A survey of the pricing practices of public Transport bus companies in Kenya

Abstract

In the wake of deepening competition following the enforcement of the traffic act in the early 2004, which intended to introduce and restore sanity in the public road transport industry, the sector is awash with new transport companies of all shapes and sizes offering a similar service, passenger transport. One way in which the public service transport companies can cover costs and therefore survive is through pricing. This study set out with the objective of determining whether firms in the public road transport industry set pricing objectives; to establish which factors they consider while setting prices; to determine which pricing methods used in the public road transport industry and to determine challenges faced within the public road transport industry while pricing their services. A descriptive study was appropriate. To do this a survey was conducted on the 82 public service bus companies that are members of KEBOA. The population of interest in this study was all short and long distance public transport bus companies with headquarters in Nairobi who were members of Kenya bus owners association (KEBOA). Primary data was collected using a semi structured questionnaire. In each company, one respondent was interviewed. This was -,the marketing manager or any officer who participated in setting prices for the company. A total of 82 questionnaires were distributed to companies' headquarters in Nairobi. "Out of which, 50 responded by completing and returning the questionnaires. 32 did not respond. This gave a response rate of 60.9% which the researcher deemed adequate and sufficient for the study, for the purposes of data analysis. The collected data was analyzed and summarized using SPSS package to obtain descriptive statistics for this analysis. All the firms surveyed recognized the importance of pricing and setting pricing objectives even though some of them did not have pricing departments. The study also established that cost of purchasing the vehicle, monthly bills, cost of fuel and spare parts, cost of servicing the vehicle, the distance covered, sitting capacity and availability of substitutes ·are the strong factors considered while setting prices. It was also established that in their pricing methods, the companies estimated total cost and added a standard mark up profit. They also considered target rate of return and buyers' perception. But they did not consider as important differentiation, psychological pricing and even seasons as factors to be used in pricing. The challenges faced by the public transport bus companies includes high cost of fuel, stiff competition within the public transport industry, poor road status that leads to high breakdowns, high maintenance costs, high cost in compliance to new traffic rules, unpredictable demand, lack of level playing field, high level of corruption andthe demand of superior quality at low prices by customers. The results of this study addressed the objectives of the study and it may be of importance to the owners of the vehicles as it may give some information and create awareness of pricing to their businesses. The ministry of transport and communication as it may give relevant materials and information that can help in educating small and medium entrepreneurs in the field of public road transport services, and Academic researchers as it may provide a source of references to their studies. Traditionally price has operated as the major determinant of buyer choice. Although non price factors have become more important in buyer behavior in recent decades, price still remains one of the most important elements determining company market share and profitability.