Critical Factors Affectingthe Pricing Objectives of the Exporting Petrochemicals

[a] He has more than 20 Article & research activities in fields of International Commercial， Marketing， Advertising…， PHD of commercial management， Faculty member of Islamic Azad university of Tehran， South Branch， Iran.

[b] Bachelor of Electrical Power Engineering at Islamic Azad University， Najafabad Branch & Master of International Commercial Management at Islamic Azad University South Tehran. Branch & Senior expert in overseas sales Dept of Pardis Petrochemical Company.

*Corresponding author.

Address： Department of Management， Islamic Azad university of Tehran， South Branch， Tehran， Iran

Received 20 February 2013； accepted 18 April 2013

Abstract

Price， as the only element of the marketing mix that generate revenue， has great importance for managers and companies’ pricing officers. Besides， there are only a small number of articles in this field， so in order to determine the components which affect pricing objectives， factor analysis has been used in this article focusing on the data gathered from petrochemical companies in Iran. After refining and going through two stages of questionnaires， 37 variables were extracted from the initial 76 variables and by factor analysis， 4 components were determined. With respect to petrochemical products pricing， findings in this article illustrate a set of qualitative and quantitative variables in the form of limitations of entering the export market or strategies such as penetration strategy， market development， and opportunity creation.

Key words： Pricing objectives； Exporting petrochemicals products； Pricing

INTRODUCTION

Pricing has been used as a major tool to increase company profitability （Wanmei Soon， 2011）. Also， pricing has been known as a key element in marketing strategy （kohli， Suri， 2011）. Just like any other company， petrochemical companies must be able to price their products in a manner so that they gain incomes commensurate with the value of their produced good and hold their position with respect to customers， complementary goods， rivalry， and market newcomers. All these factors depend on the goal of the petrochemical companies from product pricing and how they envision themselves in the future. This article shall continue as follows： A comprehensive study of the current literature about pricing objectives and methods， description of implemented research method， detailed analysis of the data， and discussing the results. In the end， conclusion and summary of the major findings of this article will be presented.

1. RESEARCH LITERATURE Cutler believes factors like surplus production， heavy rivalry， or shift in consumer needs are among the reasons that force companies to choose survival as the main objective of pricing.

In the end， companies price considering their longterm survival （Indounas， Avlonitis， 2005）， and thus they must choose target markets for the exportation of their products. The existence of limitations over entering into markets can affect the prices and also pricing targets of the companies. Target market of petrochemical goods can enact limitations such as tariffs in importing country. The amount of taxes and tariffs on imported goods can affect pricing decisions （Odongo， Agneta， Orinda， 2012）. In some countries the tariff on petrochemical goods is so high that causes a drastic increase in price of the final product and makes exporting to such countries practically impossible. The reason for imposing such tariffs or taxes by target export country could be the decision of that country to benefit domestic producers. Technology of the produced good is also one of the variables that affect the price （Cheng-Han Wu， 2012）. For example the technology to use the product in target country may not be yet available or the target country may be technologically backward in comparison to the rest of the world.

By using penetration strategy， it is attempted to make the prices attractive for customers and thus attract new customers to buy the products in addition to current customers. Here in order to prevent incidents such as price war in the market， stabilizing the price is one of the objectives of the company. Obtaining the satisfaction of the customer directly affects pricing objectives and competitiveness status of the company in comparison to other rivals （Cravens， 1997）. Most companies determine their prices to maximize their profits （Kotler Marketing Management）. By assessing demand and cost in various price levels， they set a price for their product so that the profit for their money supply or their current investment gain is maximized. This is the most basic objective among pricing objectives. Price parameters can strongly and directly affect the increase in market share of the company（Dulgui&Proth， 2010）. Pricing objectives of the company can determine if the company is after a huge share of the market or not. This policy is reflected in marketing strategies of the company which are dubbed pricing wheels （Shipley ad Jobber 2001）. This means that in order to recognize pricing objectives， marketing strategy of the company has to be identified.

