SERVICE PRICING AND CUSTOMER ATTRACTION IN THE TELECOM INDUSTRY IN UGANDA
CASE STUDY: WARID UGANDA
BY
KUNUHIRA TONNY
07/U/9564/EXT
SUPERVISOR
MR. TIBAINGANA ANTHONY
A RESEARCH REPORT SUBMITTED IN PARTIAL FULFILLMENT FOR THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF BACHELOR OF COMMERCE OF MAKERERE UNIVERSITY.
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DECLATION
Ikunuhira Tonny declare thatservice pricing and customer attraction in the telecom industry case study warid Uganda in the five divisions Kampala is my original work and has not been present for the award of adegree in any other institution
Signature …………………………………
Date…………………………………………
APPROVAL
This research report has been submitted for examination with my approval as the candidates university supervisor
Signature ……………………………
MR. TIBAINGANA ANTHONY
(SUPERVISOR)
Date …………………………………
DEDICATION
Special dedication to my mother Ms Muhumuza Docus my father Mr. Bamuhiga Jothams , classmates and friends from JAC, DLM, and the Kisoro family.
ACKNOLEDGEMENT
The successful completion of this research was facilitated by the individuals mentioned below
A vote of appreciation go to my supervisor Mr. Tibangana Anthony for the support and continued direction that helped me to finally come up with constructive work to present
Appreciation also goes to the employees of warid telecom who help to willingly provide me with the data that indeed
Eternal gratefulness go to the almighty God for the gifts oflife and grace to excel every day
Am also grateful to my parents Ms Muhumuza Dorcus and my dad Mr Bamuhiga Jotham . and also my uncle kato and isingoma , Kisoro james my Brother Rujumba patrick and kakama Eddie
A vote of thanks to countless friend like Mulawa Abraham, luis, Eric, pastor Jack, Ireneand Charles.
TABLE OF CONTENTS
DECLATION
APPROVAL
DEDICATION
ACKNOLEDGEMENT
TABLE OF CONTENTS
LIST OF TABLES
ABSTRACT
CHAPTER ONE …………………………………………………………...... ………………… 1
1.1 BACKGROUND TO THE STUDY
1.2 STATEMENT OF THE PROBLEM
1.3 PURPOSE OF THE STUDY
1.4 OBJECTIVES
1.5 RESEARCH QUESTIONS
1.6 SCOPE OF THE STUDY
1.6.1 Subject scope
1.6.2 Time scope
1.6.3 Geographical scope
1.7 SIGNIFICANCE OF THE STUDY
CHAPTER TWO:LITERATURE REVIEW
2.0 Introduction
2.1 General Service pricing approaches
2.1.1 Cost oriented
2.1.2 Demand based pricing
2.1.3 Competition oriented pricing
2.2 Pricing strategy
2.2.1 Skimming
2.2.2 Market penetration
2.3 Service mix pricing strategy
2.3.1 Product/ service line pricing
Optional service pricing
2.3.3 Captive product pricing
2.3.4 By- product pricing
2.4 Price adjustment strategies
2.4.1 Discount and allowance pricing
2.4.2 Segmented pricing
2.4.3 Psychological pricing
2.4.4 Promotional pricing
2.5 Importance and significance of price
2.6 Objectives of pricing
2.7 Customer attraction dynamics
2.7.1Management lessons from the English premier league
2.7.2 Developing a marketing mix
2.8 RELATIONSHIP BETWEEN THE VARRIABLES
2.9 Conclusion
CHARPTER THREE:METHODOLOGY
3.0 Introduction
3.1 Research design
3.2 survey population
3.3 sampling method
3.3.1 Sample size
3.3.2 Sampling procedure
3.4 Data source
3.4.1 Primary data
3.4.2 Secondary data
3.5.1 .Data collection method
3.5.3 Data collection instruments
3.6 Data processing, analysis and presentation
3.6.1Data processing
3.6.2 Data analysis
3.6.3 Data presentation
CHAPTER FOUR:ANALYSIS, PRESNTATION AND DISCUSSION OF RESEARCH FINDINGS
4.0 Overview
4.1 Findings on the demographic characteristics of the respondents
4.12 Table 2: showing sex of respondents
4.1.3 EDUCATION LEVEL OF RESPONDENTS
4.1.4 RELIGION OF RESPONDENTS
4.2.1 Position of Responsibility Held Warid
4.2.2 Length of Time The Employees Have Spent In The Position Held
4.3.0 The Response of The Respondents On Whether Their Service Pricing Methods Attract More Customers
4.3.1 Response of The Respondents On Which Tariff Plan Is The Best Performing In Their Order.
4.4.0 The Response Of The Respondents On Whether They Have Experienced Progress And Steady Growth In The Number Of Customers Attracted Since 2007.
