Pricing in the fresh produce industry: How to set the right price for the right customer

Abstract

The main objective of this project is to develop a pricing strategy and provide Fair-Fruit with a 4-level pricelist. As the main objective of Fair-Fruit is to attract new customers and to increase the product offering to current customers, a value-based pricing strategy will help the company to develop and maintain long-term customer relationships. Fair-Fruit deals with 4 types of customers (brokers, wholesalers, distributors, and retailers). Therefore, a value-based price strategy will allow the company to provide the best benefits to price ratio to each type of customer. The technique of conjoint analysis was used to measure the price sensitivity of each type of customer, as well as sensitivity to other product attributes. More specifically, a choice-based conjoint analysis was conducted that required respondents to make choices between fully described products. The survey was designed in such a way that the product descriptions would vary systematically in the levels of certain attributes that define the product as well as the price. The product selected for the conjoint analysis is French beans, as it is interesting for Fair-Fruit to make this product more attractive. To establish the different levels and attributes, a supply chain analysis was conducted, including a margin analysis of the fresh produce industry and a value flow chart of the different players within the supply chain. In addition, a customer value analysis was done by conducting interviews with Fair-Fruit’s current customers to ascertain what each type of customer of the company values about Fair-Fruit’s products and service. The following attributes were included in the conjoint analysis: price, order size, credit period and promotions. For each attribute, three different levels were established, except for price, for which 5 levels were set. The sample for the conjoint analysis consisted of companies within the fresh produce industry, based in the United States. Based on the supply chain analysis, conjoint analysis and customer value analysis, several conclusions could be drawn, and recommendations could be given to Fair-Fruit. These conclusions were broken down by customer type within the fresh produce supply chain. In addition, some general recommendations could also be provided to the company. It should be noted, however, that due to a low number of responses to the conjoint analysis, conclusions could only be drawn from this analysis for distributors, and not for the other types of customers. Concerning the brokers, it was found that they have lowest margin of the fresh produce industry. At the same time, they bare the most risks and purchase the highest volumes. Therefore, it would make sense for Fair-Fruit to offer them slightly lower prices. Regarding the wholesalers, a change within the industry can be observed. More and more wholesalers are establishing their own distribution network. As a result, the difference between a wholesaler and a distributor is becoming increasingly blurred.The conjoint analysis resulted in several findings concerning the distributors. First, price did not appear to be the most important factor for distributors as the analysis shows that credit period, order size, and price are considered about equally important. Moreover, the additional question added in the survey that gauged which claims customers thought were most important showed that quality comes first. After that, trust and reliability, and good communication are what matters most. This is consistent with what emerged from interviews with Fair-Fruit's customers. Finally, the supply chain analysis showed that retailers have the highest margin in the industry. This is an opportunity for the company to increase their prices up to 10% if they would decide to sell directly to retailers. Fair-Fruit would then have a similar gross margin as wholesalers and distributors. However, the company should not try to match their prices as they would then lose their competitive advantage. Additionally, Fair-Fruit should keep in mind that the sale process to retailers is more time-intensive and standardized. A general recommendation that applies to Fair-Fruit's 4 types of customers is to look at what part of the market a customer continues to sell the products to. Is this customer trading with the low end or the high end of the market? Subsequently, Fair-Fruit can adjust its prices accordingly. Based on the customer value analysis, it was revealed what Fair-Fruit's current customers value most: quality, communication, transparency, trust, and reliability. This is an opportunity A final recommendation for the company is to make use of the described methodology and the conjointly software employed during this project. By continuing the current conjoint analysis, the number of respondents would grow. This would lead to more results for the conjoint analysis and help to aim towards statistically significant results.