*Sale of other services at higher prices Deleted
*Discouragement of new competitors entering into the market Deleted
Customer-related conditions - (Indounas & Avlonitis, 2010)
Customers are aware of the specific service 1,034
Customers are aware of the prices offered in the market 1,070
High potential demand 1,061
High price elasticity 1,056

PRICING STRATEGIES
Cost-based pricing- (Rapaccini, 2015; Liozu & Hinterhuber, 2013)
Variable costs of products/services 1,215
Price necessary to break-even 1,148
Investments in products/services 1,241
Target margin guidelines 1,111
Target return on sales levels 1,117
Competition-based pricing - (Liozu & Hinterhuber, 2013)
Price of competitors’ products/services 1,127
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 Competitors’ current price strategy 1,101
Likelihood of competitors’ strength to react 1,206
Market structure (number and strength of competitors) 1,137
Degree of competition on the market 1,286
*Competitive advantage of competitors in the market Deleted
Value-based pricing - (Rapaccini, 2015; Liozu & Hinterhuber, 2013)
Advantages of the product compared to competitors’ products/services 1,154
Customer perceived value of the products/services 1,113
Customer willingness to pay for the unique benefits of the product/services 1,160
Balance between advantages of products/services and price 1,217
Differentiated value drivers of our products/services compared to substitutes 1,122

MODERATORS
Pricing capabilities – (Liozu & Hinterhuber, 2013)
Using pricing skills and systems to respond quickly to market changes 1,274
Conducting value-in-use analysis or Total Cost of Ownership 1,220
Designing and conducting specific pricing training programs 1,175
Developing proprietary internal price management process 1,313
Doing an effective job of pricing products/services 1,224
Sticking to price list and minimizing discounts 1,269
Quantifying customers’ willingness to pay 1,269
Measuring and estimating price elasticity for products/services 1,237
Knowledge of competitors’ pricing strategies 1,224
Monitoring competitors’ prices and price changes 1,250
*Measuring and quantifying differential economic value versus competition Deleted
*Designing proprietary tools to support pricing decisions deleted
Pricing Objectives
Target return on investment 1,115
Target markup 1,238
Price stabilization 1,218
Market share 1,265
Match competitors’ pricing 1,135

7.7 Evaluation of structural models

Methods for objectively evaluating a model's accuracy in making predictions and the robustness

of its constituent parts and their interactions are known as structured model evaluation (Purwanto

& Sudargini, 2021). Thus, the primary criteria for assessing structural models is the accuracy of

their forecasts as determined by the quality of the independent components. Parameters of the

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structural model were estimated using PLS-SEM to increase the amount of variation accounted for

by the constructs. PLS-SEM uses a methodical technique to objectively evaluate a model's

framework.

7.7.1 The rationale for PLS-SEM

According to Chin (1998), indicators and the measurement error of the observed variable make it

possible for structural equation modeling to offer indirect assessment of unobservable variables. A

comparison of the two types of structural equation modeling proposed by Lowry and Gaskin (2014)

reveals:

They include:

• Variance-Based Structural Equation Modeling

• Co-variance-Based Structural Equation Modeling (VB-SEM).

The Least Squares (PLS) method of partial SEM is regarded as the "most thoroughly developed

general system" (McDonald, 1996), "silver bullet" (Hair et al., 2011), and "Full-fledged SEM

methodology" (Hair et al., 2011). (Henseler et al., 2016). SmartPLS 4 and Variance Based

Structural Equation Modelling are used in this study.

Because of its reliability in a variety of applications, including explanation (Memon et al., 2021),

prediction (Kaur, 2020), and theory testing and development, PLS-SEM was utilized in this

exploratory study (Memon et al., 2021; Kaur, 2020). This is according to (Purwanto & Sudargini,

2021). PLS-SEM, as stated by Memon et al. (2021), is particularly useful in exploratory studies,

and it also has the following applications:

• PLS-SEM outperforms standard SEM methods because it makes use of a wide variety of

statistical techniques to examine the associations between several variables (including

158
 independent, dependent, moderator, and moderator variables).

• The effects of measurement error are mitigated using PLS-bootstrapping SEM, leading to

a more trustworthy score from PLS-SEM structures.

• PLS-SEM can capture a broad range of measurement model properties in the form of

composite factor models, and it can be validated using Standardized Root Mean Square

Residual Analysis (SRMR).

Path coefficient analysis and significance testing without hypotheses are two areas where PLS-

SEM excels (NHST).

As PLS-SEM converges more quickly, it is the preferred statistical approach for small sample sets.

To maximize the variance explained (R2) of the endogenous latent variables in the route model, a

technique called partial least squares structural equation modeling (PLS-SEM) is used to depict

the predictive abilities of the model (Purwanto & Sudargini, 2021).

PLS-SEM was chosen as the SEM method for multivariate analysis because of its specific features

and suitability to the study. Measuring models (called "external" models) and structural models

(called "inner" models) are the two halves of PLS-SEM, as described by Purwanto and Sudargini

(2021). The measuring model, in their view, elucidates the connection between infrastructure and

performance metrics. Nevertheless, structural models reveal the interconnections between parts.

Using PLS-SEM, we can examine the moderating effects of pricing antecedents on pricing

strategies and the impact of pricing strategies on SME performance. Estimates of the projected

linkages between the constructs, together with their direction and strength, were obtained using

route standardized coefficients.

The degree of variation in the dependent construct that can be attributed to the independent

constructs associated with it is represented by the coefficient of determination (R2) (Hair et al.,

2017). The route model's predictability is quantified by R2.

159
In this study, we utilize p-values to test the robustness of competing hypotheses about the

relationships between causes and their effects. We say that findings are significant if and only if

the p-value is less than 0.05.

The hypotheses are evaluated using conventional cause and effect models. Using PLS-SEM route

models, we can see that there is a direct impact from one construct to another construct,

independent of any other influences in the system (Hair et al., 2017). This is due to the fact that in

simple cause-and-effect models, exogenous and endogenous factors have direct influence

correlations.

Research objectives and the causal-steps approach inform the development of a structural model

(Baron & Kenney, 1986). The expected effects were analyzed using bootstrapping, which included

checking the path standardized coefficients, the coefficient of determination (R2), the significance

level of the connection between the constructs, and the p-values. The moderating effect of pricing

abilities and objectives was examined using multiplication. The multiplicative moderation analysis

variables were all normalized before the bootstrapping. The results of the structural model are as

follows:

Table 7.8: SEM Path Analysis model with Pricing Antecedents, Pricing Strategies and

Pricing objectives and Pricing capabilities

Path
Relationships P Values
oefficient

Controls
No. of Owners -> Market Share Growth 0,379 0,008
No. of Owners -> Profit Growth 0,006 0,980
No. of Owners -> Sales Growth 0,479 0,003
Sector -> Market Share Growth 0,042 0,443
160
Sector -> Profit Growth 0,029 0,662
Sector -> Sales Growth 0,066 0,256

