Pricing commodities/services in Uganda

In 2015, Uganda was ranked 122 for economies with ease of doing business.

However, over 60% of small businesses don't survive beyond 2 years. This rampant failure rate often times scares away would be entrepreneurs. That failure is attributed to numerous factors with poor pricing strategies being one of the cores.

Pricing is regarded as the most important of the 4p's of marketing. This is because it is the only one of the four that generates revenue.

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A new start-up entrepreneur looking to rent a spot for their business will be required to pay more than a couple months rent upfront. This risk-averse individual will opt to pay with hope to have this cost shifted to customers in form of high prices, which from the business side of view is only fair. Customers will then disappear and what follows is history.


For existing businesses, a different scenario will be faced. All this raises the question of how one should price their commodities/services in Uganda effectively.

Did you know? That when you dominate the market, your prices become invincible.

There are numerous pricing strategies one can adopt. These include;

Cost plus pricing.
It doesn’t take a genius to figure this one out. Here it simply states: whatever the unit cost is, attached an extra amount usually known as a “plus” that will come out as the profit. This strategy is suitable for unique products or services (monopolistic businesses), wholesale shops, i.e businesses with minimal competition. If the product or service isn't unique, customers will be looking for a cheaper price elsewhere.

Demand Pricing
Another strategy is Demand pricing which considers the profit and volume of the product. A local video library in Kampala can choose to sell a single digital video disk (DVD) at UGX 1500 and fix a price of UGX 1200 for purchases above 5 DVDs. This here is an example of demand pricing. This strategy is most times used as a marketing strategy.

Competitive pricing
Another strategy is Competitive pricing which applies where an already established market price is followed. This method is used by most retailers. If all butchers in Nakawa sell meat at 10,000 a kilo, a new butchery looking to venture into the same area will also be forced to use that same prevailing price. This however doesn’t put into consideration the differences in costs and as such businesses get different profits.

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Mark-up pricing
Markup pricing is where a small amount is calculated and added to the cost price i.e. a markup. The trick here is to ensure all costs are catered for before the markup is added. This is similar to the cost plus pricing.

Conclusion:
Choosing a suitable pricing method comes down to you. There's no single strategy specific to your business nor best strategy amongst them all. If dealing in unique or less competitive products or services, a cost plus and mark-up pricing strategies can be considered while someone dealing in competitive products ought to use competitive pricing. They should however consider their costs thereby  finding ways to reduce costs by looking for cheaper products, cheaper rent or choosing to sacrifice by ensuring a higher quantity is sold at a cheaper price earning a smaller profit per unit compared to competitors.

A retailer paying rent of UGX 1,000,000 should only sell commodities at the same price as their competitor spending UGX 600,000 on rent if this rental difference is compensated elsewhere say cheaper transportation costs/cheaper commodity cost.

The above article is based on a combination of research and personal opinion of the author.
If you wish to,
Contact the author Arthur Kakande directly through service4businessweknow@gmail.com