Price Setting in Food SMEs: Which Role for Marketing Capability? An Empirical Analysis in Italy

Abstract

Small and medium-sized enterprises (SMEs) are fighting for survival due to globalization, growing competition with big retailers, and strategies adopted by large industrial companies. Difficulties in pricing are also revealed in the literature. Therefore, appropriate activity is needed to be more a price maker than a taker, and to reach a better market power. On the other hand, market opportunities for SMEs are related to demand evolution toward food quality and traditional food products. To profit by such opportunities, SMEs need to focus on consumer requirements, by differentiating their products. In this way, firms could apply a premium price that justifies the peculiar value of the product, and that the consumer should be willing to pay. Nonetheless, the ability to influence the price is different among firms, and often depends on firm bargaining power. Indeed, horizontal and vertical competition highly affects the ability of price setting, especially for SMEs, due to their small dimension. In order to enhance their capability to decide the price, SMEs should focus mostly on marketing, as price setting is a significant component of the marketing mix. This paper aims to evaluate the relationship between marketing capability and price setting ability in traditional food SMEs, to outline the role to have well developed marketing activities. A survey was carried out, through an interactive questionnaire aimed at assessing SME marketing capabilities. The sample was composed by 130 Italian firms producing traditional food products. An ordinal regression model explained the relationship between the ability of firms to influence the price and the marketing capability. The analysis showed a good capability to affect the price setting for the Italian traditional SMEs. Moreover, we found that good marketing capabilities enhance the ability to be price maker, especially in relation to product differentiation and market research.