Non-Hypothesized Relationships
Pricing Capability -> Competitor-based Pricing 0,057 0,210
Pricing Capability -> Cost-based Pricing 0,249 0,000
Pricing Capability -> Value-Based Pricing 0,189 0,000
Pricing Objective -> Competitor-based Pricing 0,033 0,416
Pricing Objective -> Cost-based Pricing 0,140 0,000
Pricing Objective -> Value-Based Pricing 0,146 0,000
Pricing Capability -> Profit Growth 0,054 0,511
Pricing Capability -> Sales Growth 0,098 0,306
Pricing Capability -> Market Share Growth -0,085 0,318
Pricing Objective -> Profit Growth 0,050 0,478
Pricing Objective -> Sales Growth 0,153 0,009
Pricing Objective -> Market Share Growth 0,037 0,623

Hypothesized Relationships
Antecedent-Pricing Strategy Paths
Competitor-related condition -> Competitor-based Pricing 0,267 0,000
Competitor-related condition -> Cost-based Pricing 0,268 0,000
Competitor-related condition -> Value-Based Pricing 0,263 0,000
Corporate and Market Condition -> 0,448 0,000
Competitor-based Pricing
Corporate and Market Condition -> Cost-based Pricing 0,183 0,003
Corporate and Market Condition -> Value-Based Pricing 0,297 0,000
Customer Related Condition -> Competitor-based Pricing 0,010 0,815
Customer Related Condition -> Cost-based Pricing 0,069 0,089
Customer Related Condition -> Value-Based Pricing 0,276 0,000

Pricing Strategy-Performance Paths

Cost-based Pricing -> Market Share Growth 0,057 0,543
Cost-based Pricing -> Profit Growth 0,198 0,000
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 Cost-based Pricing -> Sales Growth -0,093 0,123
Competitor-based Pricing -> Market Share Growth 0,046 0,574
Competitor-based Pricing -> Profit Growth 0,106 0,081
Competitor-based Pricing -> Sales Growth 0,066 0,601
Value-Based Pricing -> Market Share Growth 0,189 0,002
Value-Based Pricing -> Profit Growth 0,134 0,018
Value-Based Pricing -> Sales Growth 0,125 0,034

Interaction Moderators: Pricing Capability and Objective

Pricing Capability x Cost-base -> Market Share Growth 0.471 0.000
Pricing Capability x Cost-base -> Profit Growth 0.070 0.534
Pricing Capability x Cost-base -> Sales Growth 0,010 0,442
Pricing Capability x Competitor-based -> Market Share -0,040 0,215
owth
Pricing Capability x Competitor-based -> Profit Growth 0.151 0.008
Pricing Capability x Competitor-based -> Sales Growth -0.091 0.555
Pricing Capability x Value-based -> Market Share Growth 0.306 0.000
Pricing Capability x Value-based -> Profit Growth 0,100 0,099
Pricing Capability x Value-based -> Sales Growth 0.124 0.038
Pricing Objective x Competitor-based -> Market Share 0,030 0,345
owth
Pricing Objective x Competitor-based -> Profit Growth -0.101 0.082
Pricing Objective x Competitor-based -> Sales Growth -0.053 0.489
Pricing Objective x Cost-base -> Profit Growth 0.141 0.029
Pricing Objective x Cost-base -> Market Share Growth 0.368 0.000
Pricing Objective x Cost-base -> Sales Growth 0,052 0,213
Pricing Objective x Value-based -> Market Share Growth 0.278 0.008
Pricing Objective x Value-based -> Profit Growth 0,139 0,010
Pricing Objective x Value-based -> Sales Growth 0.114 0.041

7.7.2 Path standardized coefficients (direction)

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The analysis may have overstated the significance of the expected connections due to the

inclusion of many firm-level characteristics. The number of owners and the kind of industry

in which a SME operated were utilized as control variables in the study to determine their

effects on the dependent variable. Not only were postulated connections included, but so were

any others that were shown to be both significant and not previously hypothesized.

The first group of encounters was expected to examine how antecedents and conditions

affected the price decisions made by SMEs. The results demonstrate strong ties between the

different price contexts and pricing strategies. There are just two connections that lack

statistical significance: one between customer circumstances and competitor-based pricing,

and another between customer circumstances and price based on costs.

After that, we postulated that SME performance was directly related to pricing strategy.

Growth in market share, profits, and revenue were all shown to be significantly correlated

with the adoption of a value-based pricing strategy. Yet, pricing strategies that take into

account the actions of competitors were shown to have no impact on any measure of SME

success. There was a significant correlation between using a cost-based pricing strategy and

increasing profits, but not with expanding market share or increasing revenue.

To test whether price objectives and pricing flexibility moderated pricing strategies and SME

performance, we used the multiplicative approach of moderation assessment, as stated

before. The results show that pricing capability moderates the growth of all four dimensions:

market share (based on costs), competitor share (based on profits), value share (based on

sales), and value growth (based on market share. The other factors little affected the pricing

skills or strategies of the others.

Instead, expenses based on profit expansion and market share gain were moderated by the

price objective. In addition, the value-based approach and all of the SME performance

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measures, including market, profit, and sales growth, were moderated positively by the price

goal, which was statistically significant.

Coefficient of determination is a statistical measure of how much variation in the dependent

construct can be attributed to the group of independent constructs (R2). R2 measures how

much a set of independent factors influences a dependent variable overall (Hair et al., 2017).

Predictive ability of the route model is shown by R2. Values of 0.75, 0.50, and 0.25 for R2

indicate a strong, moderate, and poor degree of prediction accuracy, respectively, within the

typical 0-1 range (Hair et al., 2020; Henseler et al., 2018).

Table 7. 9: R-Square

Constructs R-Square
Cost – Based pricing strategy 0.575
Competitor – Based Pricing strategy 0.625
Value-based pricing strategy 0.613
Sales-growth 0.288
Profit-growth 0.237
Market-share growth 0.225

R2 values between 0.50 and 0.75 present a large to moderate degree of accuracy for cost-based,

competitor-based, and value-based pricing methods. As regards accuracy, the R2 values for sales

growth, profit growth, and market share growth all hover around 0.25.

7.7.3 Q – Square

The measure of predictive relevance Q-square indicates whether or not a model has predictive

value (Q2 > 0 is favorable). Q2 further establishes the predictive importance of the endogenous

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constructs. When the Q-square is bigger than zero (Q2 > 0), the model is predictively applicable

and your values have been generated appropriately. When Q2 is larger than zero, the model has

predictive validity.

Table 7.10: Q-Square

Constructs Q-Square
Cost – based Pricing Strategies 0.563
Competitor – Based Pricing Strategies 0.615
Value – Based Pricing Strategies 0.599
Sales Growth 0.328
Profit Growth 0.360
Market – Share Growth 0.342

As all the Q2 values in Table 7.10 are greater than zero, it is predicted that the model is relevant

and has been accurately constructed.

7.8 Sub-group moderation effect analysis

To assess the possible moderating influence of SME age and size, the research used the Smart PLS

subgroup moderation method. In each instance, two subgroups were formed. The whole model was

then applied to these subgroups. As the purpose of the study was to compare coefficients, path

significance was disregarded in favor of group differences. The Welch-Satterthwait test was

administered to the two groups based on SEM age and SEM size. If the Welch-Satterthwait test

reveals a significant difference, a hypothesis will be accepted, and this will be observed for each

of the relevant routes in the study's model.

