PRICING STRATEGY AUDITING FOR GARMENT 
MANUFACTURING COMPANIES IN SRI LANKA 
 
By 
S. M. Pathirana 
  
 
A thesis submitted to University of Moratuwa 
for the Degree in Master of Science 
 
 
 
 
 
 
 
Research Supervised  
by 
Dr. N. K. Heenkenda 
 
 
 
DEPARTMENT OF TEXTILE AND CLOTHING TECHNOLOGY 
UNIVERSITY OF MORATUWA 
SRI LANKA 
 
December 2010 

 





























































































































































ABSTRACT





i 


ABSTRACT   
The Sri Lankan garment manufacturing industry needs to become competitive in 
terms of pricing with the phasing out of the Multi Fibre Agreement and threat of 
losing the GSP+ advantage. However, it is difficult for the garment manufacturing 
companies to identify their weaknesses in pricing due to lack of information on 
competitor’s prices and thus it is difficult to improve the pricing area.  
This study focuses on Sri Lankan apparel manufacturing industry and it reviews the 
pricing practices in garment manufacturing industry. The current pricing process of 
the garment manufacturing industry was identified using literature review, interview, 
questionnaire and observational studies and discussed in the thesis. This also includes 
the analysed data of the questionnaire survey which was designed to identify the 
current pricing methods and it was concluded that the Sri Lankan garment 
manufacturers are using either purely cost plus pricing or a hybrid pricing system with 
cost plus pricing with slight market based approach.  
Further this thesis includes a SWOT analysis which was used to identify the 
weaknesses and the possible improvement in existing pricing system, when 
developing the alternative pricing strategies. The study identifies some possible 
alternative pricing strategies in the forms of pricing models and some detailed cost 
estimation models to use with them. Further the study builds a pricing audit system 
which facilitates the garment manufacturing companies to identify their current 
pricing strategies and to identify the areas of improvement.  
 
 

 





































































































































ACKNOWLEDGEMENT



ii 


ACKNOWLEDGMENT 
Throughout the research leading to the completion of this thesis, I have gratitude to 
many people, who have provided me with tremendous help and support in one way or 
another, which I think I cannot possibly acknowledge in full measures.  
First and foremost, I would like to express my sincere thanks to Dr. Nilanthi 
Heenkenda, my supervisor, for her insightful suggestions and useful guidance 
throughout the thesis works. Sincere appreciations are also to the review panel 
members for their propositions, valuable comments, and constructive suggestions 
which were substantial value to this study.  
I am also immensely grateful to the Head of the Department of Textile and Clothing 
Technology for permitting me to use of the resources of the department which indeed 
facilitated me to carry out my work unhindered.  
I would like to express my gratitude to the computer laboratory staff and Ms. T. S. D. 
Yapa for supporting and motivating me in carrying out the research work. I thank all 
my colleagues for the numerous supports they have given me for the fulfillment of this 
challenging task. 
I extend my gratitude to the University of Moratuwa Senate Research Fund for 
financial assistance provided for my research work. 
Finally, I am profoundly grateful to my parents and my brother, who have been 
always with me in every situation. My warm gratitude is for my husband who always 
stood by me during difficult moments and for nourishing my mind with hope. 
 
S. M. Pathirana 

 




















































































































































DECLARATION




 





























































































































iii 


.......................................... 
S. M. Pathirana, 
Department of Textile and Clothing Technology, 
University of Moratuwa.  
Sri Lanka.  
.......................................... 
Supervisor  
Dr. N. K. Heenkenda, 
Department of Textile and Clothing Technology, 
University of Moratuwa.  
Sri Lanka. 
DECLARATION 
This thesis is a report of research carried out in the Department of Textile and 
Clothing Technology, University of Moratuwa, between April 2009 and October 
2010. Except where references are made to other work, the contents of this thesis are 
original and have been carried out by the undersigned. The work has not been 
submitted in part or whole to any other university. This thesis contains 110 pages. 
 
