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When a company achieves a higher level of product quality, along with ability to deliver products on the dates required, customers may be willing to pay a premium. This is particularly true in industries where quality or delivery reliability is low. If customers are highly sensitive to these two factors, it may be possible to increase prices substantially. Alternatively, if these factors are not of great importance, or if customers place a higher degree of importance on other factors, then there will be no opportunity for a price increase.
In industries where many companies are adopting JIT systems at the same time or have already installed them, an improvement in product quality and delivery times does not differentiate a company from its peers. Instead, since everyone else is offering the same level of quality and service, it just keeps a company from losing sales to its competitors. In such a situation it is more likely that all companies remaining in the industry will use their new-found lower costs to initiate a price war that will result in a drop in prices.
Consequently, the impact of a JIT system on product pricing is primarily driven by customers’ perceived need for higher product quality and reliable delivery times, as well as the presence of competitors with JIT system, the same installation, and operational base.
