i 

Pricing Strategies of SMEs in South Africa: Investigating  

Antecedents and Moderators 

 

 

By  

Asma Fathima 

(2500036) 

 

Thesis 

Submitted in fulfilment of the requirements for the degree 

Doctorate of Philosophy (Management) 

 

 

In the Faculty of Commerce, Law and Management,  

University of Witwatersrand, Johannesburg, South Africa 

 

 

 

Supervisor: 

Prof. Thomas Anning Dorson 

 

February 2023 



   

ii 

DECLARATION 

 

 

I Asma Fathima declare that this Thesis is my own unaided work. It is being submitted for the Degree 

of Doctor of Philosophy at the University of Witwatersrand, Johannesburg. It has not been submitted 

before for any degree or examination at any other University.  

 

 

 

 
----------------------------------- 

 

(Signature of the student) 

 

 

06------------ day of ------October---------------- 2023 --------------------- in --------Kelvin-------------- 

  



   

iii 

DEDICATION 

 

 

 

 

 

 

 

In memory of my loving father 

 

B. Jameel Ahmed 

 

1955 - 2018 

 

 

  



   

iv 

ACKNOWLEDGEMENT 

 

Thanks be to God the Almighty, first and foremost, who showered me with blessings all through my 

studies and helped me reach my goal. 

 

My heartfelt and profound thanks go out to Prof. Thomas Anning Dorson, my research supervisor, for 

providing me with the chance to conduct this study and for his constant support and direction. His 

energy, insight, honesty, and drive have been really motivating to me. He instructed me in the proper 

procedures for doing research and writing up my findings in an understandable manner. Working and 

learning under his tutelage was an incredible honour. I appreciate his generosity very much. 

 

My spouse Jaleel Ahmed and my two wonderful children, Arish and Daniyal, have been very 

supportive over the course of my study and I am eternally grateful to them. I owe so much to my mum 

Syeda and my sister Tasneem for all the support they've given me throughout my life. 

 

  



   

v 

ABSTRACT 

Small and medium enterprises (SMEs) performance may be influenced by several factors, including 

price strategy. However, there is limited empirical research on the pricing strategies of SMEs 

especially in emerging economies such as South Africa. The purpose of this research is to assess the 

antecedents, moderators and consequences of the pricing strategy of SMEs. The study also sought to 

explain the extent to which the size and the age of SMEs influence the effect of pricing strategies on 

the long-term viability.  

Five hundred and forty-two (542) SMEs from the Gauteng Province, South Africa were surveyed for 

this study. Using a partial least square structuring equation modelling (PLS-SEM) the study analyses 

its hypothesized model to offer some useful insight for both theory and practice. Multiplicative as well 

as subgroup moderation analysis were performed as part of the moderation analysis to examine the 

effects of SME age, size, pricing objectives and pricing capabilities.   

The findings indicate that some pricing conditions which are in the form of competitor relatedness, 

customer relatedness and corporate and market related explains pricing strategic choices of SMEs. 

While their significant effects vary per condition, pricing strategies were largely found to be driven by 

these factors. The study also found that pricing strategies in the form of value-based, competitor-based 

and cost-based strategies have varying effect on SME performance which were expressed in the form 

of market-share growth, sales growth and profitability over the past three years. The most significant 

effect of the pricing strategies on SME performance was found in value-based pricing, cost-based had 

minimal effect, while competitor-based strategy had no effect. However, with pricing objective and 

capability as moderators, while the effect of value-based remains significant, the effect of cost-based 

and competitor based become significant on some of the key performance measures. Firm 

characteristics such as age and size did not explain the effect of pricing strategies on firm performance 

as some strategic scholars have proposed even in the face of moderators. 

A key contribution of this study is that while the effect of pricing strategies may not offer significant 

direct effect of SME performance, in the face of a clear pricing objective and adequate pricing 

capability, these pricing strategies can bring beneficial effect to SMEs. The study also shows that, in 

empirical terms, SME size or age may not explain the performance differential effect of pricing 

strategies even with a clear pricing objective or significant pricing capability.   

  



   

vi 

TABLE OF CONTENTS 

 

DECLARATION ............................................................................................................................. ii 

DEDICATION ................................................................................................................................ iii 

ACKNOWLEDGEMENT ............................................................................................................... iv 

ABSTRACT..................................................................................................................................... v 

LIST FIGURES............................................................................................................................. xiii 

LIST OF TABLES ........................................................................................................................ xiv 

LIST OF ABBREVIATIONS AND ACCRONYMS ..................................................................... xiv 

CHAPTER 1: INTRODUCTION ..................................................................................................... 1 

1.1 Introduction ................................................................................................................................ 1 

1.2 Background of the study ............................................................................................................. 1 

1.3 Scope of the study .................................................................................................................... 10 

1.4 Problem Statement ................................................................................................................... 14 

1.5 Research objectives and questions ............................................................................................ 23 

1.6 Definition of the terms .............................................................................................................. 24 

1.6.1 Pricing capability ................................................................................................................... 25 

1.6.2 Resources .............................................................................................................................. 25 

1.6.3 Competitive advantage .......................................................................................................... 25 

1.6.4 Cost oriented pricing strategy ................................................................................................ 25 

1.6.5 Pricing capability development .............................................................................................. 26 

1.6.6 Competitors-oriented pricing strategy .................................................................................... 27 

1.6.7 Competitive bidding .............................................................................................................. 27 

1.6.8 Prestige pricing strategy ......................................................................................................... 28 

1.6.9 Differential pricing ................................................................................................................ 28 



   

vii 

1.6.10 Demand-based pricing ......................................................................................................... 28 

1.6.11 Bundle pricing ..................................................................................................................... 28 

1.6.12 Pricing policy for new products ........................................................................................... 29 

1.7 Assumptions ............................................................................................................................. 29 

1.8 Organization of the study .......................................................................................................... 30 

CHAPTER 2: CONTEXT OF THE STUDY .................................................................................. 33 

2.1 Chapter overview ..................................................................................................................... 33 

2.2 Performance of SMEs in South Africa ...................................................................................... 35 

2.3 Size and characteristics of SMEs in South Africa ...................................................................... 35 

2.3.1 Formal SMEs ........................................................................................................................ 36 

2.3.2 Informal SMEs ...................................................................................................................... 37 

2.3.3 Characterisations and peculiarities of informal and formal SMEs in SA ................................. 37 

2.4 Employment ............................................................................................................................. 38 

2.5 SME concept in South Africa ................................................................................................... 40 

2.6 Challenges faced by formal and informal SMEs ....................................................................... 42 

2.6.1 Access to finance and credit ................................................................................................... 42 

2.6.2 Poor infrastructure ................................................................................................................. 43 

2.6.3 Low levels of research and development ................................................................................ 44 

2.6.4 Intricate labour laws .............................................................................................................. 44 

2.6.5 An under-educated workforce ................................................................................................ 45 

2.6.6 Lack of access to markets ...................................................................................................... 45 

2.7 Chapter summary ..................................................................................................................... 49 

CHAPTER 3: THEORETICAL REVIEW ...................................................................................... 50 

3.1 Introduction .............................................................................................................................. 50 



   

viii 

3.2 Theory of the firm – profit maximisation .................................................................................. 50 

3.3 Resource-based view theory ..................................................................................................... 53 

3.4 Marketing-mix model ............................................................................................................... 58 

3.4.1 Product development and SME performance ......................................................................... 61 

3.4.2 Pricing strategy on marketing performance of small business................................................. 62 

3.4.3 Promotion strategy and performance of SMEs ....................................................................... 64 

3.4.4 Distribution strategy and SMEs business performance ........................................................... 65 

3.5 Chapter summary ..................................................................................................................... 66 

CHAPTER 4: EMPIRICAL LITERATURE ................................................................................... 68 

4.1 Introduction .............................................................................................................................. 68 

4.2 Price ......................................................................................................................................... 68 

4.2.1 Importance of pricing ............................................................................................................ 70 

4.2.2 Pricing objectives .................................................................................................................. 74 

4.2.3 Pricing strategies ................................................................................................................... 76 

4.3 Factors influencing pricing decisions ........................................................................................ 84 

4.4 Small and Medium Enterprises ................................................................................................. 87 

4.5 Pricing in SMEs ....................................................................................................................... 92 

4.6 Pricing responsibility ................................................................................................................ 97 

4.7 Pricing strategies and pricing approaches of SMEs ................................................................... 98 

4.8. Chapter summary .................................................................................................................. 102 

CHAPTER 5: CONCEPTUAL FRAMEWORK ........................................................................... 104 

5.1 Introduction ............................................................................................................................ 104 

5.2 Conceptual model ................................................................................................................... 105 

5.3 Hypothesis development ......................................................................................................... 106 



   

ix 

5.3.1 Antecedents and considerations of SME pricing strategies and SME choice of pricing strategies

 ..................................................................................................................................................... 106 

5.3.2 Pricing strategies and SME performance .............................................................................. 109 

5.3.3 The moderating role of SME characteristics on the relationship between SME pricing 

Strategies and SME Performance ................................................................................................. 113 

5.3.4 The moderating role of pricing objectives and pricing capabilities on the relationship between 

pricing strategies and SME Performance ...................................................................................... 114 

5.4 Conclusion ............................................................................................................................. 117 

CHAPTER 6: RESEARCH METHODOLOGY ........................................................................... 118 

6.1 Introduction ............................................................................................................................ 118 