4.4.1 The Attitude of The Respondents (Customers) Towards The Service Pricing Being Good
4.4.2 The Attitude of the Respondents towards the Improving Pricing Policies For The Better Since 2007
4.4.3 Pricing Method Offered By Warid and Used By the Respondents
4.4.4 Pricing Method Offered by Warid and Used by the Respondents In Relation With The Best pricing policies
4.5.1 Amount of Airtime Sold By The Respondents
4.5.2 Length of Time Spent In the Business
4.5.3 Response of the Respondents on Whether They Get More Customers after Changes in Service Pricing
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0 SUMMARY OF THE FINDINGS
5.1findings on the relationship between service pricing and customer attraction
5.2 finding on assessing the different pricing methods used by warid
5.3Findings on examining the level of customer attraction in the period 2007-2010
5.4 CONCLUSION:
5.5 RECOMMENDATIONS
5.6 AREAS OF FURTHER STUDY
REFERENCES
APPENDICES
QUESTIONNIARE FOR THE WARID CUSTOMERS
INTERVIEW GUIDE USED ON AIR TIME DISTRIBUTORS
INTERVIEW GUIDE FOR WARID EMPLOYEES
LIST OF TABLES
Table 3.1 showing the sample size of respondents…………………………………………17
Table 4.1 showing the age of the respondent……………………………………….……….20
Table4.2 showing the sex respondents……………………………………………...….…..21
Table4.3 showing marital status of respondents………………………………………....….21
Table 4.4 showing the education level of respondents……………………………………….22
Table 4.5 showing the religion of respondents…………………………………………….…22
Table4.6 showing the position of responsibily held in warid……………………………….23
Table4.7 showing the length of time the employees have spent in the position held……….23
Table 4.8 showing response on service pricing method and customer attraction…………..24
Table4.9 showing response of respondents on which tariff plan the performance………..24
Table 4-10 showing response on whether they have experienced progress………………….25
Table 4-11showing response toward service pricing being good………………………….26
Table4-12 showing attitude on improving pricing policies the better………………………27
Table4-13 showing pricing methods offered by warid and used by respondents…………..28
Table4-14 showing thebest pricing methods according to customers………………………29
Table4-15 showing the amount of air time sold by respondents……………………………29
Table 4-16 showing the length of time spent in the business……………………………….30
Table4-17 showing the response on whether they get more customers when prices change.30
Table4-18 showing the most popular service pricing methods……………………………..30
ABSTRACT
The study was carried out to examine how pricing affects customer attraction in the telecom industry and how it influences both short term and long term customer decisions using warid Uganda as the case study the survey was done in the five divisions of Kampala that is Nakawa , Lubaga ,Makindye, Kawempe and central divisions
The objectives of the study were to establish the relationship between service pricing and customer attraction, assess the different pricing methods offered by warid and examining the level of customer attraction over the three years that is 2007 -2010
The research choose a sample population of ninety five respondents stratified sampling methods and purposive sampling were used to selecta preventativesample among the customers of warid and the employees of warid.
Both primary data and secondary data were used primary data was collected using interview guides and questionnaires, data was analyzed using the statically package for social scientist (SPSS) and presented using tables
The researcher found avery strong relationship between service pricing and customer attraction in that any pricing mistake made by aplayer in the telecom industry will cost them a lot of customers either in the short or the long run the research therefore found the customers of telecom services are overly price sensitive.
The researcher recommended that warid invests persistently in research to keep truck of regular changes in customer preferences needs the researcher also recommended that warid should work closely with regulatory bodies like the Uganda communications commission (UCC).
