Mini-Case Starbucks Fair Trade Line Writing Requirements APA format, 3–4 pages in length (excluding cover page, abstract, and reference list)
Starbucks Fair Trade Line
Like a lot of massively successful consumer companies who want their customers to see they have big hearts, Starbucks offers a line of coffees for purchase made from small growers who meet certain economic and ethical standards. A challenge for Starbucks is that these coffee growers are usually on a small scale that cannot offer any economy to the company for shipping, pickup, and processing. As a result, the costs to Starbucks are higher than for the mass suppliers of their standard coffees. Starbucks typically passes along some of those higher costs in higher prices to customers, reasoning that customers who care about such matters will happily pay for the extended benefits and feelings of goodwill.
Costs to growers continually rise, sometimes modestly, sometimes sharply. It’s getting to the point where Starbucks wants to take a number of the pricier growers back to the table to negotiate better deals (for Starbucks), and of course, Starbucks holds the threat over their heads that the supplier will be dropped.
In answering the case questions, assume the following:
- Current price is $8.00 for a bag of this coffee
- Manufacturer costs have been $2.00
- Manufacturer mark-up has been $2.00 (and they’re seeking more)
- Retailing costs have been $1.00
- Retailing mark-up has been $3.00
Case Discussion Questions
- What kinds of power does Starbucks hold over their suppliers in this case?
- Use the double marginalization problem and solution guides to structure two alternatives:
- Prices to consumers are maintained at $8 and profits are split 3:1 in favor of Starbucks
- Prices are raised 25% to $10 and profits are split 2:1 in favor of Starbucks
- What are the resulting mark-ups for the manufacturer and retailer (Starbucks) under each scenario? How will suppliers and consumers respond to either scenario?