 

 




























































































































































CONTENTS

 

iv 


CONTENTS 
 
Abstract …………………………………………………………………………...
 i 
Acknowledgement ……………………………………………………………...... ii 
Declaration ……………………………………………………………………...... iii 
Contents …...……………………………………………………………………... iv 
List of Figures ……..……………………………………………………………... viii 
List of Tables …………………………………………………………………….. ix 
List of Graphs ……………………………………………………………………. xi 
List of Abbreviations …………………………………………………………...... xii 
 
 
Chapter 1 : Introduction  
1.1 Background of the study ….……………………………………….................. 1 
1.2 Significant of the problem ……………….. …………………………………. 1 
1.3 Objectives of the Study ………………………………………………………. 2 
1.4 Thesis structure ………………. ……………………………………………... 3 
 
 
Chapter 2 : Literature Review  
2.1 Global Apparel Manufacturing Industry ……………………………………. 5 
2.2 Apparel manufacturing industry in Sri Lanka ………………………………. 8 
2.3 Pricing in the Apparel Manufacturing Industry ……………….……………... 12 
2.4 Cost competitiveness of Sri Lankan Garment Industry ……………………… 17 
 2.4.1 Cost structure of the Apparel Manufacturing Industry ……………....... 17 
 2.4.1.1 Macro costs ………………………………………………………. 18 
 2.4.1.2 Indirect costs ……………………………………………………... 18 
 2.4.1.3 Direct costs ………………………………………………………. 19 
 2.4.2 Cost competitiveness of the Sri Lankan Apparel Manufacturing  
           Industry ……………………………………………………………….. 20 
 2.4.2.1 Labour cost ………………………………………………………. 20 

 




























































































































































CONTENTS

 

v 


 2.4.2.2 Power cost …………………………….………………………….. 21 
 2.4.2.3 Interest cost ………………………..….………………………….. 22 
 2.4.2.4 Corporate tax …..................………..…………………………….. 22 
 2.4.2.5 Inland transportation and handling cost ………………………….. 23 
 2.4.2.6 Overall cost competitiveness compared to Bangladesh, Vietnam 
   and India ………………………………………………………… 23 
2.5 Factors considered by garment buyers when selecting the garment       

 manufacturing companies ……………………………………………………
 24 
2.6 Pricing decision approaches …………………………………………………. 26 
2.7 Pricing Strategies …………………………………………………………….. 29 
 2.7.1 Cost based pricing …………………………………………………….. 29 
 2.7.2 Market based pricing ………………………………………………….. 30 
 2.7.2.1 Competitive based pricing ……………………………………….. 31 
 2.7.2.2 Perceived value pricing ………………………………………….. 32 
2.8 Pricing Strategy Applications of various industries …………………………. 34 
 
 
Chapter 3 : Methodology  
3.1 Methods used to collect data ……………………………………………….... 39 
 3.1.1 Primary data …………………………………………………………… 39 
 3.1.2 Secondary data ………………………………………………………… 39 
3.2 Preparation and distribution of the questionnaire ……………………………. 39 
 3.2.1 Survey sample ………………………………………………………… 39 
 3.2.2 The target respondents ………………………………………………… 40 
 3.2.3 Questionnaire designing ………………………………………………. 40 
 3.2.4 Pre-test ………………………………………………………………… 41 
 3.2.5 Pilot survey ……………………………………………………………. 41 
 3.2.6 Survey research ……………………………………………………….. 41 
3.3 Method of analysis …………………………………………………………… 42 
3.4 Development of alternative strategies ……………………………………….. 42 
3.5 Pricing strategy audit ………………………………………………………… 42 

 




























































































































































CONTENTS

 

vi 


3.6 Action Plan …………………………………………………………………... 43 
 
 
Chapter 4 : Pricing process of the garment manufacturing companies in  
    Sri Lanka 
 
4.1 Departments involved in pricing function …………………………………… 44 
 4.1.1 Work study department ……………………………………………….. 44 
 4.1.2 Pattern making section ………………………………………………... 45 
 4.1.3 Marker making section ………………………………………………... 46 
 4.1.4 Merchandising department ……………………………………………. 46 
 4.1.5 Finance department …………………………………………………… 47 
 4.1.6 Sample room ………………………………………………………….. 47 
4.2 Elements in the garment price quoted by the garment manufacturing 
 company …………………………………………………………………….. 50 
 4.2.1 Raw material cost ……………………………………………………... 50 
 4.2.1.1 Fabric cost ……………………………………………………….. 50 
 4.2.1.2 Accessories cost ………………………………………………….. 53 
 4.2.2 Process cost …………………………………………………………… 54 
 4.2.2.1 Garment dyeing cost ……………………………………………... 54 
 4.2.2.2 Garment washing cost …………………………………………… 55 
 4.2.2.3 Garment printing cost ……………………………………………. 55 
 4.2.2.4 Embroidery cost ………………………………………………….. 56 
 4.2.3 Cut and make cost ………………………………………………….….  56 
 4.2.4 Finance charge ………………………………………………………… 56 
 