The price of produced good of the petrochemical companies is directly bound to world economy and its developments. Expanding inherent complexity and reform of pricing strategies can be observed in a set of internal and external political and economic influences which affects the pricing decisions of a company （Lancioni， Schau， Smith， 2005）. When a company decides to develop the market and expand the market for its products， the aforementioned engagement is increased with globalization. When it comes to pricing in this situation， it must be noted that our prices are greatly affected by the prices set by market leaders （Sayman， 2002； Wanmei Soon， 2011）. Sometimes the objectives of a company are to be known as the leader in quality. In this way， setting higher prices for the products would be because of the higher quality of those products. In other words， setting higher prices in comparison to rivals will not result in loss of our market as Warren Buffet said： If you’ve got the power to raise prices without losing your business to a competitor， you’ve got a very good business. （Bloomberg Business week， February 28 ― March 5， 2011， p. 22）

Some companies determine the price of their goods so their sales income is maximized. Maximization of the income of the company requires only the assessment of sales function. The objective of performance management is to predict the behavior of customers and rivals in order to maximize company’s income （Dulgui & Proth， 2010）. Therefore the objective of maximizing company income is greatly affected by strategy selection and pricing objectives. Most managers believe that maximization of current incomes will result in maximum long-term profit and increase in market share. Geographical location of the company - especially availability of the exporting ports in the producing country - is highly important.

RESEARCH METHODOLOGY At first， by studying various articles in the field of pricing， 76 initial variables were extracted and after performing overlap analysis and going through professional questionnaire， the number of variables was decreased to 37 and was presented to responders in the form of main questionnaire.

Research methodology of this article is based on designing the questionnaire for petrochemical companies and the exporters of these goods. This method was consisted of 250 questionnaires based on Likert’s spectrum. From the total 250 distributed questionnaires， 203 questionnaires were returned and analyzed. Factor analysis was used in this article in order to study behaviors. Calculated KMO coefficient in this test is 754 and calculated Cronbach’s alpha for this article is 0.717 which is considered good sustainability for research questionnaire.

Because factor analysis is sensitive to skewness coefficient， questions 4， 5， 6， 9， 11， 16， 20， 21， 22， 25， 29， 30， 34， 35， 37， 07， 10， 24， 28 were omitted from the questionnaire. From total of 37 variables analyzed by factor analysis， 4 main factors were identified.

Following table shows general results of statistical test. For example， question 1 was about survival and based on Likert’s spectrum the minimum value assigned to this question was 3 and the maximum value was 9.

In this table， A1： survival， A2： interaction with other companies， A3： connection between the product and world economy， A8： geographical location of the company， A15： maximization of current profit， A14： tax in the host country， A17： tariffs in host country， A18： technology in host country， A19： market divisions， A23： maximization of company’s current income， A26： market leaders’ pricings， A27： customer satisfaction， A31： price stability in market， A32： attraction of new customers， A33： gaining market share， A36： product market development. Consequently we will analyze the main factors in independent tables.

Limitations on entering into the export market include the following variables： tariffs in importing country， tax in host country， technology in host country， target market， and survival. Calculated Cronbach’s alpha is 0.737.

Penetration Strategy includes： attraction of new customers， gaining market share， marketing strategy of the company， price stability in the market， and customer satisfaction. Calculated Cronbach’s alpha is 0.661.

As shown in Table 8， penetration strategy includes the following variables： connection between the product and world economy， and product market development. Cronbach’s alpha is 0.465.

Opportunity creation is include maximization of current income of the company， and company’s geographical location. Cronbach’s alpha is 0.454.

CONCLUSION

In this article， factor analysis was implemented to determine pricing objective for petrochemical products. A number of petrochemical plants and petrochemical exporters were identified and the designed questionnaire was randomly distributed among 250 sales employees and 203 valid filled questionnaires were received back. After revising the 76 statistical variables， 48 variables were selected and distributed again in the form of a questionnaire. Using Skewness output of SPSS software， 37 questions were chosen for determination of components. Four components were extracted from 37 variables and they were named and described. These 4 components are： limitations over entering into export market， penetration strategy， market development strategy， and opportunity creation that these factor as mentioned in above were divided to variables： survival， interaction with other companies， connection between the product and world economy， geographical location of the company， maximization of current profit， tax in the host country， tariffs in host country， technology in host country， market divisions， maximization of company’s current income， market leaders pricings， customer satisfaction， price stability in market， attraction of new customers， gaining market share， product market development. Pricing objective varies depending on these factors resulting in change of selected prices for petrochemical products. Because this results received from Iranian Petrochemical Companies it seems that special situation for Iranian Exporter like international sanctions leads them to specified these variables affective on their pricing objectives however it needs more studies & survey.

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