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Introduction
Sustainable development – that is, development in which economic, ecological, and social aspects go hand in hand (Brundtland et al., 1987) – often comes at a price. In some situations, new technologies or systems may be both sustainable and cost efficient, but when these technologies are absent, products produced through more sustainable production techniques suffer a generic competitive disadvantage in terms of costs. An extensive study on the Dutch market showed, for example, that organic food products average a price premium of 60 percent compared with similar products without organic certification (Baltussen et al., 2006). Ecological economics attributes such price differences to a hidden subsidy paid by future generations (Hawken, 1994); future generations have no impact on the price formation but rely on the same natural resources (see Hawken et al., 2000).
The literature has taken mostly a consumer approach to this issue by examining the willingness of consumers to pay for environmental friendly (Bjørner et al., 2004; D’Souza et al., 2006), fair trade (Pelsmacker et al., 2005; Schollenberg, 2012), organic (Loureiro, et al., 2002; Sedjo and Swallow, 2002), animal-friendly (Hobbs, 2005), and other sustainable food products. This literature generally finds that consumers state that they are willing to pay price premiums for sustainability, but when tested experimentally it appears that many consumers still choose the cheaper mainstream alternative (Baltussen et al., 2006). The literature lacks a strategic marketing perspective on how the price instrument can be used to cover the higher costs induced by sustainability.
This study develops a framework of price strategies for sustainable food products that companies might pursue to cover the costs associated with sustainable development. It operationally defines sustainable products as products that are certified by well-respected multi-stakeholder organizations for sustainability in the food and agribusiness, like Fair Trade and Utz Certified, and that suffer from a competitive disadvantage in costs when compared to products that do not take measures to preserve natural and/or social resources. The key research questions involve how companies can manage the price instrument for sustainable products and why marketers of these products should pursue these strategies. These are typical how and why questions that can be dealt with in case study research (Eisenhardt, 1989; Yin, 2003)....