7.8.1 SME Path Analysis: SME Age

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To examine the effect of SME age as a moderator, the research separated the data set into two

groups: SMEs younger than 5 years and those older than 5 years. While the individual pathways

in the table below are seen to be significant, their Welch-Satterthwait test revealed no significant

differences. The Welch-Satterwait test, sometimes referred to as the he null hypothesis that the

means of two populations are identical is tested using the unequal variance t-test, a two-sample

location test. are equal. A version of the student’s t-test that carries the name of Bernard Lewis

Welch. When the two samples have distinct variances and maybe different sample sizes, the results

are more trustworthy.

The two-sample location test compares the two samples' location characteristics. When the two

groups reflect research participants who got two unique treatments, this is a common occurrence.

The purpose of this study is to investigate if one therapy typically produces a greater response than

the other. In a two-sided test, it is of interest if one of the treatments is superior to the other, but in

a one-sided test, it is specified prior to the analysis that it is only of interest if a certain treatment

yields superior results.

Welch's t-test is used to compare means in this research since the variances of two tested means

from distinct populations are not comparable. This test will help us estimate the t distribution for

two populations with normal distributions.

Table 7.11: Sub- Group Moderation Path – SME Age

Relationships >5 years ≤5 years

Path P Path P
Coefficient Values Coefficient Values
Interaction Moderators: Pricing strategies and
SME performance
Cost-based Pricing -> Market Share Growth 0,049 0,243 0,061 0,223
Cost-based Pricing -> Profit Growth 0,201 0,000 0,175 0,000

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Cost-based Pricing -> Sales Growth -0,109 0,272 -0,183 0,163
Competitor-based Pricing -> Market Share Growth 0,024 0,281 0,016 0,447
Competitor-based Pricing -> Profit Growth 0,104 0,144 0,066 0,248
Competitor-based Pricing -> Sales Growth 0,113 0,098 0,047 0,360
Value-Based Pricing -> Market Share Growth 0,209 0,000 0,189 0,010
Value-Based Pricing -> Profit Growth 0,194 0,000 0,241 0,000
Value-Based Pricing -> Sales Growth 0,139 0,040 0,141 0,038

Interaction Moderators: Pricing Capability and

Objective
Pricing Capability x Cost-base -> Market Share 0.534 0.000 0.365 0.000
Growth
Pricing Capability x Cost-base -> Profit Growth 0.077 0.303 0.103 0.119
Pricing Capability x Cost-base -> Sales Growth 0,021 0,352 0,034 0,289
Pricing Capability x Competitor-based -> Market -0,043 0,301 -0,029 0,291
Share Growth
Pricing Capability x Competitor-based -> Profit 0.166 0.005 0.152 0.011
Growth
Pricing Capability x Competitor-based -> Sales -0.078 0.312 -0.031 0.265
Growth
Pricing Capability x Value-based -> Market Share 0.327 0.000 0.289 0.000
Growth
Pricing Capability x Value-based -> Profit Growth 0,189 0,004 0,130 0,043
Pricing Capability x Value-based -> Sales Growth 0.134 0.040 0.149 0.030
Pricing Objective x Competitor-based -> Market 0,035 0,389 0,0790 0,287
Share Growth
Pricing Objective x Competitor-based -> Profit -0.098 0.314 -0.102 0.132
Growth
Pricing Objective x Competitor-based -> Sales -0.067 0.356 -0.051 0.467
Growth
Pricing Objective x Cost-base -> Profit Growth 0.141 0.038 0.140 0.038
Pricing Objective x Cost-base -> Market Share 0.322 0.000 0.301 0.000
Growth
Pricing Objective x Cost-base -> Sales Growth 0,071 0,332 0,056 0,356
Pricing Objective x Value-based -> Market Share 0.301 0.000 0.285 0.000
Growth

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Pricing Objective x Value-based -> Profit Growth 0,151 0,008 0,132 0,010

Table 7.12: R-square

Constructs R - Square
Sales growth 0.118
Profit growth 0.146
Market – Share growth 0.124

The R2 values for sales-growth, profit-growth, and market-share-growth of SMEs, which range
from 0 to 0.25, show a decent degree of accuracy of the model's constructs.

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Table 7. 13: Welch-Satterwait test: SME Age (>5 Years Vrs ≤ 5 Years)

Difference p value
Relationship
>5 years - ≤5 Years) (>5 years - ≤5 Years)
Cost-based Pricing -> Profit Growth 0,031 0.552
Value-Based Pricing -> Market Share Growth 0,029 0.645
Value-Based Pricing -> Profit Growth -0,032 0.521
Value-Based Pricing -> Sales Growth -0,007 0.912
Interaction Moderators: Pricing Capability and
Objective
Pricing Capability x Cost-base -> Market Share Growth 0,201 0.043
Pricing Capability x Competitor-based -> Profit Growth 0,019 0.712
Pricing Capability x Value-based -> Market Share Growth 0,041 0.491
Pricing Capability x Value-based -> Profit Growth 0,051 0.445
Pricing Capability x Value-based -> Sales Growth -0,022 0.689
Pricing Objective x Cost-base -> Profit Growth 0,002 0.967
Pricing Objective x Cost-base -> Market Share Growth 0,029 0.644
Pricing Objective x Value-based -> Market Share Growth 0,021 0.698
Pricing Objective x Value-based -> Profit Growth 0,029 0.567

If you look at Table 7.11, you'll see that the p-values for all constructs are more than 0.05,

demonstrating that the SME age is irrelevant for all hypothesized pathways. This demonstrates that

none of the investigated correlations are weakened with increasing age. Thus, the link between

price antecedents/conditions and pricing strategies, as well as the association between pricing

strategies and SME performance, are not influenced by the age of the SME. Moreover, regardless

of the age of the SME, price objectives and pricing capabilities have the same moderating effect.

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Table 7.14: SEM Path Analysis: SME Size (>5 employees vs. ≤5 employees)

Relationships > 5 employees ≤5 employees

Path P Path P
Coefficient values Coefficient values
Cost-based Pricing -> Market Share Growth 0,041 0,408 0,061 0,611
Cost-based Pricing -> Profit Growth 0,202 0,000 0,246 0,000
Cost-based Pricing -> Sales Growth -0,105 0,197 -0,099 0,119
Competitor-based Pricing -> Market Share 0,051 0,391 0,041 0,493
Growth
Competitor-based Pricing -> Profit Growth 0,100 0,089 0,095 0,092
Competitor-based Pricing -> Sales Growth 0,059 0,332 0,069 0,291
Value-Based Pricing -> Market Share Growth 0,203 0,002 0,171 0,003
Value-Based Pricing -> Profit Growth 0,145 0,015 0,131 0,023
Value-Based Pricing -> Sales Growth 0,151 0,009 0,119 0,041

Interaction Moderators: Pricing Capability and

Objective
Pricing Capability x Cost-based Pricing -> Sales 0,512 0,000 0,470 0,000
Growth
Pricing Capability x Cost-base -> Market Share 0.059 0.341 0.060 0.340
Growth
Pricing Capability x Cost-base -> Profit Growth 0,009 0,611 0,011 0,413
Pricing Capability x Competitor-based Pricing -> -0,042 0,232 -0,039 0,206
Market Share Growth
Pricing Capability x Competitor-based -> Profit 0.156 0.008 0.149 0.009
Growth
Pricing Capability x Competitor-based -> Sales -0.088 0.618 -0.093 0.505
Growth
Pricing Capability x Value-based -> Market Share 0.353 0.000 0.281 0.000
Growth
Pricing Capability x Value-Based Pricing -> 0,118 0,048 0,098 0,089
Profit Growth
Pricing Capability x Value-based -> Sales Growth 0.136 0.029 0.120 0.041
Pricing Objective x Cost-based Pricing -> Sales 0.149 0.020 0.140 0.027
Growth
Pricing Objective x Cost-base -> Market Share 0.361 0.000 0.315 0.000
Growth
Pricing Objective x Cost-base -> Profit Growth 0,056 0,309 0,049 0,396
Pricing Objective x Competitor-based Pricing -> 0,033 0,505 0,028 0,521
Market Share Growth
Pricing Objective x Competitor-based -> Profit -0.113 0.068 -0.098 0.083
Growth
Pricing Objective x Competitor-based -> Sales -0.062 0.292 -0.054 0.312
Growth

