Moderating Effect of Inflation on the Relationship between Pricing Strategies and Profitability of Small and Medium Scale Enterprises (SMES) in Kano Metropolis, Nigeria

Abstract

The study examined the moderating effect of inflation on the relationship between cost based, value based and competition-based pricing strategies and profitability of small and medium scale enterprises (SMEs) in Kano Metropolis. A cross-sectional survey research design was employed. Target population of the study is 594 SMEs, registered across ten industrial estates in Kano. A sample of 239 SMEs was selected using Taro Yamane formula using Cluster sampling technique. Data were collected through a structured questionnaire, and analysed using SPSS version 21 for preliminary studies and Smart PLS 4.0 for Structural Equation Modelling (SEM). The study examined three pricing strategies (cost-based, value-based, and competition-based) and their relationships with profitability, moderated by inflation. Inflation significantly moderates the relationship between competition-based pricing and profitability (β=-0.306, p<0.05) and value-based pricing and profitability (β=0.151, p<0.05), but not between cost-based pricing and profitability. Implications for SMEs include optimizing cost-based pricing, enhancing market research for value-based pricing, and adapting strategies to inflationary pressures. The study recommends that policy makers support SMEs by providing resources for market research and competitive analyses and strategies can help SMEs optimize their pricing strategies, improve profitability amidst changing economic conditions in Kano Metropolis.