 
Chapter 5 : Data analysis – Questionnaire surrey  
5.1 Factors considered in setting price …………………………………………... 57 
5.2 Responding time …………………………………………………………….. 60 
5.3 Pricing method ……………………………………………………………….. 61 
5.4 Handling new buyers ………………………………………………………… 66 
 
 

 




























































































































































CONTENTS

 

vii 


Chapter 6 : Analysing the pricing situation of the Sri Lankan garment   
  Manufacturing industry using SWOT analysis  
 
6.1 Human Resource ……………………………………………………………... 67 
6.2 Raw materials ………………………………………………………………... 69 
6.3 buyers’ image ………………………………………………………………... 70 
6.4 Product cost and pricing …………………………………………………… 72 
6.5 Markets ………………………………………………………………………. 73 
6.6 new trends in the industry ……………………………………………………. 74 
6.7 Competitors ………………………………………………………………….. 75 
 
 
Chapter 7 : Alternative strategy formulation  
7.1 Pricing Models .. ……………………………………………………………... 77 
7.2 Detailed cost analysis models ………………………………………………... 84 
 
 
Chapter 8: Pricing strategy audit   
8.1 Pricing audit questionnaire …………………………………………………... 89 
8.2 Pricing audit sheet …………………………………………………………… 89 
 
 
Chapter 9 : Conclusion ………………………………………………………… 95 
References ……………………………………………………………………….. 97 
Appendix 1 : Questionnaire to identify current pricing situation …………... 102 
Appendix 2 : Pricing Audit Questionnaire ……………………………………. 107 
 
 
 









































































































































































LIST OF FIGURES




 

viii 

 

LIST OF FIGURES 
 
Figure Description Page 
Figure 2.1
 Global Textile and Apparel Trade Shift 5 
Figure 2.2 Prices in the Apparel Industry 12 
Figure 2.3 FOB and CIF comparison 14 
Figure 2.4 FOB Classification according to the production flow and 
functional process 
14 
Figure 2.5 Selection of suppliers using AHP 25 
Figure 2.6 Standard Linear Approach 26 
Figure 2.7 Strategy Matrix approach 27 
Figure 2.8 Market based pricing 35 
Figure 2.9 Value based pricing 37 
Figure 3.1 Method of sample selection 40 
Figure 4.1 Relationship between marketing department and other 
supportive departments 
48 
Figure 4.2 Information issued by marketing department to supportive 
departments 
49 
Figure 4.3 Breakdown of the garment price quoted by garment 
manufacturer 
50 
Figure 7.1 Pricing Model 1 78 
Figure 7.2 Pricing Model 2 79 
Figure 7.3 Pricing Model 3 80 
Figure 7.4 Pricing Model 4 81 
Figure 7.5 Pricing Model 5 82 
Figure 7.6 Pricing Model 6 (Pricing new products) 83 
Figure 7.7 Detailed cost estimation Model 1 85 
Figure 7.8 Detailed cost estimation Model 2 86 
Figure 7.9 Detailed cost estimation Model 3 87 
Figure 8.1 Pricing Audit sheet 90 
Figure 8.2 Example Pricing Audit sheet 93 
 

 








































































































































