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 Pricing Objective x Value-Based Pricing -> Profit 0.302 0.000 0.256 0.000
Growth
Pricing Objective x Value-based -> Market Share 0,141 0,010 0,138 0,010
Growth
Pricing Objective x Value-based -> Sales Growth 0.120 0.041 0.131 0.033

Table 7.15: Welch-Satterthwaite test – SME Size (> 5 employees vs ≤5 employees)

Difference p value
Relationships > 5 employees - ≤5 > 5 employees - ≤5
employees) employees)
Cost-based Pricing -> Profit Growth -0,052 0.421
Value-Based Pricing -> Market Share Growth 0,045 0.498
Value-Based Pricing -> Profit Growth 0,019 0.709
Value-Based Pricing -> Sales Growth 0,049 0.487
Interaction Moderators: Pricing Capability and Objective
Pricing Capability x Cost-based Pricing -> Sales Growth 0,039 0.522
Pricing Capability x Competitor-based -> Profit Growth 0,005 0.931
Pricing Capability x Value-based -> Market Share Growth 0,091 0.178
Pricing Capability x Value-Based Pricing -> Profit Growth 0,031 0.556
Pricing Capability x Value-based -> Sales Growth 0,020 0.699
Pricing Objective x Cost-based Pricing -> Sales Growth 0,011 0.789
Pricing Objective x Cost-base -> Market Share Growth 0,049 0.481
Pricing Objective x Value-Based Pricing -> Profit Growth 0,055 0.311
Pricing Objective x Value-based -> Market Share Growth 0,006 0.922
Pricing Objective x Value-based -> Sales Growth -0,015 0.778

The results for SME Size as a moderator are shown in the two tables above (Table 7.14 and Table

7.15). The same methodology as the SME age analysis was used. The data was separated into

SMBs with less than five employees and those with five or more workers. While there are

indications of path importance in both samples, the Welch-Satterthwait test did not reveal any

significant differences in the route coefficients. The findings indicate that the impact of pricing

circumstances on pricing strategy and pricing strategy on performance is the same regardless of

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the size of the SME. In addition, the moderating impact of price objectives and pricing capabilities

does not vary based on the size of the SME.

7.9 Chapter summary

This chapter provided evidence that the inquiry was multivariate, necessitating the use of

multivariate analytic procedures such as structural equation modeling. SEM makes use of statistical

methods that can evaluate several variables at once. The two primary SEM varieties, variance- and

covariance-based SEM (CO-SEM), were described (PLS- SEM). The PLS-SEM model's inclusion

was also warranted.

The quality of the constructions and dimensions was evaluated in this chapter by looking at the

interplay between the theories, the variables, and the measurements. The constructs' validity and

discriminant validity (HTMT) were evaluated using composite reliability, and the constructs'

reliability measured by means of an indication outer loading and average variance extracted

(AVE). The association between indicators and dimensions was also evaluated using the variance

inflation factor (VIF).

Bootstrap confidence intervals (BCIs) were used to estimate the standard error of the data, t-values

and p-values were used to determine statistical significance, and path standardized coefficients

were used to inquire into the nature and strength of the relationship between the two constructs

(SE).

The structural models reviewed in this chapter suggest a less than ideal link between price

antecedents and pricing strategies. It also showed that there is a positive correlation between

pricing methods and the performance of SMEs, suggesting that these techniques should be

moderated. Moreover, the model discovered a positive association between the pricing strategies

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dependent variable and the independent variable (pricing capabilities) and the moderator variables

(pricing objectives and pricing capabilities) (SME Performance).

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 CHAPTER 8

DISCUSSION OF FINDINGS

8.1 Introduction

The preceding chapter revealed the findings from the study of empirical data. In this part of thesis,

we discuss these results. Using the objectives from Chapter 1 and the assumptions from Chapter

5, the results are discussed. Beginning with a overview of the study's objectives, this section

provides crucial context for the rest of the report. The results are then discussed with the link to

each of the stated objectives. A brief overview of this chapter follows.

8.2 Discussions

In this study, we focus on the corelation between pricing strategies and the prosperity of SMEs.

This study looks at the effect of pricing strategies on the productivity of South African SMEs. The

first few chapters of the study make a strong argument for price being one of the major challenges

for SMEs today. According to the report's findings, if a small business (SME) wants to thrive and

grow, it has to pay close attention to price since it's the only element of the 4Ps that really brings

in money. The following discussions will attempt to provide empirical explanations for why certain

pricing strategies are used and how certain performance indicators change as a result of changes in

price for SMEs. In addition, the paper explores moderating aspects that might serve as possible

boundary conditions for the efficacy of pricing strategies inside SEMs, while linear assumptions

in strategy research provide little insight (see Anning-Dorson, 2017, 2021). The interviews are

done to achieve the four objectives of the research.

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8.3 Research Objective 1: Influence of pricing antecedents on pricing strategies

The fundamental objective of this study is to understand what factors and conditions influence

SMEs in terms of pricing decisions. Assessing the factors that influence pricing strategies is

essential for SMEs to boost their chances of survival and success via strategic pricing.

This study provides empirical evidence that price antecedents or conditions explain the selection

of pricing strategies. Conditions that have nothing to do with customers and hence do not affect

competitor-based pricing or cost-based pricing have a positive effect on the pricing strategy choice

of SMEs. Cost-based pricing strategy, competition-based pricing strategy, and value-based pricing

strategy all have considerable associations with all antecedents, including business and market

antecedents, customer antecedents, and competition antecedents. The findings imply that there is

a common thread across competitive, company, and marketing, and customer perspectives on

price. Some examples of pricing strategies include those that are cost-based, competitor-based, or

value-based.

All SMEs, from manufacturing and services to retail and wholesale, need price strategies.

Companies use pricing strategies to establish selling prices for their goods and services. This helps

them turn a profit and expand their operations. Most companies' pricing methods create a slew of

problems, such as decreased profits and an inability to maintain operations in the long run. South

African SMEs always fail because their pricing strategies are flawed; this is a result of their failure

to properly investigate the causes of their pricing difficulties (Myers et al., 2002). A lack of

business expertise about markets and price only makes this worse.

Corporate and market-related pricing antecedents like attracting new customers, achieving a

satisfactory share in the market, knowing the services provided, creating a prestigious image,

reducing the production cost, covering the costs of developing the service, a high rate of adoption

of new services, the sale of other services at higher prices, discouraging new competitors from

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entering the market, and lowering the price morbidity. According to the model, these variables are

closely linked to all pricing methods. This demonstrates how corporate and market circumstances

outside the control of South African SMEs affect pricing decisions.