6.2 Research philosophy ............................................................................................................... 118 

6.2.1 Ontology ............................................................................................................................. 119 

6.2.2 Epistemology ....................................................................................................................... 119 

6.3 Research design ...................................................................................................................... 120 

6.3.1 Exploratory design ............................................................................................................... 121 

6.3.2 Descriptive design ............................................................................................................... 121 

6.3.3 Explanatory design .............................................................................................................. 121 

6.4 Research approach .................................................................................................................. 123 

6.4.1 Quantitative Approach ......................................................................................................... 123 

6.4.2 Qualitative research approach .............................................................................................. 123 

6.4.3 Mixed method approach ...................................................................................................... 124 

6.5 Research strategy .................................................................................................................... 124 

6.6 Research method .................................................................................................................... 125 

6.7 Research time horizon ............................................................................................................ 126 



   

x 

6.8 Research technique and procedure .......................................................................................... 127 

6.8.1 Data collection ..................................................................................................................... 127 

6.8.2 Data collection instrument ................................................................................................... 127 

6.8.3 Reliability of research instrument ........................................................................................ 130 

6.8.4 Validity of research instrument ............................................................................................ 130 

6.9 Data analysis and interpretation .............................................................................................. 131 

6.10 Partial Least Square Structural Equation Modelling (PLS-SEM) ........................................... 131 

6.11 Ethical considerations in the methodology ............................................................................ 132 

CHAPTER 7: DATA ANALYSIS AND RESULTS ..................................................................... 135 

7.1 Introduction ............................................................................................................................ 135 

7.2 Descriptive statistics ............................................................................................................... 135 

7.2.1 Central tendency of the distribution ..................................................................................... 135 

7.2.2 Variability of the distribution ............................................................................................... 136 

7.2.3 Shape of Distribution ........................................................................................................... 137 

7.3 Analysis of descriptive statistics ............................................................................................. 138 

7.3.1 Descriptive statistics: Demographic characteristics of participating firms ............................ 138 

7.4 Descriptive statistics on items and constructs .......................................................................... 141 

7.4.1 Descriptive Statistics: Pricing antecedents ........................................................................... 141 

7.4.2 Descriptive statistics: Pricing methods ................................................................................. 143 

7.4.3 Descriptive statistics: Pricing objectives and pricing capabilities ......................................... 146 

7.5 Structural Equation Modelling - SEM ..................................................................................... 148 

7.6 Measurement model ............................................................................................................... 149 

7.6.1 Reliability and validity......................................................................................................... 149 

7.6.2 Internal consistency reliability (ICR): .................................................................................. 152 



   

xi 

7.6.3 Convergent validity ............................................................................................................. 153 

7.6.4 Indicator outer loadings ....................................................................................................... 153 

7.6.5 Average Variance Extracted (AVE) ..................................................................................... 153 

7.6.6 Discriminant validity ........................................................................................................... 154 

7.6.7 Collinearity assessment of dimensions and indicators .......................................................... 155 

7.7 Evaluation of structural models .............................................................................................. 157 

7.7.1 The rationale for PLS-SEM ................................................................................................. 158 

7.7.2 Path standardized coefficients (direction) ............................................................................. 162 

7.7.3 Q – Square ........................................................................................................................... 164 

7.8 Sub-group moderation effect analysis ..................................................................................... 165 

7.8.1 SME Path Analysis: SME Age............................................................................................. 165 

7.9 Chapter summary ................................................................................................................... 172 

CHAPTER 8: DISCUSSION OF FINDINGS ............................................................................... 174 

8.1 Introduction ............................................................................................................................ 174 

8.2 Discussions ............................................................................................................................ 174 

8.3 Research Objective 1: Impact of pricing antecedents on pricing strategies .............................. 175 

8.4 Research Objective 2: Analysing the effects of pricing strategies and SME performance ........ 177 

8.5 Research Objective 3: Moderating effects of a firm’s age and size on the relationship between the 

pricing strategies and SMEs in emerging economies..................................................................... 178 

8.6 Research Objective 4: Impact of Pricing objectives and Pricing Capabilities on the relationship 

between pricing strategies and SME Performance ........................................................................ 180 

8.7 Chapter summary ................................................................................................................... 182 

CHAPTER 9: RECOMMENDATIONS AND CONCLUSION .................................................... 183 

9.1 Introduction ............................................................................................................................ 183 

9.2. Key findings .......................................................................................................................... 183 



   

xii 

9.2.1 Research Question 1: The investigation of the antecedents to SMEs’ choice of pricing 

strategies? .................................................................................................................................... 184 

9.2.2 Research Question 2: The effect of these pricing strategies on SME performance? .............. 184 

9.2.3 Research Question 3: To examine the moderators that can help best explain the pricing 

strategies and SME performance? ................................................................................................. 185 

9.3 Contributions .......................................................................................................................... 186 

9.4 Recommendations .................................................................................................................. 188 

9.5 Limitations of the study .......................................................................................................... 189 

9.6 Directions for future research ................................................................................................. 190 

REFERENCES ............................................................................................................................ 192 

APPENDIX 1: ETHICS CLEARANCE CERTIFICATE .............................................................. 236 

APPENDIX 2: QUESTIONNAIRE .............................................................................................. 237 

 

  



   

xiii 

LIST FIGURES 

Figure 2.1 ......................................................................................... Error! Bookmark not defined. 

Figure 2.2 ......................................................................................... Error! Bookmark not defined. 

Figure 4.1 ....................................................................................................................................... 90 

Figure 5.1 ..................................................................................................................................... 105 

 

 

  



   

xiv 

LIST OF TABLES 

Table 1.1 The Small Enterprise Development Agency (SEDA) August 2021.................................. 16 

Table 7.1: Demographic characteristics of the firms ..................................................................... 139 

Table 7.2: Descriptive statistics of antecedents of pricing ............................................................. 143 

Table 7.3: Descriptive statistics of pricing methods ...................................................................... 145 

Table 7.4: Descriptive statistics of pricing objectives and pricing capabilities ............................... 146 

Table 7.5: Reliability and validity measures and dimensions of study constructs .......................... 148 

Table 7.6: HTMT discriminant validity ........................................................................................ 152 

Table 7.7: Collinearity Statistics - VIF ......................................................................................... 156 

Table 7.8: SEM Path Analysis model with Pricing Antecedents, Pricing Strategies and Pricing 

objectives and Pricing capabilities ................................................................................................ 160 

Table 7. 9: R-Square ..................................................................................................................... 164 

Table 7.10: Q-Square ................................................................................................................... 165 

Table 7.11: Sub- Group Moderation Path – SME Age .................................................................. 165 

Table 7.12: R-square .................................................................................................................... 168 

Table 7. 13: Welch-Satterwait test: SME Age (>5 Years Vrs ≤ 5 Years) ....................................... 169 

Table 7.14: SEM Path Analysis: SME Size (>5 employees vs. ≤5 employees) .............................. 170 

Table 7.15: Welch-Satterthwaite test (> 5 employees vs ≤5 employees )....................................... 171 

 

 

 

 

 

 

 



   

xv 

LIST OF ABBREVIATIONS AND ACCRONYMS 
 

 

1. SME – Small and Medium Enterprises 

2. FNB -  First National Bank 

3. SEDA – Sustainable Economic Development Assessment 

4. SMME – Small Micro and Medium Enterprises 

5. IMF – International Monetary Fund 

6. GDP – Gross Domestic Product 

7. BER – Bureau of Economic Research 

8. TEA – Total Entrepreneurial Activity 

9. BRICS – Brazil, Russia, India, China and South Africa 

10. GEM – Global Entrepreneurship Monitor 

11. SMB- Small and Medium Businesses 

12. LMD – Leadership Management Dashboard 

13. SARB – South African Reserve Bank 

14. NDP – National Development Plan 

15. RBV – Resource Based View 

16. PLS-SEM – Partial Least Square – Structure Equation Modelling 

17. CIPC – Companies and Intellectual Property Commission 

18. SACE – South African Council of Educators 

19. FAIS – Financial Advisory and Intermediary Services 

20. CCMG – Contact Centre Management Group 

21. SAICA – South African Institute of Chartered Accountants 



   

xvi 

22. SAITA – South African Informal Traders Alliance 

23. CFA – Confirmatory Factor Analysis 

24. AVE – Average Variance Extracted 

25. TOL -  Tolerance Level 

26. VIF – Variance Inflator Factor 

27. SRMR – Standardized Root Mean Square Residual Analysis 

 

 

 



   

1 

CHAPTER 1 

INTRODUCTION 

 

1.1 Introduction 

This section serves as an introduction to the thesis and lays the groundwork for the rest of the research. 

It also takes a look at the problems researchers are having and the knowledge gaps that exist. This 

chapter lays out the study's objectives and formulates the questions that will guide the research. In 

addition, the thesis framework is constructed, and the important topics in this study are defined. A 

brief overview of the chapter's contents follows. 

 

1.2 Background of the study 

South Africa belongs to a number of countries that have focused heavily on SMEs during the last few 

decades. There are an increasing number of countries whose economies rely heavily on SMEs. 