LIST OF TABLES


  

ix 


LIST OF TABLES 
 
Table Description Page 
Table 2.1
 FOB Classification according to the production flow and functional 
process 
15 
Table 2.2 Influence of Macro costs on landed duty price 18 
Table 2.3 Taxonomy of pricing strategies 28 
Table 5.1 Factors affecting the cost per minute value  59 
Table 5.2 Factors affecting responding time for a pricing inquiry 60 
Table 5.3 Pricing method of the company 62 
Table 5.4 How the companies quote price when the target price can be 
met 
62 
Table 5.5 How the companies respond if the target price cannot be met 63 
Table 5.6 Possible discounts in garment industry 63 
Table 5.7 Reasons for giving discounts 63 
Table 5.8 How the companies respond for an inquiry from a new buyer 66 
Table 5.9 How the companies respond for an inquiry from a buyer who 
continuously sends inquiries without giving any order 
66 
Table 6.1 SWOT Terminology for Human Resource in Garment 
Manufacturing Industry 
69 
Table 6.2 SWOT Terminology for Raw Materials in Garment 
Manufacturing Industry 
70 
Table 6.3 SWOT Terminology for Buyers’ Image in Garment 
Manufacturing Industry. 
71 
Table 6.4 SWOT Terminology for Product cost in Garment 
Manufacturing Industry. 
73 
Table 6.5
 SWOT Terminology for New Markets in Garment 
Manufacturing Industry 
74 
Table 6.6
 SWOT Terminology for New Trends in Garment 
Manufacturing Industry 
75 

 








































































































































































LIST OF TABLES


  

x 


Table 6.7
 SWOT Terminology for Competitors in Garment 
Manufacturing Industry. 
76 
Table 7.1
 Pricing Matrix 88 
Table 8.1
 Percentages of elements for each colour 91 
Table 8.2
 Margins of the overall performance 92 
 










































































































































































LIST OF GRAPHS




 

xi 

 

LIST OF GRAPHS 
 
Graph Description Page 
Graph 2.1
 Change in Apparel export value to US during 2/2009 to 2/2010 
period 
7 
Graph 2.2 Change in Apparel export value to EU during 2007 to 2008 
period 
7 
Graph 2.3 World export of apparel at the end of 2008 8 
Graph 2.4 Total Apparel Export value of Sri Lanka 10 
Graph 2.5 Apparel Export value to USA from Sri Lanka 10 
Graph 2.6 Apparel Export value to EU from Sri Lanka 11 
Graph 2.7 Apparel Export Markets of Sri Lanka 11 
Graph 2.8 Comparison of Labour cost per hour of several countries 21 
Graph 2.9 Comparison of Power cost per Kwh of several countries 21 
Graph 2.10 Comparison of Interest cost of several countries 22 
Graph 2.11 Comparison of Corporate tax of several countries 22 
Graph 2.12 Comparison of Inland transportation & handling cost of several 
countries 
23 
Graph 2.13 Cost Competitiveness compared to India, Bangladesh and 
Vietnam 
24 
Graph 5.1
 Factors considered in setting the price
 57 
Graph 5.2
 The responsible person for deciding cost per minute value 58 
Graph 5.3 Factors affecting the finance charge 59 
Graph 5.4 Average responding time for a pricing inquiry 60 
Graph 5.5 The pricing objective of the company 61 
Graph 5.6 The areas of competitive advantage of the company 64 
Graph 5.7 The method of obtaining competitive information 65 
Graph 5.8 Method of representing the final price 65 
 
























































































































































LIST OF ABBREVIATIONS


  



xii 


LIST OF ABBREVIATIONS 
 
Abbreviation  Description 
AHP  Analytical Hierachy Process 
ANP  Analytical Network process 
ATC  Agreement on Textile and Clothing 
C  Competitor’s Price 
CIF  Cost, Insurance and Freight 
CM  Cut and Make 
CMT  Cut, Make and Trim 
CP  Company Price 
EU  European Union 
EVA  Economic Value Analysis 
EVC  Economic Value to the Customer 
FOB  Free On Board 
GDP  Gross Domestic Product 
gsm  Grams per square meter 
GSP plus  Generalized System of Preferences 
JIT  Just In Time 
LDP  Landed Duty Paid 
MFA  Multi Fibre Agreement 
PFD  Prepared For garment Dye 
QP  Quoted Price 
ROI  Return On Investment 
SMV  Standard Minute  Value 
SWOT  Strengths, Weaknesses, Opportunities and Threats 
























































































































































LIST OF ABBREVIATIONS


  



xiii 


TP  Target Price 
US  United States 
VAT  Value Added Tax 
WS  Work Study 
WTO  World Trade Organization 
YY  Yardage Yield