SMEs have a far more difficult time pricing and executing price strategies. One of the elements of

the marketing mix that may be changed quickly is price. Value is the sole consideration in the

price. Businesses selling to consumers and those selling to other businesses alike face a difficult

but not wholly unique pricing dilemma. Surprisingly, despite the extreme difficulties in

maintaining, many proportions are still commonly accepted. A pricing problem develops when

many businesses, which are not always in agreement with one another, set their own prices and

specials. Findings from this research agree with those from Sammut-Bonnici and Channon (2014).

Sammut-Bonnici and Channon (2014) argue that pricing strategy need to be an integral component

of strategic planning.

Subrahmanyan said that one of the biggest issues for business owners is offering prices that can't

be matched by competitors (2000). Despite a mountain of academic literature and several methods

for determining prices, broad strokes continue to guide retail today (Wagner & Beinke, 2006).

Several additional research have come to the same conclusion that price antecedents have a

significant and favorable connection with pricing methods as this one (Subrahmanyan, 2000;

Wager & Beinke, 2006; Forman & Hunt, 2005). Finally, price antecedents are critical in shaping

the pricing policies of SMEs.

The implication is that raising prices is the quickest and least difficult way for any size of

organization to boost profits. McKinsey & Company found that firms in the S&P 1500 saw an

8.1% gain in operational profit for every one percent increase in price. Instead, operating income

fell by 8.1% while prices dropped by just 1%. It is possible that the success of the Company may

be significantly affected by setting reasonable prices.

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A high price may be indicative of quality, but it won't matter if no one is willing to pay it. If your

product is priced too cheap, customers will see it as subpar and pass it by. When setting prices, the

goal should be to have customers choose your product over similar ones offered by rivals. SMEs

may choose whether to use a skimming pricing strategy or a penetration pricing strategy depending

on the market sectors they want to target. Most purchasers and consumers believe that a product's

price directly correlates with its quality. Some people believe that low-priced products are low-

quality, while others believe that high-priced products are wasteful and that consumers should

instead choose for a different model that has the same or similar features and advantages. Findings

suggest a robust connection between pricing structures and their origins.

8.4 Research Objective 2: Analysing the effects of pricing strategies and SME performance

Among the most glaring holes in the literature that prompted this investigation is the lack of

consistency in the relation between pricing strategies and SME performance (Cant et al., 2016;

Amin, 2021). The study's overarching goal was to examine the effects of three pricing strategies

on three indicators of SME performance in an effort to highlight on the disparities and

contradictions.

According to the data, not every pricing strategy used by South African Businesses improves

performance. It was found that a pricing strategy based on the perceived value to the customer

improved results significantly. Results show that using a value-based pricing strategy will help

SMEs in South Africa increase their market share, profits, and revenue. Yet, there was no positive

correlation between rival price and any of the performance indicators. SME profit growth in South

Africa might be the sole target of cost-based pricing. The findings indicate that value-based pricing,

and to a lesser degree cost-based pricing methods, are vital to the productivity of South African

SMEs. This study shows that many SMEs in South Africa may not make it beyond the first few

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years of operation because they try to adopt a pricing strategy based on their competitors.

Previous studies have established a considerable association between pricing strategies and the

success of SMEs, but our results do not entirely support that hypothesis. Being the first to

investigate the link between pricing strategies and the performance of SMEs, Sousa and Bradley

(2008) are revered as the topic's progenitors. Researchers Pippo (2018) found a positive,

statistically significant correlation between strategic pricing and firm performance. Similar results

were discovered by Lin et al. (2010) who investigated the impact of pricing strategies on the overall

profitability of businesses. Scholars have shown a positive correlation between pricing strategies

and the performance of SMEs in a number of similar research (see, for example, Abiodun and

Kolade, 2010, Manuere et al., 2015, and Amin, 2021).

The results of this study corroborate those of Liozu and Hinterhuber (2013), who found that

shifting to value-based pricing increased profits for enterprises of all sizes. They also found that

regardless of company age, sector, or size, value-based pricing improved profitability. As stated

by Rudiger (2004), value-based pricing does not include a hike in price for otherwise equivalent

goods and services. Instead, it entails finding ways to represent customer value to different market

segments and adjusting price to reflect shifts in value perception, among other things. This study

provides hard data to support the findings that value-based pricing is the best strategy for SMEs to

thrive in a dynamic market like South Africa's.

8.5 Research Objective 3: Moderating effects of a firm’s age and size on the relationship

between the pricing strategies and SMEs in emerging economies

According to these findings, the relationship between price antecedents and pricing strategies is

unaffected by the SME Age. The analyzed model does not show that the age or size of a SME

moderates the connection between pricing strategies and SME performance.

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Results from this research are consistent with those by De Toni et al. (2022), Latifi et al (2021).

De Toni et al. (2022) found that the association between pricing strategies and the success of SMEs

was unaffected by demographic characteristics of the company, such as import and new products.

Company size and age are deemed irrelevant to performance by Latifi et al. (2021). When it comes

to business failure, age and size don't matter, according to Caves (1998). Growth and failure

probabilities, as well as firm size, are negatively correlated with one another (McPherson 1995).

There is often no correlation between the age of a company and its likelihood of failing (Altman,

1983; Castrogiovanni 1996; Monk 2000). A company's size is not a reliable indicator of its success

or failure, according to previous research (Altman 1983; Ohlson 1980; Peel 1985, 1987; Peel et

al., 1985 and 1986). In both 1983 and 1968, Altman used a company's total assets as a measure of

its size.

The inference is that, generally speaking, smaller businesses work more efficiently than their larger

counterparts, but that this trend reverses once they reach a certain size. Unless the companies in

question are run by people with an entrepreneurial spirit, they have a far lower chance of success

than bigger, more established businesses. Yet neither the length of time a company has been around

nor its current financial status are related to the rate of its growth or profitability. A company's size

is proportional to both its resources and the expenditures associated with keeping those resources

at a constant level. Firm size may be roughly determined by counting the number of workers. Most

scholars hold the view that small enterprises can only thrive in environments where huge

corporations are not given an institutional advantage.

Since they lack the material and retained earnings to effectively create or get access to these

informal networks, small businesses are predominantly dependent on publicly available markets

with higher-than-average transaction costs. For one thing, small businesses often don't have the

capital to invest in creating or gaining access to informal networks. Empirical studies have shown
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that small enterprises in developing countries have traditionally had a hard time succeeding

because their owners and managers lacked the necessary technical and management skills. Access

to managerial and financial resources considerably improves small enterprises' chances of survival,

development, and competitive success. Thus, the company's size and length of existence are

immaterial.

8.6 Research Objective 4: Impact of Pricing objectives and Pricing Capabilities on the

relationship between pricing strategies and SME Performance

It is important to know how the price objectives and capacities of SMEs explain the linear

correlations, in addition to examining the association of pricing strategies on business performance.

Hence, pricing capacity and price objectives mediated the connection between pricing strategies

and SME performance.

Results showed that pricing capabilities of SMEs moderated the relationship between value-based

pricing strategy and SME success measures including increase in profit, sales, and market share.

Findings from the study also showed that SMEs' profit growth performance was less affected by

cost-based pricing when they had access to pricing capabilities. This suggests that while cost-based

pricing may not have a significant connection with profit growth, a SME's chance of profitability

improves when it has a high pricing competence. This demonstrates that price strategy alone may

not be enough to affect SMEs' performance, as an understanding of how pricing functions in one's

business may be a decisive factor.

