Contingent approaches to quality-based pricing within the agrifood industry

Abstract

The issues associated with traditional standard costing and transfer pricing systems are well documented. These approaches are particularly problematic within the agrifood industry because of the natural variability of products, market price volatility, poor understanding of production costs and low levels of customer alignment. Continuing competitive pressures on this industry are driving the need to identify more effective mechanisms. This paper examines one such mechanism, quality-based pricing (QBP), to understand whether this merits consideration as a viable alternative. The paper presents evidence from case studies of two separate QBP implementations. The results show that both schemes address the sector-specific issues and are “fit for purpose”, designed to match specific product and market characteristics. It is concluded that holistic forms of QBP can play a significant role within the agrifood industry, and further research is proposed to test a generic model to understand the wider applicability across the industry.

Keywords:

• Quality-based pricing
• Agrifood
• Lean supply