Governments throughout the world prioritize the growth of SMEs as a means of stimulating economic 

expansion. South Africa's SMEs remain crucial to the country's economy. As large firms reorganizing 

and shrinking in size, SMEs have become more important to South Africa's economy and growth 

(South Africa Info, 2016). The FNB's Commercial Property Broker Survey for the first quarter of 2021 

forecasts a drop from 1.77 percent job growth in the financial, retail, and service sectors in 2019 to -

6.98 percent growth in 2021. The government has looked to the SME sector as a way to increase 

employment. SMEs in South Africa are many and diversified. They were found in many different 

industries, such as retail, wholesale, tourism, mining, agriculture, manufacturing, construction, and 

service (Gamidullaeva, Vasin & Wise, 2020). 



   

2 

 

In many parts of the globe, SMEs are performing a crucial role in the expansion of the labour force. 

In South Africa, this is indeed the case as well, where the SME sector is often regarded as strong and 

flourishing. To encourage the production of new companies and to create a climate favourable to their 

growth, the South African government has pledged its support for SMEs. The success of SMEs is 

important not only for South Africa, but for all countries (Nguyen, Jeong & Chung, 2018). Mostly 

because these corporations are crucial to the development of any nation's economy (Nguyen et al., 

2018). How successfully a business satisfies its consumers' demands for products and services is an 

indicator of its success. 

According to the South African Tax Service, the formal sector in South Africa is made up of 55.6% 

microenterprises, 33.7% and 9.5% SMEs (National Treasury Panel, 2016). Medium-sized enterprises 

predominate in the main industries, while tiny and micro-sized businesses rule the manufacturing and 

service sectors, respectively. The public has recently become more aware of the importance of SMEs 

in achieving societal objectives such as reducing poverty, increasing income equality, stimulating 

economic growth, and empowering formerly marginalized groups of people. 

Statistical data — nearly 2.5 million people, according to a poll conducted in the first quarter of 2021, 

are working in South Africa's thriving informal economy (excluding formal Businesses). The number 

of SMEs in South Africa dropped by -11.1% during the first quarters of 2020 and 2021, from 2.6 

million to 2.3 million (SEDA, 2021). It is estimated that 1.5 million SMEs from 2.3 million are 

unofficial, with the great majority engaged in wholesale and retail trade or the construction industry. 

SMEs "have high failure rates and low performance," despite the fact that they make considerable 

gains to the economy (Ncube & Ndlovu, 2022). Understanding why certain SMEs are more successful 

than others is crucial to the growth of the sector as a whole. In this regard, several SME-focused studies 



   

3 

have highlighted the importance of strategic planning. 

Efforts have been made on a worldwide scale to help SMEs expand and become more integrated into 

the global economy (Musabayana, Mutambara & Ngwenya, 2022). South Africa's SMEs drive 

economic expansion and are entrusted with addressing the country's social and economic problems, 

yet they face challenges in becoming and remaining competitive (Hoetoro, 2020). SMEs have the 

potential to operate as economic accelerators, however the vast majority of them end in failure 

(Adeosun & Shittu, 2021). South Africa has one of the lowest rates of entrepreneurial success in the 

world, despite the significant contribution that SMEs make to the growth of the economy and the 

generation of new employment opportunities. 

It also has high rates of poverty and economic inequality. An estimated 33.4% of South Africans are 

now unemployed (Statistics South Africa, 2021). SMEs are seen favourably by company owners for 

their potential to foster economic development, income parity, job creation, and overall economy 

growth. Growth in the economy is largely attributable to the success of SMEs, which create new jobs 

and innovative products (Mishra, 2016). The contribution of the SME sector is heavily reliant on the 

creation of new businesses and SMEs in South Africa are paving the way in addressing the global issues. 

“Creating a new SME is a two-stage process (Owenvbiugie, 2020)”. In the first three months, a new 

business must decide what it will sell, gather the necessary resources, and set up the necessary 

infrastructure. The small business now enters the marketplace and competes with established firms for 

customers. 

As a result, those in charge of SMEs have been dubbed "strategic myopic" (Letshaba et al., 2020). It 

is widely held that SMEs would not be able to reach their full performance and development potential 

unless they follow a strategic plan (Chakabva, Tengeh & Dubihlela, 2021). Because of this, several 

studies have focused on identifying the "barriers" that inhibit SMEs from putting their strategies into 



   

4 

action. 

Number of new businesses also at a historic low (Bushe, 2019). There has been a dramatic increase in 

the number of new small businesses opening in South Africa during the last decade. When it comes to 

creating stable employment, small businesses in South Africa are the country's best bet. This is sadly 

endemic in the business community in South Africa. This industry is not anticipated to significantly 

contribute to job creation, economic growth, or poverty reduction in South Africa due to the high rate 

of new SME development failure. Since they don't see the value in it, many SMEs don't bother with 

strategic planning (Dearman et al., 2018; Vasileva et al., 2018; Haleem et al., 2019). The central thesis 

of the vast majority of publications on business strategy is that modern businesses "must actively 

prepare for the future" to ensure their continued success (Huang, 2020). 

As competition and market volatility rise, SMEs throughout the world, including South Africa, are 

working harder than ever to learn how to enhance their performance. More strategic planning strategies 

are needed, according to some experts and governments, so that you may maintain your current level 

of performance. Nonetheless, opinions remain divided on how strategic planning contributes to a 

company's success. Despite several attempts, linking strategic planning with a company's financial 

performance, the results have been mixed (Jayawarna & Dissanayake, 2019). As a result, there is no 

consensus on how strategic planning contributes to a company's bottom line. 

Those who work in the field of informal strategic realise that their clients, mostly SMEs, see no 

performance gains from using this method. They argue that strategic planning tends to make 

businesses less flexible, making them less able to respond to changes in a fast-paced, competitive 

market (Mohapeloa & Mametsi, 2020). Others argue that strategic planning should be more formalized 

because of the many positive impacts it may have on performance (Williams, 2020). Strategic 

planning, in their view, is a management tool that protects enterprises from the risks posed by dynamic 



   

5 

and competitive markets. In addition, strategic planning creates an operational framework that 

Schraeder (2002) findings give businesses an edge in the marketplace and boosts their productivity. 

Strategic planning, or "the act of formulating and executing long-term strategies in a thorough and 

adaptable fashion," is essential for a company to reach its objectives (Jan & Anwar, 2022). Strategic 

planning include inquiring into the company's long-term objectives, current standing, proposed path 

forward, and anticipated external developments (Huang & Rust, 2009). A declaration of corporate 

purpose, objectives, strategies, and assessment are the most essential components of strategic planning 

(Jayawarna & Dissanayake, 2019). A firm uses its thoughts of what the future will look like to 

influence its activities while preparing for the future. According to Wei Liang (2018), significant 

components of strategic planning include a firm's long-term goal, line of business definition, and 

ensuring that the organization has a strategic "fit" with its surroundings. According to this hypothesis, 

a firm with a strong strategic fit is more capable of capitalizing on market possibilities while 

minimizing risk. 

Businesses should participate in strategic planning as their surroundings are growing more 

complicated and uncertain (Desai, 2000). (Desai, 2000). These results imply that strategic planning 

methodologies aid SMEs in understanding their current situation, determining their future course, and 

adapting to an ever-changing business environment. Good news indeed for smaller businesses! The 

mission, vision, objectives, and objectives of an organization are integrated with strategic alternatives 

and resources through strategic planning (Gore, 1997). Several research projects have looked into 

strategic planning (Nawar, 2018). Organizations may learn more about their internal and external 

environments, as well as their own objectives, objectives, and resources, by using strategic planning 

approaches. Numerous studies corroborate this conclusion. 

 



   

6 

Strategic planning includes identifying long-term objectives, creating a strategy to achieve those 

objectives, and allocating or re-allocating resources to make that strategy a reality (Sifumba et al., 

2017; Ayandibu et. al., 2019). Strategic planning in the real world is about one thing: beating the 

competition. Creating a "sustainable competitive edge" is the ultimate goal of every company's 

strategic plan (Ayandibu & Houghton, 2017). The fate of a small business may be determined by a 

number of factors. Investment, management, leadership (including marketing), strategic planning, and 

executive education are just a few of the numerous variables that contribute to a company's success. 

Businesses may respond to shifting customer tastes via careful strategic planning, tactical 

implementation, and regulatory monitoring of marketing campaigns (Musa et al., 2019). Dzisi and 

Ofosu (2014) state that SMEs need long-term marketing strategies to grow and succeed. Lack of 

marketing plan and financial resources are common causes of failure for small businesses (Amin, 

2021). Management often attributed their companies' poor market performance to a lack of 

commercialization planning, as well as issues with market awareness, marketing, product 

development, and commercialization (Hadiyati & Hendrasto, 2021). 

SMEs may boost firm performance via the usage of marketing strategies. A business's marketing 

strategy may be inferred from the efforts it makes to create channels for communicating with its 

intended audience, establishing and maintaining relationships with its consumers, and increasing sales 

and profits (Kariithi, 2015). A customer-reach plan is essential for every business, no matter how large 

or small. Satisfied clients should always be the top priority of any marketing strategy. While 

conducting an extensive marketing campaign, one must first develop a marketing strategy. It allows a 

company to prioritize investments in areas likely to provide the highest returns (Kariithi, 2015). The 

goal of every firm in today's highly competitive market is to ensure that its goods, services, and ideas 

are marketed effectively and delivered to the right target demographic (Makhitha, van Scheers & 



   

7 

Mmatli, 2019). The success of every business depends on its ability to maintain and expand its market 

share while mitigating the negative effects of competitive entry (Kenu, 2019). Positioning is a 

marketing approach that involves analyzing the market, the competitors, the customers, the context, 

segmenting the market, and then targeting the appropriate demographic (Amin, 2021). For an 

organization to successfully identify and meet the needs of its core clientele, it employs a marketing 

mix consisting of a variety of tried-and-true methods for doing so (Amin, 2021). 