Moreover, it is shown that, if SME pricing skills are sufficient, a competitor-based price strategy

may boost profit growth. If a SME wants to succeed financially, its choice of pricing strategy has

to be tied to its level of pricing expertise. So, the evidence suggests that the capacity to set prices

accurately is critical to the success of SMEs.

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The study set out to investigate how different price objectives affected the correlation between

pricing strategies and financial outcomes among SMEs. When compared to the prices and results

of competitors, moderation had no discernible effect. This shows that a pricing strategy based on

competitors has the same effect on all performance metrics regardless of the SME's price objective.

Yet, the price goal moderated the connection between value-based pricing strategy and all

performance measures. This suggests that the efficacy of value-based pricing strategies for SMEs

is improved when price objectives are made very clear. Furthermore, it was shown that pricing

objective mediated the connection between cost-based price objectives and expansion of market

share and profits. In sum, cost-based pricing may not have a direct big correlation with corporate

performance, but it does have a strong relationship when coupled with a specified price purpose.

The findings indicate that pricing skills and pricing objectives influence the beneficial relationship

between pricing strategies and SMEs' outcomes. Prior research by Avlonitis and Indounas (2005)

investigated the connection between pricing objectives and pricing strategies for. Furthermore, the

link's effects were quite noteworthy. Price is a critical management tool for helping businesses

meet their pricing objectives, say Cant et al. (2016). Avlonais and Indounas (2005) came to a

similar conclusion, arguing that price objectives should be the primary consideration when

developing pricing strategies. Investment in marketing operations that create competitive assets to

boost corporate success is what strategic planning efforts are all about (Dickinson & Ramaseshan

2008). An increase in earnings is a direct result of pricing strategies, as stated by Yang et al. (2018).

Nevertheless, Morgan et al. (2019) agree that marketing strategies are investments that produce

performance and growth. Substantial evidence suggests that pricing knowledge and price

objectives affect pricing strategies and profitability through sustained competitive advantage. As

reported by (Srivastava, 2016). Verdakas (2014) argues that differences in pricing methods are an

indication of the distinctive sets of resources and talents available to various businesses. They came

to the conclusion that a company's performance is tied to its pricing strategy, which is in turn

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determined by the company's pricing capabilities and price objectives.

8.7 Chapter summary

The purpose of this study is to investigate the link between price antecedents and pricing strategies,

as well as the relationship between pricing strategies and the success of SMEs. For a deeper dive

into these two associations, we employ moderators including price objectives, pricing capabilities,

and the age and size of SMEs.

It is essential at this point to assess how well the study achieved its stated objectives of learning

more about how SMEs set their prices. Pricing strategies for SMEs and commercial or corporate

organizations are not that different from one another, according to the marketing and pricing

literature. SMEs are seldom included in pricing literature. This caveat should be kept in mind while

evaluating the results. The findings of the study are in line with what was expected. Pricing

strategies and the success of SMEs have been discussed, along with related concerns and

challenges.

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 CHAPTER 9

RECOMMENDATIONS AND CONCLUSION

9.1 Introduction

This last chapter of the thesis provides an overview of the whole research, including everything

from the study's contributions and ideas for both theory and practice to its suggestions for future

research. The primary purpose of this study was to investigate the relationship between

SMEs pricing strategies and the challenges they face in today's modern economy. Results of

SMEs are examined in light of price antecedents and pricing strategies. This research was

conducted in its natural setting, which was South Africa. The study's findings indicate that price

antecedents and pricing strategies are significant factors in the success of SMEs over time. This

research also demonstrates the impact that a business's age and size have on the link between price

antecedents and pricing strategies. Comparatively, the link between pricing strategies and SME

success is moderated by the SME's price objectives and pricing capabilities.

9.2. Key findings

Competition, corporate and market antecedents, and customer-related factors were shown to be

significant determinants of pricing strategies used by South African SMEs in this research.

Moreover, SMEs have a great deal of leeway in determining their own fate via pricing methods

including value-based, cost-based, and competitive pricing. Although the present study has laid

the groundwork for these correlations, there are other critical boundary conditions that may fortify

the ties between strategies of pricing and the SME performance, such as revenue, sales, and market-

share. Both the indicated baseline and the moderating impact was constant regardless of SME size

or age. Thus, we may conclude that the correlations between strategic pricing and the success of

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businesses cannot be explained by their age or size. Here, we present the findings in further depth.

9.2.1 Research Question 1: The investigation of the antecedents to SMEs’ choice of pricing
strategies?

According to these findings, antecedents of prices have a significant influence on pricing strategies.

Developing a pricing strategy might seem like a daunting undertaking if you do not have a thorough

knowledge of the market, the firm’s internal workings, and many interconnections between these

factors. When it comes to driving revenue, few factors are as important as price strategy. The

numbers underline the importance of sticking with a pricing policy that values existing and

potential consumers above rivals. Hence, value differential between old and new products and

services and the value provided to customers provides a more efficient way of using appropriate

pricing strategies, boosting both the profitability and competitiveness of businesses.

Conditions relating to customers, competitors, and corporations/marketing were realized in this

research as gaining an impact on SMEs pricing strategies. These issues continued not only for

newer SMEs but for more seasoned ones too, and for micro and medium-sized businesses. This

points out that SMEs need to give importance to such factors when deciding on a pricing plan. The

success of their pricing strategies is likewise affected by these factors.

9.2.2 Research Question 2: The impact of these pricing strategies on SME performance?

In response to the aforementioned query, the data suggests that not all pricing strategies used by

South African SMEs really improve performance. It was found that a pricing strategy on the basis

of perceived importance to the customer improved results significantly. Results show that using a

value-based pricing strategy will help SMEs in South Africa increase their market share, profits,

and revenue. Yet, there was no positive correlation between rival price and any of the performance

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indicators. SME profit growth in South Africa might be the sole target of cost-based pricing. The

findings indicate that value-based pricing, and to a lesser degree cost-based pricing methods, are

vital to the growth of South African SMEs. This study shows that SMEs in South Africa may not

make it beyond the first few years of operation because they try to adopt a pricing strategy based

on their competitors.

9.2.3 Research Question 3: To examine the moderators that can help best explain the pricing
strategies and SME performance?

The research evaluated certain important characteristics that prior research has shown might

operate as moderators via both interaction and subgroup moderations to provide an answer to the

issue posed above. The price targets and price ranges were employed as interactive moderators.

Results showed that pricing skills of SMEs mitigated the connection between value-based pricing

strategy and SME success measures including profit, sales, and market share growth. This suggests

that while cost-based pricing may not have a significant connection with profit growth, a SME's

chance of profitability improves when it has a high pricing competence. This demonstrates that

price strategy alone may not be enough to affect SMEs' performance, as an understanding of how

pricing functions in one's business may be a decisive factor.

Moderation did not have a significant impact on rival prices or the company's ability to achieve its

pricing objectives. This shows that a SME's pricing objectives has no bearing on the impact of a

pricing strategy based on competitors' prices on any of the KPIs. Yet, price objectives reduced the

connection between value-based pricing strategy and all performance indicators. This suggests that

the efficacy of value-based pricing strategies for SMEs is improved when price objectives are made

very clear.

