PRICING STRATEGY AND CUSTOMER RETENTION PROPENSITY IN SMALL AND MEDIUM-SCALE ENTERPRISES IN SOUTH-WEST NIGERIA

Abstract

This study examines the influence of pricing strategies on customer retention propensity among Small and Medium Enterprises (SMEs) in South-West Nigeria. Pricing, a crucial determinant of customer behaviour and firm profitability, was explored through three strategic lenses: cost-based, customer-based, and competition-based pricing. Employing a descriptive survey design, 384 questionnaires were distributed to SME owners and managers drawn from a population of 132,749 manufacturing SMEs, of which 312 usable responses were analysed, representing an 81.3% usable response rate. Multiple regression analysis indicated that the three pricing strategies jointly explained 49.3% of the variance in customer retention propensity (R =.702, R² =.493, adjusted R² =.488), and the overall model was statistically significant, F(3, 308) = 99.832, p <.001. At the predictor level, customer-based pricing had a positive and statistically significant association with customer retention propensity (B =.467, β =.461, t = 2.302, p =.022), whereas cost-based pricing (B =.072, β =.071, t =.404, p =.686) and competition-based pricing (B =.136, β =.143, t = 1.330, p =.185) were positive but not statistically significant. The findings underscore the importance of aligning prices with perceived customer value while recognising that cost and competitor considerations may not independently predict retention when the three approaches are considered simultaneously. The study recommends that SMEs strengthen customer-value assessment and integrate cost and competitive information into broader pricing decisions.