A company's success may be traced back to its core purpose, which is to launch, manage, and maintain 

the enterprise. Successful corporate management requires a thorough familiarity with the firm's 

operations and the means to ensure its financial viability. Being a critical and essential aspect of every 

company, price is always a valid and important point of differentiation (Abou-Moghli, 2018). Making 

pricing decisions is difficult under any circumstances, but especially in the face of fast price 

fluctuations, market uncertainty, and industry disruption. Profits, client retention, and repurchase rates 

may all be improved by strategic pricing. Several different pricing models exist, each tailored to a 

unique set of conditions and attributes (Radiman et al., 2022). 

Objectives are set, available elasticity is determined, strategies are devised, prices are determined, and 

methods for tracking and maintaining the pricing strategy are established all within the pricing process. 

(Ndegwa, 2018). The market value of an object is determined by a series of complex mathematical 

calculations, research, and the willingness to take on risk. Sales price may also be referred to as pricing 

or selling price (Karugu, 2018). The price is the most that a buyer or seller is prepared to part with in 

exchange for the goods. While pricing has more wiggle room than anything else in marketing, there 

are still certain details to iron out (Karugu, 2018). There is a tremendous deal of variation in pricing 

strategies between markets, locations, and client demographics (Kienzler, 2018). Such instances are 

as follows: Pricing strategies include: premium, markup, cost-based, penetration, economy, 



   

8 

promotional, price-skimming, value, psychological, regional, packaged, prestige, relationship, and 

predatory (Aman, 2022). 

Yet, the vast majority of research focused on product, advertising, and distribution recommendations 

while ignoring the crucial impact of price decisions (William & Joyce, 2020). There have been calls 

for more investment in price research, but thus far, only little gains have been accomplished (Hofer et 

al., 2019). Some causes of this neglect include the absence of acknowledged pricing theories and the 

complexity of pricing strategies and managers' unwillingness to address the matter (Shane & Freeman, 

2018). (Kemper, 2018). Without sound theoretical guidance, managers may be enticed to boost the 

company's performance using incorrect pricing assumptions. Further complicating matters is the 

possibility that improved pricing is essential for SMEs to improve performance and for firms in general 

to drive long-lasting competitive benefit in marketplaces (Hofer et al., 2019). 

Extensive research has shown that an organization's resource deployment success is directly tied to 

the efficiency of its processes and pricing structures (Raja et al., 2020). A company's resource 

utilization will suffer if it is unable to deal with the knowledge asymmetry that exists between it and 

the customer on the potentially unique consumer value of its items. If the price is too high, sales 

volume will suffer, but if it's too low, profit margins won't be maximized and the business's resources 

won't be used effectively (Falahat et al., 2020). This is endorsed by data, thus it must be true. 

It is that thriving SMEs often participate in some kind of strategic planning. As compared to non-

participating SMEs, those who do so have greater gains in revenue, ROI, margins, and employee 

growth (Stenger, 2017). Studies back up this interpretation (Kubeyinje & Bariweni, 2020; Nair, 2019). 

In addition, SMEs that indulge in strategic planning are more inventive, produce a greater volume of 

items with new patents, innovative methods of production and management, and global growth (Sasha 

et al., 2019; Islam et al., 2021). Both (Lee & Owusu, 2020) (Lee & Owusu, 2020) Strategically planned 



   

9 

SMEs are less likely to fail (i.e., dissolve voluntarily) (Njeri, 2019). (Lee, 2020). 

Without marketing, a firm's operations strategy would go to waste, and the marketing mix is the 

collection of all the many types of marketing strategies that may be used (David et al., 2017). The term 

"marketing mix" is used to describe the various combinations of the four components that make up a 

company's marketing system. A complete marketing strategy will use all parts of the market mix. The 

"4Ps" of marketing are the item being promoted, its price, its location, and the word of mouth being 

spread about it. We now integrate people, processes, and things as part of the marketing mix. All bets 

are off if any of these parameters are incorrect (Mo & Yang, 2022). All subsequent marketing efforts 

must be based on this, therefore mastering marketing management is crucial. "Price" is often reffered 

to the money a customer must fork over in exchange for a goods or service. Setting the appropriate 

price is crucial since it directly affects the amount of money that a company may earn. Cost is the 

measure of what a buyer is prepared to give up to get what they want. Price changes may have a large 

effect on demand and ultimately on sales, depending on the product's price elasticity. Thus, the pricing 

strategy is in line with the other components of the marketing mix. 

It is often held that successful pricing strategies may improve a company's bottom line (Amin, 2021). 

Planning ahead is beneficial for the success of SMEs in developing economies (Eniola et al., 2019), 

and an efficient pricing strategy should be a part of this plan. According to Al-Qershi et al. (2019), 

strategic pricing is and will continue to be an essential skill for every business. When applied to the 

business's operational operations, a company's core competencies considerably increase the company's 

competitiveness (Al-Qershi et. al., 2019). A marketer's duties related to pricing are not often seen as 

interesting. When it comes to pricing, most companies don't make any distinctions between products, 

markets, or customer circumstances. Firms have a great deal of price diversity, which makes firms 

difficult to meet their revenue and profit objectives. They are unable to respond to the competitive 



   

10 

pressures posed by other successful businesses because they lack the necessary pricing strategies. 

A firm's "pricing capability" refers to how effectively it is able to maximize profits via the use of 

various price techniques and strategies (Falahat et al., 2020). The pricing capacity concept contrasts 

with literature that employs game theory reasoning to investigate how competing organizations assign 

and appropriate value with an emphasis on how one corporation does so via its own resources and 

pricing routines (Stoelhorst, 2021). Managers require price capability to succeed since a business's 

pricing capacity is dependent on the efficient usage of resources and the ability of the firm to gain a 

competitive advantage (Stoelhorst, 2021). Yet, earlier research on managers' pricing skills has shown 

contradictory outcomes (Falahat et al., 2020). Findings indicate that neither the elements that affect 

price strategies nor the managers' ability to develop pricing knowledge are totally obvious. 

Successful SMEs may attribute their role in lowering unemployment and increasing GDP to careful 

planning and forethought on their part (GDP). Nonetheless, there is a high failure rate among SMEs. 

It is difficult to guarantee the long-term success of SMEs without first doing a comprehensive study 

of the distinctions between successful and unsuccessful enterprises. Studies suggest that SMEs might 

benefit from greater performance if they have strategic control over their pricing. In a nation with a 

high percentage of startup failures, South Africa's SMEs recognize the importance of pricing strategy 

to their continued existence. 

 

1.3 Scope of the study 

South African SMEs have a serious challenge to their growth since its founders cannot maintain the 

firm over the long term. Sometimes referred to together as "small businesses," these establishments 

are essential to the success of any economy. They promote economic growth, innovative ideas, and 



   

11 

the creation of new employment oppurtunities. Due to the role that small enterprises play in the 

development of the economy, South Africa established a Ministry of Small Commercial Development 

at the start of 2014. The government agency's stated goal is to foster the growth and success of 

domestic businesses. This kind of company is crucial to the economy and has shown to be a reliable 

source of new jobs (Mondliwa et al., 2021). South Africa's startlingly high unemployment rate of 25% 

may be partially attributed to the country's severe manpower deficit (Statistics South Africa, Quarter 

2: 2015). That's why the government is making an effort to design strategies, strategies, and initiatives 

that will help small companies expand. 

Under the SME category, you'll find all sorts of formal and informal, VAT-unregistered businesses. 

SMBs are included under this definition (Mondliwa et al., 2021). Traditional family-owned companies 

with over a hundred employees and informal micro-enterprises are both examples of little businesses. 

People from the lowest socioeconomic brackets are included here. For example, SMEs make up the 

higher echelons of the business spectrum in industrialized countries. Most South African SMEs 

operate in the market's underbelly, where opportunistic niche players thrive (Meyer et al., 2018). They 

may be weekend-only freelancers operating out of their homes, or they could be vendors on the street 

or owners of backyard enterprises. SMEs account for the great bulk of the underground economy 

despite their low employment rates and limited capacity for expansion (Meyer et al., 2018). 

Recognizing the essentiality of SMEs to a nation's financial and social growth has been a common 

practice for some time (Sefiani et al., 2018). More recognition is being given to the SMEs in promoting 

financial growth and development throughout Africa, and notably in SA (South Africa) (Zainol et al., 

2018). More than half of all employment and 22% of GDP generation in South Africa (Jang & Kim, 

2018), the most economically developed African country, were generated by SMEs. SMEs have a 

considerable effect on GDP and an even bigger effect on employment (Shubin, 2018). Most SME are, 



   

12 

unfortunately, micro and survival operations with little possibility for expansion. Wiid and Cant (2021) 

project that between 70% and 80% of SMEs would collapse. According to Zvitambo and Chazireni 

(2019), the main reason for the failure of SMEs in South Africa is they lack the capital to invest in 

themselves, making it impossible to acquire the tools, personnel, and consultants necessary for growth. 

According to Herrington and Coduras (2019), South Africa has the lowest TEA rate among the 59 

nations studied, at 8.9%, which is much lower than the average of all participating countries (11.9%). 

This view is shared by others (Lekhanya, 2016). 