Finally, the possible modifiers of the pricing strategy-performance connection were evaluated with

respect to the SMEs' age and size. The results showed that pricing strategy had the same effect on
185
SME performance regardless of company age or size. This means that the study's findings on the

importance of pricing strategy choices are independent of the company's age or size.

9.3 Contributions

Many theoretical, empirical, and practical advancements are made in this work that were not

previously present in the aforementioned literature. This research looked at the causes and effects

of SME pricing fixing in South Africa. Considering how consumers value a product and to the

level they are prepared to pay is just one of the equations when choosing prices. It's also connected

to how well the business can support itself and make money for its owners. Astute company owners

may be able to discover a price that is both competitive and profitable by studying the principles

that control the mechanics of pricing. This thesis has shown the circumstances that determine the

success of pricing strategies, which will affect the overall performance of SMEs. The findings

provide promising new directions for research and clinical work.

To begin, a void has been filled by this study in the literature by focusing on the unique challenges

that SMEs face when implementing pricing strategies. This research adds to the literature by

representing that using in-house resources like the ability to create price objectives is the most

effective method for strengthening the connection between pricing strategy and performance. This

research shows that some pricing strategies, when used alone, may not have the desired effect on

sales, market share, and profitability for a SMEs, but when combined with the pricing objectives

and pricing capabilities of the SME, the SME's performance improves. This is a significant

theoretical addition since it explains how internal SME capabilities improve upon the notion of

pricing strategy and performance connection. To the researcher's knowledge, this has not received

sufficient attention, especially in developing countries like South Africa, where SMEs are expected

to drive the majority of economic development.

186
Pricing alone is never a sufficient marketing strategy. If long-term profit is the objective, however,

the price selection becomes the central linchpin around which all other marketing choices for the

business revolve. To increase a company's relative competitive position and return on investment,

it is necessary to use a proactive pricing strategy (Nagle & Holden, 2002). Another significant

development brought about by this study is that the conceptualization is oriented toward marketing,

and thus customer-value centeredness, rather than from an economic or financial management

stance. An economist may focus on the point of price determination where supply and demand

curves intersect, whereas a financial management may place more importance on the revenue

budget based on price. As a marketer, you'll want to think about things like buyer behavior, sales

volume and demand, competition, seasonality, cost, product quality, pricing strategies, objectives,

and how consumers see the value of what you're selling. On the basis of the findings of this

research, SMEs now have genuine market-focused implications for how they might enhance their

performance by adjusting their pricing strategies to better reflect the value they deliver to their

customers.

This research contributes by delving into the issues SMEs in South Africa have with their pricing

strategies, which ultimately leads to their decline and eventual closure. The research found that

there was a wide range of pricing techniques that South African SMEs may use to boost their

productivity. Findings from the provided research credence to the theory that basing one's success

too much on the ability to respond to competitors' prices often results in subpar results. As a result,

Businesses now have access to efficient pricing methods they should use to boost performance.

According to Kurniawan's (2019) research, companies' prices aren't always accurate. It is more

crucial than ever before to have a well thought out pricing strategy in today's environment of

intense competition. According to research by Raju and Zhang (2003), pricing strategies have a

major effect on corporate earnings. Companies often "set a price and hope for the best," as stated

by Lemonakis et al. (2020). Raju emphasized the need of methodical and planned pricing rather
187
than random approaches. One of the most effective ways to set yourself apart from the competitors

is via pricing, which may signal both the superiority of your goods and the scarcity of your market.

This research has supplied the empirical basis for SMEs pricing strategy, which can now be

implemented successfully in the market. It has also shown that SME managers need to consider

the circumstances of their industry before deciding on a pricing policy. As a result, the findings of

this research indicate that the success of a pricing strategy implemented by an SME hinge heavily

on the presence of a well-defined price objectives. So, this research has closed a gap in the existing

empirical literature by a comprehensive analysis of the boundary conditions that explain the pricing

strategies and performance of SMEs.

9.4 Recommendations

External and internal variables have an impact on pricing choices. SMBs adopt a broad variety of

pricing strategies and price adjustments. But, for the product to be profitable, the price must

generate sufficient revenue to cover expenses. Businesses must also establish their policies about

price changes and alterations to their goods' advertised prices. Some firms use price adjustments

as a temporary sales boost.

Small business proprietors should use a holistic pricing policy. Business owners should stop using

the unrealistic cost-plus pricing method and instead factor in all relevant factors when setting

prices. It is important to consider rivals' pricing and expenses while developing a customer-centric

strategy to implement within a bigger market-oriented approach. Only when providing a service of

exceptional quality is it acceptable to charge more than the going rate. The benefits of an integrated

pricing strategy for managers are substantial as well. In certain cases, this might help businesses

more precisely reflect the needs of their markets in terms of price.

By determining its pricing objectives and analyzing the factors that affect how a product should be

188
priced, a firm must choose the pricing strategy that will assist it in achieving those objectives. As

stated earlier, firms use a variety of pricing strategies for their services. In many instances, the

approach is defined by the current stage of the life cycle of a product. Goods in different global

markets may be at various stages of their product life cycle.

For SMEs in South Africa to ensure profit growth, they should incorporate cost-based and value-

based pricing as opposed to competitor-based pricing. Furthermore, these SMEs can ensure sales

growth by implementing value-based pricing and disregard cost-based or competitor-based

pricing. This pricing strategy is particularly valuable in the current economic conditions faces by

South Africans (high inflection, less disposable income) because consumers will support SME if

they can see the value of their products in relation to the goods received. Lastly, SMEs grow their

market share by also focusing on value-based pricing for the reasons stated previously. With the

three pricing strategies considered, SME will survive in the SA marketplace by implementing

value-based pricing.

9.5 Limitations of the study

The objectives of this study are to assess the link between price antecedents and pricing strategies,

as well as the correlation between pricing strategies and the success of SMEs. These associations

are studied further by accounting for moderating elements such the firms' motivations and

competitors' strategies as well as the size of the firms, sectors, and ownership structures.

Notwithstanding these caveats, the findings should be grasped as a method for gaining a

quantitative understanding of pricing strategies, as opposed to a more subjective understanding of

which marketing methods are most effective.

The study's findings suggest further investigation into additional factors that impact SMEs' success.

There are several contexts in which the results of the current research might be used. Anyone
189
involved in running a SME, in addition to policymakers and academics, will benefit from this

study's findings. The results of this research are expected to improve management procedures and

open the door to other studies examining this phenomenon in SME settings.

Like to every other research study, this research also has its own limits. The primary drawback is

that data were exclusively obtained from SME owners in Gauteng, South America; hence, the

findings cannot be generalized. In addition, the quantitative character of this research makes it

impossible to identify any new or underlying issue among SME owners in terms of price

antecedents and pricing strategies.

In future research, further moderation analysis may be used to the links between price antecedents,

pricing strategies, and SME success. In addition, this research may be expanded to several nations

and done longitudinally by analyzing the data over an extended period of time.

9.6 Directions for future research

Inferences about future research paths may be drawn from the above results and limitations. To

begin with, the majority of empirical research relies on a single informant per firm. Considering

the significance of additional pricing strategy challenges, more information from owners and

managers in and outside of Gauteng, South Africa is essential. All departments and consumers

involved in the development and implementation of pricing policies should be scrutinized.

