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Strategic Direction

Putting a price on sustainability: Strategies for food products

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To cite this document:
, (2015),"Putting a price on sustainability", Strategic Direction, Vol. 31 Iss 7 pp. 8 - 10
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http://dx.doi.org/10.1108/SD-05-2015-0074

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(2015),"Price strategies for sustainable food products", British Food Journal, Vol. 117 Iss 2 pp. 915-928 http://
dx.doi.org/10.1108/BFJ-02-2014-0066
(2015),"Images of responsible consumers: organizing the marketing of sustainability", International Journal of Retail &
Distribution Management, Vol. 43 Iss 4/5 pp. 367-385 http://dx.doi.org/10.1108/IJRDM-03-2014-0039

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Putting a price on sustainability


Strategies for food products

The sustainability challenge


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Sustainability has over recent times become one of those buzzwords there seems little
escape from. As a consequence, the number of product categories untarnished by its
associated implications is diminishing all the time.
Food is clearly one sector where sustainability issues are very much to the fore. The advent
of labeling practices to indicate such as organic or Fair Trade has further ensured their
prominence. Persuading consumers to buy sustainable food products has, however,
produced mixed results to date. Numerous individuals readily voice their approval of any
initiatives aimed at safeguarding natural resources or promoting animal welfare, for
example. But their actual purchase behavior often tells a different story. Words clearly
speak louder than actions in these cases.
The obvious barrier that divides attitude and behavior is price. When consumers are faced
with choosing between mainstream and sustainable products, the former is invariably
much cheaper. The higher cost of producing sustainable alternatives is why this price
disparity exists. On that basis, those marketing conventional products enjoy a significant
competitive edge. That the practices used are likely to drain natural resources and pose
huge challenges for future generations is not of major concern to them.
Trying to get people to change ingrained habits is never an easy task. It is the norm for
consumers to compare the price of the different options available to them. In addition to
these external reference prices, their decisions are also swayed by reference prices which
are internal. These are formed through personal experiences and reflect what they consider
to be an acceptable price range. Perceived fairness of a price and whether it is deemed
high or low is determined by these comparisons.

The price factor


If marketers of sustainable food products are to increase sales and help achieve
environmental, social, and economic goals, then more clearly should be done. The price
obstacle is a formidable one. That is not in doubt. It is therefore essential that strategies are
devised which prove effective in changing the perceptions and behaviors of a wider range of
the buying public. Strategies which are based on price seem a logical place to start.
Marketers faced with identifying an appropriate strategy must consider the pricing
environment. This constitutes internal and external factors and conditions which might
determine whether a particular strategy proves effective or not. Manufacturing capacity,
scale effects, and product line composition are potentially key to the internal environmental.
Where the external environment is concerned, market-related factors like demand, share,

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VOL. 31 NO. 7 2015, pp. 8-10, Emerald Group Publishing Limited, ISSN 0258-0543

DOI 10.1108/SD-05-2015-0074

and growth can be especially significant. A strategys impact might also be influenced by
transparency of price, costs of switching, and product distinctiveness.
The type of pricing situation is likely to exert some influence of what price strategy is
adopted. Previous research has identified four different situations respectively labeled
as:
1. Competitive pricing: Which reflects moves to act as price leaders or followers in the
specific market. Price levels equal or lower than those of competitors is another factor
of this strategy.
2. New product pricing: Firms in this situation typically either start with a high price and
then gradually skim the figure to attract new consumer segments as the price
decreases. This contrasts with penetration pricing, whereby a low price is set at the
beginning to increase adoption of the product.

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3. Product line pricing: Bundling related products or pricing them individually is the
essence here.
4. Cost-based pricing: Where companies set prices based to varying degrees on product
costs as opposed to market factors. This is sometimes assumed to be a fair method by
consumers.

Key strategies
Within the competitive pricing situation there are two strategies that refer to:
1. Price fairness: Popular opinion holds that the price of a mainstream product is fairer
relative to a sustainable alternative because the latter costs more. However, a kind of
reverse psychology is at play with this strategy. The premise higher price of the
sustainable offering is proposed as being the real fair price since it incorporates all
the costs associated with its production. Products are differentiated on
sustainability attributes alone and the approach is only effective with highly involved
consumers. This strategy also links with the cost-based pricing situation. The
removal of mainstream products from assortments is another aspect of price
fairness. Supermarkets in The Netherlands were persuaded to do this with eggs
from battery hens in 2004. Lack of alternatives enabled retailers to increase prices
and margins across the entire range of barn eggs. With certain products, this
approach would be less viable though. Meat is one example. Say the price of
poultry was increased, consumers might switch to lamb, pork, or beef. This really
isnt an option where eggs are concerned.
2.

Stability pricing: Costs are absorbed in the firms overheads to enable sustainable
products to be offered at a more competitive price. Improving supply chain
efficiency and exploiting advantages of scale permit a strategy which larger firms
are naturally better equipped to implement.

Two strategies are also associated with the new product pricing situation and labeled as:

Involvement-skimming: Firms launch products at a high price and then gradually lower
in order to attract consumers whose involvement, willingness to pay a price premium,
or perception of value offered by sustainable products is lower. High sustainability, low
product differentiation, and a cost disadvantage are ideal conditions for this strategy.
Economies of scale can help offset the price reduction.

Words clearly speak louder than actions in these cases.

VOL. 31 NO. 7 2015

STRATEGIC DIRECTION

PAGE 9

That the practices used are likely to drain natural resources


and pose huge challenges for future generations is not of
major concern to them.

Value-based skimming: The aim here is to increase consumer perceptions of the


product by differentiating the offering through both sustainability and quality-related
attributes. Higher willingness to pay is the intended outcome. The price is then reduced
over time to stimulate interest in consumers who exhibit greater price sensitivity.

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Contained within the product line pricing situation are the:

Sustainable bundling strategy: Whereby retailers charge one price for various
sustainable products packaged together. Vegetables are seen as an ideal category for
this approach. The consumer saves relative to purchasing the items individually, while
the retailer increases sales of such items. Including products which complement each
other increases the attraction of the bundle.

Coined donations strategy: Firms peg the prices for the product in question but ask
consumers to donate to a related cause. One example is a campaign where people
paid to adopt a chicken that supplied organic eggs which they purchased from the
store. The importance of the purchasing context is recognized as customers are able
to make donations from the comfort of home. Another characteristic of this strategy is
the fact that people are targeted as both consumers and concerned citizens.

The relative suitability of these strategies will vary depending on the firm and the product
category in question. Identifying the most suitable strategies is therefore crucial. For
instance, value-based skimming might be the best option where products are readily
distinguishable from each other. Smart managers will go further than this by adapting the
framework to create hybrid strategies which incorporate characteristics most pertinent to
their needs.

Comment
Keywords:
Sustainability,
Marketing,
Pricing strategies

The review is based on: Price strategies for sustainable food products by Ingenbleek
(2015). Different strategies for marketing sustainable food products are explored in depth
in this highly informative piece. Ingenbleek identifies important characteristics of each
approach and suggests contexts in which their adoption might best help achieve the firms
sustainability goals.

Reference
Ingenbleek, P.T.M. (2015), Price strategies for sustainable food products, British Food Journal,
Vol. 117 No. 2, pp. 915-928.

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