South Africa has the highest failure rates in the world, at 75%. as reported by (Meyer & Meyer, 2017). 

Researchers in South Africa (SA) found that new business owners seldom go beyond the "existing and 

surviving" phase to the "launching," "expanding," and "maturing" phases of their ventures. It is 

essential for small firms to concentrate on expansion if they want to survive, much less succeed, in the 

modern economy. Poole (2018) defined SME objectives that South Africa is home to among of the 

world's lowest rates of entrepreneurship. The rate is far lower than in other nations in Sub-Saharan 

Africa, falling below even Angola and Botswana. According to Grimbald and Nchang (2019), "the 

ultimate manifestation of competitiveness" is a country's capacity to preserve its riches over time. As 

international barriers to the free flow of products, services, money, and labor have been lowered in 

recent years, South Africa, a growing market with a mostly low skilled population, must develop a 

competitive strategy in the globalized economy (Imanto et al., 2019). 

According on data from Turton and Herrington's study of TEA activity, the birthrate of SMEs in South 

Africa is very low (2018). In 2012, South Africa's TEA rate was 7.3 percent, down from 9.1 percent 

in 2011. It's far lower than the average among efficiency-focused nations (14.3 percent). And every 

year, it's predicted that 70% to 80% of South African Businesses fail (Adeniran & Johnston, 2019). 

During the course of the last five years, over 440 thousand small enterprises in South Africa have 



   

13 

closed their doors (Adcorp, 2017). Because of this, the rate at which new businesses are being 

established is at an all-time low. In the last decade, neither the population nor the number of small 

enterprises in South Africa have grown or shrunk. In South Africa, only small businesses have the 

potential to generate a significant number of additional job openings. In South Africa, only small firms 

may possibly generate a large number of new employment opportunities. In my opinion, this presents 

a serious obstacle to establishing a commercial presence in South Africa. After considering South 

Africa's rapid rate of new company formation, the prospects for the SME sector to significantly 

contribute to the creation of jobs or the reduction of poverty are dim. 

Titus (2018) contends that SMEs are essential to the market well-being of all countries. Politicians in 

the great majority of countries have been primarily motivated by the capacity of SME owners to offer 

jobs. The increased failure rate wastes resources. Individuals and their families may lose a lot of money 

if a SMEs fail. That's why it's crucial to study what factors lead to the demise of start-up companies. 

Due to their high failure rate, SMEs, according to Bowen (2020), make study on the traits required to 

help SMEs survive and enhance their performance essential. 

SMEs have contributed significantly to employment expansion, poverty reduction, and economic 

development at the national level. The creation of small businesses in South Africa has the potential 

to substantially add to the country's economic growth, and doing so has a variety of benefits, including 

very inexpensive start-up costs. Positive and unfavourable features may be found within South Africa's 

SME industry. According to KatSMMEivhu et al. (2021), South African SMEs seldom make it 

through the start-up phase and into later phases of development including survival, take-off, and 

resource maturation. So many SMEs fail in their early years of existence, before they can generate any 

of the potential benefits to society. 

 



   

14 

1.4 Problem Statement 

20 % of SME in South Africa do not succeed during their first year of transactions, and another 

30% fail within their second year (Bruwer et al., 2021). In a country where youth unemployment is so 

prevalent, why is this happening? What can be done right now to fix this? Small businesses are crucial 

to South Africa's economic transformation, yet the country is really experiencing the opposite. Some 

of the drawbacks of this review, which is particularly onerous for small businesses, have emerged in 

recent years. The obstacles to entry, the returns on investment, and the market share are all important 

considerations here. If half of the companies don't make it to the third year because they weren't 

allowed to enter the market or keep operating, it's hard to hit the two-year goal. 

SMEs face a considerable barrier to growth (Amin, 2021). Their lives might seem to be stuck in a rut, 

leading to discontent and eventually death. It's possible that owners' unwillingness to pursue new 

innovations and markets, or external factors like the state of the economy, are to blame for the 

industry's lack of forward momentum. Consequently, the challenges may come from both within and 

outside the company. As compared to their international counterparts, South African start-ups are less 

likely to survive the long haul, say Akinyemi and Adejumo (2018). This lessens the potential benefits 

that SMEs may provide to the South African economy, such as more employment, increased 

productivity, less poverty, and improved living standards. (Gankema, 2018). 

Because of its immediate and direct effects on the ability of the business to earn a profit and keep 

expense low, pricing is very malleable component of the market mix (Hrinchenko et al., 2018). Price 

appears to have been overlooked by many academics and marketing experts, despite its obvious 

importance to the success of businesses (Nassreddine, 2020). It is common practice in marketing to 

put most of an organization's resources on developing novel goods, channels of distribution, and 

methods of communication; nevertheless, this may often result in under-researched and hence under-



   

15 

valued pricing strategies (Jennifer, 2022). The fact that many businesses rely primarily on the market 

knowledge and intuition of their management contributes to pricing's seeming ease as a marketing 

tactic (Syapsan, 2019). Few managers use pricing as part of a larger pricing strategy, and even fewer 

use pricing to purposefully generate advantageous conditions that lead to profitability (Nagle & 

Holden, 2003). Although just 2% of marketing journal papers focus on price, Hinterhuber and Liozu 

(2019) believe that additional study is needed to fully understand how consumers make pricing 

decisions. 

Considering how serious the issue of the significant SME failing rate in South Africa is, this study is 

necessary. A disproportionately high number of SMEs in South Africa collapses each year. The 

success of South Africa's small businesses is crucial to the country's economy and the battle against 

poverty and unemployment. The primary goal of this research was to learn more about the difficulties 

encountered by SMEs in South Africa and the approaches used to resolving these issues. 

The following data, taken from the Q1 report of SMME Quarterly 2021, demonstrates the diminishing 

presence of SMEs in South Africa.  



   

16 

Table 1.1. Initiated by the Small Business Administration (SEDA) August 2021 

Key Indicators 2019 Q3 2020 Q2 2020Q3 q-o-q 

change 

y-o-y 

change 

Number of SMEs 2614063 2382030 2325203 -2.4% -11.1% 

Number of Formal    SMEs 755265 656423 667111 1.6% -11.7% 

Number of Informal SMEs 1748031 1617533 1552814 -4.0% -11.2% 

Number of Jobs    provided 10406070 9124485 9757287 6.9% -6.2% 

   % Operating in Commerce and 

hospitality 

38.0 38.1 37.6 -0.5pts -0.4pts 

% Offering communal service 14.0 13.1 14.8 1.7pts 0.8pts 

% Working in the construction 

industry 

14.4 15.7 14.7 -0.9pts 0.3pts 

 % Financial and Business 

Services 

13.4 13.5 13.7 0.2pts 0.4pts 

  % Formalized black-owned 

Businesses 

74.8 74.8 72.6 -2.2pts -2.2pts 

% Contribution of SMEs to total 

enterprise revenue 

37.5 37.5 37.4 -0.1pts 0.2pts 

 

According to the SME Quarterly report for the third quarter of 2021, the number of SMEs in South 

Africa dropped by 11% (or 280000) between 2021Q1 and 2021Q2. (y-o-y). There were 633,000 fewer 

people employed by SMEs as of 2021Q1 compared to the previous quarter. There were 9.8 million 

employment in SMEs, 6.2% less than in 2020Q1. According to the International Monetary Fund, 

global economic growth is anticipated to hit 6% in 2021 and 5% in 2022. (IMF). (2022). The Bureau 

of Economic Research has lowered its original prediction of a 3.9% increase in real GDP for 2021 and 

2022, and instead expect a 6.4% decline from 2020. The newest data show that the decline of 

SMEs continued in 2021Q1. 

 



   

17 

90% of all lost employment in the economy were in the SME sector. In 2020Q3, SME employment 

decreased by 1.5 million, including owners. From 2019Q3 and 2020Q3, the total employment supplied 

by SMEs decreased by 14%, to 10.1 million. The Bureau of Economic Research (BER) forecasts that 

real GDP will rebound from an expected 7.2% decline in 2019 to 3.1% in 2020 and 2.2% in 2021. 

South Africa's government failed to identify SMEs as a key engine of economic growth because it 

failed to provide enough support to the start-up and growth of SMEs. As a dearth of new, existing ones 

are likely working at or near capacity. According to Ncube and Ndlovu, South Africa has the lowest 

percentage of new SMEs being founded worldwide (2015). SMEs, as stated by Prakash et al. (2021), 

contribute to a creative "destruction process" by continually disrupting an otherwise stable economy, 

which in turn offers opportunities for economic rent. Thanks to the efforts of SMEs, the market is 

constantly being flooded with new and exciting products and services. The pressure that new firms 

put on established ones to innovate is substantial. 

As acknowledged by the Government of South Africa the research of Prakash et al. (2021) on the 

benefits of establishing SMEs and published the White Paper on SMEs in 1995, it has done very little 

to support and promote SMEs activities since then. In 2019, South Africa has a smaller number of 

total entrepreneurial activity (TEA), falling much below the global average of 12.1%. Over the 

previous year, this figure was down 10.8 percent. The formation of new SME is negatively connected 

with areas having lower than average TEA rates (Herrington & Lollar, 2020). The University of 

Southern California's Global Entrepreneurship Monitor Report, 2020 Researchers at the 2020 South 

African GEM research compared business formation in the BRICS (Brazil, Russia, India, China, and 

South Africa) countries in 2017 (before the global economic crisis) and 2019. — The Incubator and 

Innovation Hub at the University of Cape Town. As shown by their study, Mefi and Asoba (2020) 

hypothesize. The TEA rate in Brazil is predicted to rise by as much as 28.0% between 2017 and 2019. 