Specifically, the views of pricing techniques by customers may be relevant to future research.

Second, current pricing strategy research is mostly focused on retail businesses. Yet, the offering

is not the focus of the pricing probe. Instead, the focus is on pricing objectives, drivers, and

conditions. Future research may identify the relative importance of the service's real components

across various market segments. This may be relevant to the actual pricing strategy in two ways:

190
first, to modify pricing strategy components to particular product attributes, and second, to further

classify various pricing strategies.

191
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APPENDIX 1: ETHICS CLEARANCE CERTIFICATE

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 APPENDIX 2: QUESTIONNAIRE

Pricing Strategies for SMEs Success in South Africa: Investigating the Antecedents and

Moderators

Dear Owner/Manager
The following questionnaire is part of an extensive research study undertaken to investigate
the phenomenon of identifying pricing strategies used by Small and Medium-Sized
Enterprises. It will be appreciated if you could complete it with the investigator, who will
visit your store, as thoroughly as possible.
Please note that all information will be treated as extremely confidential and will only
be used for academic purposes.
Your cooperation in this regard will be highly appreciated.
Yours faithfully
Asma Fathima
Ph: +27845598428
………………………………………………………………………………………………….

Instructions for Completion:

1. Please answer all questions regarding your business as honest and objective as possible.
2. Please reflect your most accurate answer. organization
3. You may give an answer for more than one box if it is applicable to your organisation.
4. Where asked to comment or specify, please keep it brief but comprehensive.

1. Is your business formal or Informal?

Formal

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 Informal

2. Is your business registered? If yes, with which regulatory body?

3. When did you start this business? State in years and months?

4. Is the business own by one person or multiple?

5. Is the owner the same as manager?

Yes

No

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6. What is the owner’s highest level of qualification?

7. In what sector according to the Standard Industrial Classification would you classify
your business?

7.1. Agriculture
7.2. Catering, accommodation and other trade
7.3. Community, Social and personal services
7.4. Construction
7.5. Electricity, gas and water
7.6. Finance and business services
7.7. Manufacturing
7.8. Retail and motor trade and repair services
7.9. Mining and quarrying
7.10. Transport, storage and communications
7.11. Wholesale trade, commercial agents and allied services
7.12. Other (specify)

8. How many people are employed by your business?

Number of staff members

9. What is the size of your business in Rand value? *

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10. What form of business are you in?

10.1. Sole proprietor

10.2. Partnership
10.3. Close Corporation
10.4. Private Company
10.5. Other (Specify)

11. In the following set of questions, please indicate the extent to which you agree to each of
the statement regarding your price setting within your business. Please indicate, on a scale
of 1 to 5 (where 1 = strongly disagree and 5 = strongly agree)

Preamble: strongly disagree either agree agree strongly

When pricing, we consider disagree or disagree agree

11.1. High possibility of new

competitors entering into the
market
11.2. Large number of
competing services
11.3. Prices are determined by
the market’s own mechanisms
11.4. Intensive competition in
the market
11.5. Attraction of new
customers
11.6. Reduction of the price
more easily in the future
11.7. Achievement of a
satisfactory market share
11.8. Need to make the service
well-known
11.9. Creation of a prestigious
image
11.10. Ability to reduce the
cost as the production increases
11.11. Coverage of the
service’s development costs

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 11.12. *Fast rate of the new
service’s adoption
11.13. *Sale of other servicesat
higher prices
11.14. *Discouragement of new
competitors entering into
the market
11.15. Customers are aware of
the specific service
11.16. Customers are aware of
the prices offered in the market
11.17. High potential demand
11.18. High price elasticity

* Items were deleted for poor loading. Such items were not included in the measurement and

the structural model assessment

12. In the next set of questions, we would like you to respond to the statement in terms of
your agreement or otherwise. That statements are about your pricing strategies as an SME.

Please indicate, on a scale of 1 to 5 (where 1 = strongly disagree and 5 = strongly agree)

Preamble: strongly disagree neither agree strongly

Our pricing strategy carefully disagree agree agree
consider nor
the following disagree
12.1. Variable costs of
products/services
12.2. Price necessary to break-even
12.3. Investments in products/services
12.4. Target margin guidelines
12.5. Target return on sales levels
12.6. Price of competitors’
products/services
12.7. Competitors’ current price
strategy
12.8. Likelihood of competitors’
strength to react
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 12.9. Market structure (number and
strength of competitors)
12.10. Degree of competition on the
market
12.11.*Competitive advantage of
competitors in the market
12.12. Advantages of the product
compared to competitors’
products/services
12.13. Customer perceived value of the
products/services
12.14. Customer willingness to payfor
the unique benefits of the
product/services
12.15. Balance between advantages of
products/services and price
12.16. Differentiated value drivers of
our products/services compared to
substitutes

* Items were deleted for poor loading. Such items were not included in the measurement and

the structural model assessment

13. In the next set of statements, we would like you to measure yourself or your business
against the items listed below. Please indicate, on a scale of 1 to 5 (where 1 = To a Very Small
Extent and 5 = To a Very Large Extent)

Preamble: To a To a To a To a To a
Our business is able to do the Very Small Moderate Large Very
following: Small Extent Extent Extent Large
Extent Extent
13.1. Using pricing skills and systems to
respond quickly to market changes
13.2. Conducting value-in-use analysis
or Total Cost of Ownership
13.3. Designing and conducting specific
pricing training programs
13.4. Developing proprietary internal
price management process
13.5. Doing an effective job of pricing
products/services

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 13.6. Sticking to price list and
minimizing discounts
13.7. Quantifying customers’
willingness to pay
13.8. Measuring and estimating price
elasticity for products/services
13.9. Knowledge of competitors’ pricing
strategies
13.10. Monitoring competitor’s prices
and price changes
13.11. *Measuring and quantifying
differential economic value versus
competition
13.12. *Designing proprietary tools
to support pricing decisions

* Items were deleted for poor loading. Such items were not included in the measurement and

the structural model assessment

14. In the next set of statements, we would like you to measure yourself or your business
against the statements listed below regarding how you set your pricing objectives. Please
indicate, on a scale of 1 to 5 (where 1 = To a Very Small Extent and 5 = To a Very Large
Extent)

Preamble: To a Very To a To a To a To a
To what extent does your business Small Small Moderate Large Very
do the following when setting Extent Extent Extent Extent Large
pricing Extent
objectives:
14.1. Target return on investment
14.2. Target markup
14.3. Target Price stabilization
14.4. Target Market share

* Items were deleted for poor loading. Such items were not included in the measurement and

the structural model assessment.

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Objective Performance Measures:

15. Please state the average growth rate (in % terms) in the following areas over the past
three years

1. Sales volume growth 2021…………. 2020………… 2019……………

2. Profit margin growth 2021…………. 2020………… 2019...………….

3. Market share growth 2021…………. 2020……….... 2019..…………..

4. Overall profitability 2021…………. 2020………… 2019……………

16. Please indicate your rate (in % terms) of return on investment for the last 3 years

1. Return on investment 2021…………. 2020………… 2019.………….

2. Return on assets 2021…………. 2020………… 2019…………...

17. Please state your actual sales figures for the past 3 years:

2021………... 2020………… 2019………….

18. Please state your actual profit figures for the past 3 years:

2021………... 2020………… 2019…………

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