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CHAPTER ONE
1.1 BACKGROUND TO THE STUDY
The telecom industry in Uganda was earlier dominated by Uganda telecom which used a land line system and was a monopolist and a government institution. However, in the mid 1990’s the technology of mobile phones entered in Uganda with Celtelbeing the first in the industry as a mobile phone service provider.(Birgelen 1997)
On arrival of Celtel in 1995 being the first mobile telecom company, its service pricing was high, the cost of airtime was as high as shs600 per minute and they also charged a monthly service fee which was more than shs 15000 per month, even the phones themselves were expensive, one could go as high as shs1500000. The high service pricing made the industry of mobile telecom look as one which could be enjoyed by the “very rich” (Gifferd 1997)
In October 1998, mobile telecom network (MTN) joined the industry and was seemingly turning the trend of the events in the industry. There was a remarkable fall in the prices and even in their accessibility to service, more people were seen to own mobile phones even the ordinary Ugandans. It ceased to be among the urban rich and was extended even to rural low income people. MTN extended its network to almost all the corners of the country. Their adverts were seen to be made using ordinary farmers and low class people to portray an image that they had come to serve customers at all income levels. This implies that the prices were going to fall and this made MTN to come a market leader up to date.(Gaddote and Hoggs 1998)
In around 1999, Uganda telecom began a section of mobile telephone which they branded mango. In 2007 Warid joined with highly market penetrating strategies like pakalast, mega bonus, and mango (Uganda telecom) also brought mango jazz, one on one, M-sente, friends and family, Zain brought Zain flexy, zap, supper talk, kika. With new and more firms in the telecom industry the competition became stiff each firm tried as much as possible to cut prices to attract as many customers as possible thus service pricing became major customer attraction tool in the telecom industry.(Maseni Evans2009)
1.2 STATEMENT OF THE PROBLEM
There has been an increase in the number of firms in the Ugandan telecom industry which would mean that customers are shared among many firms and price is the major determinant of the number of customers a firm has. Regardless of the price wars, some firms seem to attract more customers than others in the same industry even when such firms are charging slightly higher than those which seem to be losing the price war. It creates a danger that if firms are cutting down their prices yet not getting related results in customer attraction, they will lose the fight and start dropping out of the industry if they can no longer break even. And it will leave the industry in the hands of a few firms which may increase prices if their competitors drop out. The research intended investigate how service pricing impact customer attraction the relationship between a firms pricing policies and number of customers attracted.
1.3 PURPOSE OF THE STUDY
The study seeks to examine how pricing affects customer attraction in the telecom industry and how it influences both short term and long term customer decisions. It seeks to know how this trend can be used to bring balance in the telecom industry to encourage health competition and increase usage rate of mobile telecom communication service in Uganda.
The study also seeks to find out how pricing can be used to attract more of the country’s rural population which form the largest percentage of Uganda’s population; it can help to involve them.
1.4 OBJECTIVES
- To establish the relationship between service pricing and customer attraction in the telecom industry
- To assess the different service pricing methods used by Warid telecom Uganda
- To examine the level of customer attraction over three years that is. 2007 to2010
1.5 RESEARCH QUESTIONS
- What is the relationship between service pricing and customer attraction in the telecom industry?
- What are the different service pricing methods used by Warid
- What has been the level of customer attraction over the last three years i.e. 2007 to 2010
1.6 SCOPE OF THE STUDY
1.6.1 Subject scope:The study will explore the different firms in the Ugandan telecom industry examining their pricing policies and the different pricing strategies and tactics that they have employed to attract customers.
The study will investigate deeper into how service pricing affects customer attraction in the telecom industry in Uganda seeking to know the depth of the relationship between pricing policy of a firm and the number of customers it has been able to attract for a period of three years from 2007 to 2010.
1.6.2 Time scope:The study is going to take a period of five months that is the period from January 2011 to June 2011 and it will cover a period of 3 years of pricing activity and price wars in the telecom industry the firms and the customers are going to be studied co-currently comparing those in prices and number of customers attracted taking strategies in percentages of market share in the years from 2007 to 2010.
1.6.3 Geographical scope:The study is going to cover the Kampala market getting information from customers in the different divisions of Kampala that is Nakawa, Kawenpe, Lubaga, Makindye and Kampala central.