   

18 

This is the result of a confluence of causes, the most important of which are policy changes those 

objectives to foster the expansion of small businesses and structural alterations to the business sector 

that make it less difficult to establish start-ups (Herrington & Lollar, 2020). 

The dynamic economic climate and severe competition pose the greatest risk to SMEs. The pace of 

change in small businesses is high (Naicker & Rajaram, 2019). The economy expands, more people 

find work, and poverty decreases as businesses thrive. The capacity of small business owners to 

respond to shifting customer preferences is crucial to their companies' long-term viability. 

As such, pricing has the capacity to affect a company's long-term prosperity. The marketing mix, 

which comprises the product, the pricing, the positioning, and the promotion, is essential to the success 

of any organization. Regrettably, many companies put too much stock in advertising and neglect to 

properly price their products and services. Nonetheless, pricing is essential to a business' success; if 

it's wrong, it may hurt sales and income (Cant & Wiid, 2016). 

Despite the fact that price is essential in marketing, it receives surprisingly little study in academia 

(Kunjal et al., 2021). To wit: (Boachie et al., 2022). This is worrisome because it might significantly 

impact the pricing strategies of South African SMEs in light of the current uptick in demand for value-

based solutions in the SME sector (Osano & Lutego, 2022). Based on their research, Boachie et al. 

(2022) estimate that in the not-too-distant future, people would want to pay for outcomes rather than 

things. This fact makes it urgent and important to examine the state of studies on pricing strategy. The 

literature on pricing strategies is quite narrow and fragmented, giving the impression that it lacks a 

coherent whole. Current literature fails to address contemporary developments in the field, such as an 

increase in studies on the impact of pricing strategies. 

 



   

19 

The major challenges faced by SMEs in context of pricing are: 

 

1.4.1. Evaluating the Competition 

It is argued that focusing on the consumer while developing a price strategy is crucial, but for any 

business that exists in a competitive market, this is best accomplished by concentrating on competition 

pricing (Ajami, 2020). 

Customers have decision-making, and based on what they want and their values, they will select the 

most alluring value proposition for their requirements. It's crucial to fully comprehend your 

competitors' pricing in the pricing arena so that you can compete (Gregson et al. 2005). This doesn't 

always include undercutting the competition's pricing, especially if your product is exclusive or caters 

to a certain market. In either case, it's critical that you are aware of what the competition is charging. 

 

1.4.2. Market Analysis 

In a highly competitive market, a review of the product offerings and pricing of your rivals will 

probably provide you a complete picture of the industry. Nevertheless, incumbents occasionally make 

mistakes(Gregson et al. 2005). A certain demographic may be excluded from the market due to the 

pricing structure in place, or there may be a niche market that has not yet reached its full potential. 

If the current retailers aren't delivering based on the expectations of the customers, a good pricing 

strategy of an business can make changes (Gregson et al. 2005). 

 

1.4.3. Pricing for different consumers 



   

20 

 

It is challenging for businesses to set different prices for various consumer groups. One-time sales, for 

instance, typically have much greater expenses than recurrent customers. Implementing a strategy for 

consumers that make recurrent purchases, buy additional or related products, or both. These customers 

are more valuable, and SMEs should consider rewarding them with memberships or exclusive 

discounts that encourage them to make repeat purchases (Rentschler et al., 2007).  

 

1.4.4. Knowing when to discount: 

By reaching the objectives of the business, SMEs face the challenge of discounting their products. 

Discounting must be beneficial. Clearance reductions, for instance, might encourage the sale of 

outdated or otherwise soon to become obsolete inventory, freeing up working capital and enhancing 

cash flow (Rentschler et al., 2007). 

On the other side, offering discounts may entice people to try a new item, but the company runs the 

danger of projecting the incorrect image of its goods or generating sales that would not have occurred 

without the discount (Rentschler et al., 2007). Additionally, it's crucial to avoid creating a habit among 

your customers of simply visiting your store during sales or discounts. 

All the departments including marketing of a company must work together more closely when using 

strategic pricing. In order to increase profits, businesses often define their pricing strategy by 

considering external variables like the market and the amount of competition in the market (Korubo 

& Onuoha, 2020). 

 



   

21 

There also appears to be a paucity of study and experience with the pricing strategies of SMEs, despite 

the fact that pricing in the border sense has gotten a lot of attention in marketing textbooks and research 

papers. The challenging process of pricing, which requires a more analytical approach than SME 

managers know, and failing to grasp the distinctive features of SMEs in terms of resources and skills 

are also issues. Second, the lack of a distinct research strategy or an established research stream 

dedicated to the pricing practices of SMEs may contribute to the severity of the issue. The few pieces 

that exist intend to be highly specialized on all the themes and are often written in a style that suggests 

many writers were involved. The challenges provided by SME-specific peculiarities and 

environmental unpredictability have not been studied sufficiently to chart a better route for empirical 

research and practice. 

Existing literature on SMEs fails miserably in its attempt to deal with the problem of price 

unpredictability. SMEs may not survive due to shallow pricing operations and judgments, which may 

be disastrous given their limited resources and the complexity of price. Hence, SMEs may lack the 

strategic discipline required to investigate and capitalize on market possibilities that might help them 

remain competitive and profitable. Understanding the elements that impact SMEs' pricing choices is 

essential for improving their prospects of survival and growth in developing countries like South 

Africa. 

Second, setting the right pricing for your products may be challenging. Businesses need to charge a 

competitive price to attract and retain customers, yet setting unreasonable prices may hurt sales and 

hurt the company's image. But, if a company undervalues itself, it may not be able to generate enough 

profit to remain operational. According to statistics on company failures, it is the leading cause of 

death for 18% of companies (CBInsights, 2021). While it has decreased from 6% in 2017 to 4.9% this 

year, South Africa's firm exit rate is still much higher than the rate for well-established enterprises 



   

22 

(3.5%). As a result, it seems that the pace at which businesses are sold or go out of business is higher 

than the pace at which new businesses are created (Global Entrepreneurship Monitor, 2019). 

It is "one of the most basic issues facing SMEs" to deal with fluctuating cash flow, therefore 

understanding the elements that affect it is crucial (Cowling et al., 2019). According to Amaral and 

Guerreiro (2019), knowing what influences the success of pricing strategies is crucial. Maximizing 

profits requires a well-thought-out approach, and this can't be accomplished without first gaining an 

appreciation for the factors that go into setting prices in the SME market. Although a wealth of 

information is available on SMEs in developed countries, the literature on developing economies like 

South Africa has largely ignored the significance of investigating the factors that lead businesses to 

choose certain pricing policies. Are there any other criteria or prerequisites for effective SME pricing 

strategies in developing markets, beyond manufacturing cost and competitiveness (Neubert, 2017)? 

Lack of access to pertinent market information often leads to suboptimal pricing strategies (Iyer et al., 

2017), pricing low (Ingenbleek et al., 2018), and an increased dependence on individual's decision, 

social resources, and operational expertise when determining prices (Adekambi et al., 2018) and a 

higher market risk (Hallberg, 2017). The studies (Ingenbleek et al., 2018; Hallberg, 2017) support this 

idea. Understanding the pertinent antecedents may help advance the literature and theory of SME 

pricing. 

Another critical hole in the research on SME success was the extent to which pricing strategies affect 

SME performance, particularly in emerging marketing contexts like Africa. Whereas other fields, such 

as services (Lie et al., 2021) and new product development (Liozu, 2019) and international trade, have 

extensive empirical research, emerging market SME development has lagged behind (Fracasso et al., 

2022). To get theoretical insight into price and the SME literature, one must understand the many 

types of pricing strategies, the combinations of these strategies, the context, and the degree to which 



   

23 

SME traits effect pricing. 

The many limiting circumstances under which a firm's pricing strategy will have an effect on its 

success has received little consideration in the literature (SMEs). The empirical backing for business 

objectives, industry competitiveness, and SME pricing power is murky. To understand how SMBs 

may best optimize their pricing strategy, awareness of the various consequences of these factors is 

required. Interactions are not necessarily linear because of the unpredictable circumstances in which 

SMEs operate. The success of a SMEs is directly tied to its pricing strategy, and this strategy may be 

improved by analyzing many boundary conditions (Dassen, 2021). 

 

1.5 Research objectives and questions 

The purpose of this research is to thoroughly understand how pricing strategies influence the overall 

performance of SMEs in South Africa. To facilitate the achievement of this purpose, some key questions are 

asked. Thus, what pricing conditions explain SMEs choice of pricing strategies? 

Do the different pricing strategies have the same effect on different SME performance measures? 

How can firm charactersitics such as age and size and capability and goal, explain the impact of pricing 

strategies on the productivity of SMEs? 

The following specific research objectives are set to help respond to the questions above: 

• To investigate the price antecedents and their effect on pricing strategies among South African 

SMEs. 

• To assess the effects of pricing strategies on SMEs. 

• To examine the impact of SME age and size on the relationship between pricing methods and 

performance of SMEs in South Africa. 



   

24 

• To examine how the relationship between pricing strategy and SME success is influenced by 

pricing objectives and SME pricing capability. 

 

1.6 Definition of the terms.  

1.6.1 Price 

Price, as defined by Gundlach et al. (2017), is the sum for which something is offered for sale or 

exchanged, regardless of its value to the buyer. Even if a monetary value is not ascribed, products that 

are traded may nevertheless have a price. The price of a product or service is directly proportional to 

the value it provides to the buyer (Ahmed et al., 2021). 

 

1.6.2 Pricing Strategies 

A pricing strategy is a plan or process for choosing the most competitive price for a good or service. 

It assists you in setting prices while taking customer and market demand into account in order to 

maximise earnings and shareholder value.Numerous aspects of your organisation, including revenue 

targets, marketing goals, target market, brand positioning, and product features are taken into account 

by pricing strategies. Additionally, they are impacted by outside variables like market and economic 

changes, consumer demand, rival price, and general market trends (Sije & Oloko, 2013). 

 

1.6.3 Small and Medium Enterprises (SME) 

Small businesses in South Africa are defined as "a separate and distinct business entity, together with 

its branches or subsidiaries, if any, including cooperative enterprises, managed by one owner or more 

predominantly carried out in any sector or subsector of the economy" by the National Small Business 

Amendment Act of 2004. Groups like "survivalist," "micro," "very small," "small," and "medium." 



   

25 

Depending on a company's gross asset worth, annual revenue, and number of employees, each 

economic sector is classified differently. 

 

1.6.4 Pricing capability 

When we talk about a company's "pricing capabilities," we're referring to its in-house capacity to set 

prices (by researching competitors' prices, developing a pricing strategy, and implementing that 

strategy through pricing) as well as its external capacity to fix rates in the buyers' eyes. The capability 

to set prices is essential for every business that wants to follow through on its pricing strategy. 

Competitors will have a hard time duplicating your price advantage if you have a solid pricing strategy 

(Dutta et al., 2020). 

 

1.6.5 Resources 

In the words of Barney (2019), an entity's resources consist of “all assets, capabilities, organizational 

processes, firm characteristics, information, and knowledge that are under the business's control and 

allow the firm to plan and execute strategies that enhance its efficiency and effectiveness.” 

 

1.6.6 Competitive advantage 

Barney (2019) argues that businesses get an advantage over their rivals if they adopt a value-persisting 

strategy at the same time their rivals do not. 

 

1.6.7 Cost oriented pricing strategy 

 



   

26 

Cost-based pricing techniques depend on manufacturing cost data. Access to information in real time 

is crucial, yet this method isn't without its limitations. It doesn't take into account the likelihood that 

buyers will really pay (Hinterhuber, 2018). Cost-plus pricing and direct/marginal-cost pricing are the 

two most frequent structures used by SMEs (Hinterhuber, 2018). 

 

1.6.7.1. Cost plus method 

As demand fluctuates, the cost-plus method simply adds a fixed percentage to the final unit cost of 

manufacturing and shipping (Faith & Agwu, 2018). Among these factors is a "reasonable" increase in 

the unit price, as determined by the work of Faith and Agwu (2018). The authors believe that a business 

should calculate its total cost of production and sales and then add a certain percentage in order to 

account for variables like competitors' price, product quality, distribution networks, and advertising 

campaigns (Ebitu et al., 2015). 

 

1.6.7.2. Direct or marginal method 

Those expenses that are anticipated to grow at the same time as production are included into the 

pricing. As a result of its money-saving properties, direct cost pricing is a useful instrument for 

marketing services. The money goes down the drain when, for example, customers are unable to 

reserve a hotel room or plane ticket. Setting pricing to cover direct expenses plus a portion of overhead 

may make sense in certain circumstances. If leasing equipment (or chairs, or space) is the answer, the 

direct cost is the very minimum at which a firm may be run successfully (Hyginus et al., 2019). 

 

1.6.8 Pricing capability development 

 



   

27 

A company's pricing strategies and strategies will change when it has the power to charge greater 

prices. Adapting the company's current pricing structures and practices will lead to a new set of 

pricing capability elements since pricing capacity is made up of resources and procedures, and these 

may be further divided into distinct pricing capability components (as discussed in Section 2.3.2). 

The expansion of a pricing capacity may also include the addition or modification of sub-

capabilities. 

 

1.6.9 Competitors-oriented pricing strategy 

The practice of modeling one's price after that of a competitor is shown here (Faith & Agwu, 2018). 

In this industry, it is common practice for businesses to benchmark their pricing against those of their 

primary competitors. Use of "go-rate" pricing, which is often used to commodities with minimal 

variation from unit to unit, such as aluminum and steel, forms the foundation of this pricing method 

(Hyginus et al., 2019). In this case, the cost of a product or service was calculated using market data 

(Agwu et. al., 2014). This happens more often in marketplaces where a pricing leader can be identified. 

Companies are usually wary of starting a price war with rivals, so they avoid setting prices that are 

much lower than the competition. As a result, bottom lines everywhere will take a hit. a. There are 

contexts in which businesses work together. 

 

1.6.10 Competitive bidding 

Typically, a consumer would post a detailed description of a product online and get bids from possible 

suppliers, who will then submit their best, most confidential offer to the customer (Jobber & Shipley, 

2012). Everything else being equal, a consumer will choose the service provider offering the lowest 

price (Hyginus et al., 2019). 



   

28 

1.6.11 Prestige pricing strategy 

Premium pricing attracts status-conscious, budget-conscious customers (Hyginus et al., 2019). A 

customer's perception of value is reflected in the price they pay. Consumers who feel that low costs 

indicate inferior quality sometimes create price floors beyond which they refuse to shop (Hyginus et 

al., 2019). 

 

1.6.9 Differential pricing 

It involves offering selling the same item to different customers for varying prices. This suggests that 

diverse market sectors are susceptible to varied costs (Hyginus et al., 2019). (Hyginus et al., 2019). 

 

1.6.10 Demand-based pricing 

This method steps back from the manufacturing process to analyze customer needs and responses to 

different pricing tiers (Hyginus et al., 2019). These prices are set by the market and change as needed 

to meet supply and demand. Costs are determined based on supply, demand, and the overall market 

environment (Hyginus et al., 2019). This is similar to how prices rise when demand exceeds supply in 

a supply and demand market. Price setting must be in accordance with consumers' opinions about the 

product when adopting this pricing method; otherwise, the product's pricing either be overpriced or 

under-priced for the target audience (Hyginus et al., 2019).  

 

1.6.11 Bundle pricing 

Hyginus et al. (2019) specifies that many products are sold in bundles to save customers the effort of 

having to find and purchase each component separately. Several different products are bundled 

together and sold at once in this situation. This is comparable to making bulk purchases and saving 



   

29 

money. The most common approaches to price consumable goods are markup, competitor-focused 

pricing, cost-plus pricing, demand-based pricing, and packages. 

 

1.6.12 Pricing policy for new products 

Many more considerations than the costs themselves go into setting a price (De Toni et al., 2017). 

There are two broad buckets from which a corporation may choose when establishing its pricing 

strategy, and either will provide the same result: the establishment of the final price. Listed below are 

their respective names: 

 

1.6.12.1. Price skimming 

An individual's willingness to pay for something from the outset depends on how much they want it 

(Hyginus et al., 2019). Here, the product's overall quality and ability to meet the customer's needs are 

more important than the price. By charging extra for innovative products, businesses may profit from 

the purchases of a select few customers while still meeting their needs (Faith & Agwu, 2018). 

 

1.6.12.2. Penetration pricing 

This new pricing strategy encourages businesses to release previously unreleased products at reduced 

prices (Hyginus et. al., 2019). Penetration pricing is used when a business wants to grab a large chunk 

of a market by giving a low price (Faith & Agwu, 2018). 

 

1.7. Assumptions 

The research is conducted on the assumption that all strategic practices have common underpinnings. 

The study was developed based on four main premises. 



   

30 

 

Examining the strategies used by SMEs in South Africa to set prices is the major objective. While 

assessing the profitability and competitiveness of SMEs, this factor is taken into account. SMEs in 

South Africa rely heavily on their growth and development strategies to stay up with and sometimes 

even surpass their rivals. 

Furthermore, many people think that if they are given the proper resources and support, they may start 

a company that will thrive and eventually employ many people. Yet, this doesn't prove that only micro- 

and small-sized businesses can and will provide new employment opportunities in the future. Even if 

the economy does recover, it will be difficult for the illiterate and the low-skilled to find steady 

employment. Working for yourself in the rapidly expanding SME sector is one such option. 

Strategic growth in SMEs is the study's third pillar. To increase output, they might test out alternative 

product pricing models. This study will analyze SME profitability to find the optimal pricing strategy 

for SMEs. At the end of the day, it is thought that SMEs in South Africa use a broad variety of pricing 

techniques when determining the rates, they will charge for their goods. When deciding what to charge 

for their goods and services, many companies first check what their competitors are asking for 

comparable ones (Hyginus et al., 2019). So, this study will examine the financial stability of SMEs 

and their employee retention rates. 

 

1.8. Organization of the study 

Chapter 1: The importance and value of SMEs in South Africa, along with the challenges they 

confront, were introduced in the thesis's introductory chapter. The problem statement articulates a 

specific area of concern and the nature of the problem that requires fixing; it also serves to frame the 



   

31 

research questions and provide context for the thesis's intended findings. The following sections 

establish the thesis's framework and outline the research's assumptions and bounds. 