1.7 SIGNIFICANCE OF THE STUDY
1.7.1The study will provide information to the general public that will help them know how service pricing affects their purchase
1.7.2The study will help Warid as an organization to assess the progress and weaknesses of their pricing policies in comparison to their competitors and to come to conclusions of how they can adjust for the better. And to attract more customers
1.7.3The study will help me as a marketing student to increase my knowledge on the subject of price and to gain experience in research and skills needed for research.
The study will help me to acquire knowledge on pricing as one of the major elements in the marketing mix.
1.7.4The study will provide reference literature for future use by other scholars and researchers for better understanding on the subject if price in the telecom industry.
CHARPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter seeks to present a detailed review of the literature that is relevant to this topic of study and related expert comments on the area from different publications like magazines work of other researchers, news, journals on how price affects customer attraction in the service industry with specific focus on the telecom industry In Uganda. Taking a case study of WARID Uganda.
2.1General Service pricing approaches
In marketing terms service prices should be set in consideration of the three Cs, i.e., customer demand, costs, and competitors’ price as emphasized by Kotler, (2005). (Pride and Ferrell, 2000), suggested that final pricing decisions are more complex and involve sociological, psychological, legal and strategic issues which are basically discussed below.
2.1.1Cost oriented
Gradily, (1996), further argued that full cost pricing involve an element of circular reasoning since a firms’ cost are dependant to a degree on price Kotler, (2005), defines cost plus pricing in two aspects; cost based adding mark up and break even pricing.
2.1.2Demand based pricing
Perceived value pricing on the other hand refers to a pricing practice where the customer purchases depending on how high the price he or she is charged. (Pride and Ferrell, 2000).
2.1.3Competition oriented pricing
Under this the going rate pricing costs and demand become secondary to competitors’ price. The firm has freedom to set its own price but does not do so, but adjust to general industry price and trend. (Adhikary, 2002).
2.2 Pricing strategy
According to Kotler, (2006), pricing strategy usually change as the service/ product passes through its life cycle. The introduction stage is usually challenging bringing new products, companies face challenges of setting price for the first time. Most products go through four life cycle stages that is the introduction stage, the growth stage, maturity and decline stage. However, the level of demand (customer attraction), costs and competition are different at each stage. Consequently it pays for the firm to adjust its pricing strategies suitably in the light of the characteristics of each phase of a life cycle, (Brassington and Pettitt, 2005). As an example, most products in their introductory stage have unique distinctive features which allow the entrepreneur a large degree of pricing freedom.
The firm may choose between skimming and penetrating pricing depending on the long term and short term objectives of the firm and its estimation of the future market trends as the product progresses through the life cycle. However, distinctiveness of its features diminish as competition from new entrants like orange Uganda set in. the firms’ power to manipulate power equally diminishes such that during the maturity stage, a pricing strategy that does not take into account the competitive scenario is bound to fail. Usually appropriate price reduction has t be made based on elasticity of demand in other wards the likely customer attraction, Kotler, (2006)
2.2.1Skimming
The firm may set high initial price to maximize profit but this may be a hindrance to customer attraction, thus Warid Uganda has been seen using market penetrating strategies, cutting its prices to attract more customers from its competitors like MTN, UTL, and Airtel.
2.2.2Market penetration
This is setting low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers and win a large market share. The high sales volume results in falling costs allowing the company to cut its prices even further. Several conditions must be met for this low price to work; first the market must be price sensitive so that a low price produces a more customer attraction in terms of new subscribers joining Warid, secondly production and distribution costs must fall as sales volume increase, finally the low price must help to keep out competition and penetration price maintain its low position otherwise the price advantage may be temporary Kotler, (2006)
According to Livesey, (1979), a penetration pricing policy involves low initial prices perhaps below cost level designed to penetrate the market as quick as possible.
2.3 Service mix pricing strategy
The strategy for setting service price often has to be changed when the service is part of the service mix. In this case the firm looks to set prices that maximize the profit on the total service mix. Pricing is difficult because the various services have related demand and cost but face different degree of competition Kotler, (2006). The service mix pricing strategies are discussed below.