To answer these issues and more, this chapter will explain in depth how the thesis was written. Just 

what are these research techniques called? Which approach was used, and why did it win out? How 

do you define research methods? Which strategy was chosen, and why did it win out? What research 

methods do you think would work best for this study? Why did you choose it? Where did you look for 

this information, and how did you go about analyzing it? To what extent can we trust the findings? 

 

Chapter 2: The second chapter explains the study's setting by detailing the geographical region, 

economic sector, and target market. Research scope and issues facing SMEs will be outlined in the 

context section. 

 

Chapter 3: The theoretical underpinnings of the argument will be executed in Chapter 3. This theory 

will help us comprehend the state of SMEs today and, more importantly, provide the groundwork for 

creating new ways of doing business to solve the issues caused by the parameters within which prices 

are set and the strategies used by SMEs. The findings from the theoretical study will also be 

incorporated into the operational strategy. 

 

Chapter 4: In the fourth chapter, we'll look at the antecedents of pricing strategies for SMEs, covering 

factors like rivals, market share, customers, items, and revenue. Afterwards, the current situation of 

pricing strategies will be analyzed. 

 



   

32 

Chapter 5: After a review of the current state of affairs, the fifth chapter builds a theoretical, 

empirical, and conceptual foundation for the inquiry. The proposed causal connection is modeled 

based on the underlying conceptual framework. In this chapter, we'll argue for both of those 

possibilities. 

 

Chapter 6: here is a whole chapter dedicated to different ways of doing research in the sixth section. 

To answer these issues and more, this chapter will explain in depth how the thesis was written. Just 

what are these research techniques called? Which approach was used, and why did it win out? How 

do you define research methods? Which strategy was chosen, and why did it win out? What research 

methods do you think would work best for this study? Why did you choose? Where did you look for 

this information, and how did you go about analyzing it? To what extent can we trust the findings? 

 

Chapter 7: The outcomes of the data analysis are discussed in this section. We'll talk about descriptive 

statistics in this chapter. The validity and reliability of the tests will be shown in this section. 

 

Chapter 8: The results of the study are shown here. Both the research topic and the stated objectives 

will be represented, as well as their connections to the existing body of knowledge. 

 

Chapter 9: Conclusions and recommendations are executed in the last part of this thesis. By 

discussing the study's primary findings and addressing the research questions and objectives, this 

section will serve as a useful conclusion. An explanation of the research's contribution to knowledge 

will be given. The study's restrictions, and any suggestions for future research for further investigation 

will be discussed here as well. 



   

33 

CHAPTER 2 

CONTEXT OF THE STUDY 

 

2.1 Chapter overview 

The objectives of the South African NDP include ending poverty and inequality and lowering the 

jobless rate to 6%. A large disparity exists between these numbers and the existing financial condition 

in South Africa, where household poverty is at 57% and unemployment at 27%. South Africa 

consistently ranks among where inequality is greatest as measured by the Gini index of 0.691. 

(StatsSA, 2019). Inclusive growth has to be expedited if South Africa is to make major strides in 

reducing poverty, inequality, and unemployment. 

In South Africa, the importance of SMEs in fostering long-term, broadly shared economic growth and 

development is widely acknowledged. The National Development Plan highlights the significance of 

SMEs, with the objectives of having SMEs account for 90% of employment in South Africa by 2030. 

If these businesses are able to combine and expand, a long-term solution to the problem of low wages 

and income inequality may emerge. If you're out of work and looking for something to do, you may 

want to look into starting your own company. 

The literature from throughout the world supports this stance. For instance, Block et al. (2017) show 

that entrepreneurs are a major source of job creation and that entrepreneurship has positive, long-term 

spill over effects that lead to greater employment growth rates. Furthermore, promoting the expansion 

of existing SMEs may encourage innovation and employment creation inside these organizations. 

According to the 2018 SME Growth Index, 52 percent of SMEs on a strong growth trajectory 

expanded employment in the prior year, compared to just 12 percent of SMEs seeing a decline in 



   

34 

revenue. 

Since it is so challenging to collect reliable and representative data on businesses in South Africa, this 

research draws its information from a wide range of sources. Nevertheless, as various sources employ 

various techniques to identify SMEs in South Africa, direct comparisons across datasets are tricky. 

The profile of SMEs shown in Section 3 is based on individual-level LMD data (2013). The second 

category defines SMEs by the number of employees they have. We may use this information to look 

at the economy from a variety of perspectives, from lone entrepreneurs through corporations of 

varying sizes. Companies with less than 49 full-time workers qualify as SMEs according to the World 

Bank. Part 4 contrasts this with an analysis of the difficulties faced by SMEs, based on information 

gathered from a variety of enterprise-level sources. Depending on context, "SME" may refer to a wide 

variety of businesses, although often it refers to a firm with less than 99 people (Bhorat & Khan, 2018). 

Thereafter, the current situation of SMEs in South Africa is discussed, along with the primary 

challenges they face in terms of growth. It examines the significance of SMEs in South Africa from a 

comparative perspective. This article looks at SMEs in South Africa from three angles: the company, 

the owner, and the workers. Next, we differentiate between formal and informal SMEs to highlight 

South Africa's distinct informality. Although South African businesses strive for expansion, they face 

both internal and external obstacles, which are examined in this paper. Both internal (to the company) 

and external (to the company) factors might contribute to problems (originating from outside the 

organization). This chapter provides an overview of the results and outlines the main barriers to SME 

development in South Africa, taking into consideration the variation in business size and informality 

status. 

 



   

35 

2.2 Performance of SMEs in South Africa 

SME developments in South Africa have shown a moderate parabolic form in relation to the global 

economic crisis, 2008 and the most recent recession of 2019. In the fourth quarter of 2008, 255 742 

SMEs existed. After falling to a low of 151 741 in the fourth quarter of 2014 as a result of the 2008 

financial crisis, the number is projected to rise and reach a new high of 247 881 in the second quarter 

of 2020. South Africa is projected to have 2.4 million SMEs by the end of the third quarter of 2020. 

SMEs may feel the effects of the Covid-19 pandemic. According to polls conducted by Stats SA 

(2020), the vast majority of the country's SMEs were unable to function during the closure (Stats SA, 

2022). 

 

2.3 Size and characteristics of SMEs in South Africa 

Apart from agriculture and households, the number of SMEs in South Africa increased from 2.09 

million in Q1 2008 to 2.17 million in Q2 2020. (BER, 2016). Around 667,400 of the 2.17 million 

registered businesses in the United States are formal, while over 31% are informal (Figure 1). During 

the first quarters of 2008 and 2015, there was a rise in the total number of businesses as a consequence 

of the creation of 83 informal SMEs for every new formal SMEs (BER, 2016). 

 



   

36 

 

 

Figure 2.1. Number of Formal and Informal SMEs 

 

SMEs in South Africa have a number of other traits with both their formal and informal counterparts: 

 

2.3.1 Formal SMEs 

For the purposes of the South African government, a "formal company" is defined as one with "a 

clearly defined organizational structure that regularly employs personnel". Formal companies are good 

locations to work due to their scheduled hours, salary, and tax payments. Registration provides formal 

enterprises with security. The word "formal business" encompasses both public and private 

companies. These corporations adhere to all relevant rules and regulations. These organizations are 

well-structured and controlled. 

Formal sector of the South African economy comprises all tax-paying and government-regulated 

companies. The formal sector is home to the majority of well-known private companies. This umbrella 

755265 
(28.9%) 
Formal 
SMEs

1748031 
(66.9%) 
Informal 
SMEs

2.6 
Million 
SMEs in 

June 2021



   

37 

might include grocery stores, restaurants, petrol stations, banks, and insurance businesses. To be part 

of the formal sector, a company must satisfy all legal standards and only employ legal employees. In 

the broadest sense, this is the "known" contributor to the economy. 

 

2.3.2 Informal SMEs 

Untaxed or unmonitored economic activity is known as the "informal sector." People who are not 

employed in the official economy run informal companies. The formal sector is dominated by sole 

proprietorships and small local companies. Any enterprise that is unlawful or not subject to regulation 

falls under the informal sector. The GDP excludes the results of these businesses' economic operations 

(GDP). Those enterprises that don't "pay their dues" to the government are part of the informal sector. 

The informal sector constitutes a major percentage of South Africa's economy. This comprises a 

significant number of neighborhood companies and home-based enterprises. Many of South Africans 

depend on the informal sector for low-cost food, clothes, and other products and services. For South 

Africans who are unable to obtain employment in a more conventional context, the informal sector 

offers an alternative source of income. 

 

2.3.3 Characterisations and peculiarities of informal and formal SMEs in SA 

2.3.3.1 Ownership of SMEs 

Unlike formal SMEs, which are dominated by enterprises with an owner and a staff, the vast majority 

of informal SMEs are owned by self-employed individuals (about 70 per cent of formal SMEs). The 

majority of small company owners in Africa are Black and in the ages 35 to 44-year-olds with the 

lowest educational attainment (Stats SA, 2021). 



   

38 

2.3.3.2 Provincial distribution 

In terms of business, the provinces of Gauteng and the Western Cape are where it's at. The majority 

of South Africa's unrecognized enterprises operate in the country's more outlying regions, namely 

Limpopo, Mpumalanga, and the Eastern Cape. 

 

2.3.3.3 Sectoral distribution 

SMEs are common in many different industries, including commerce, hospitality, and the non-profit 

sector. The construction industry is the second most common for unofficial businesses, but the 

majority of formal SMEs work in the financial and business services sector. There are more than twi