Starbucks Fair Trade Line

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Starbucks Fair Trade Line

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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 none of these such coffee growers are on a scale that offers 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.

Case Discussion Questions
1. What kind(s) of power does Starbucks hold over their suppliers in this case?

Answer & Explanation (1)

Explanation
The categories of powers for retaining suppliers by Company S can be explained as follows:

Suppliers can be retained by the company by forcefully inducing them to seize the benefits. As a result, the company has the ability to dominate the suppliers by asking for fair prices of the raw materials. Disagreement with the conditions of the company may lead to the elimination of the suppliers from the network. For instance, Company S may not take the raw materials from a supplier unless the supplier gives a discount.
Company S has high brand equity and a huge market presence. Due to its large size, Company S can exercise control over the suppliers and maintain monopoly to dominate the decision-making process and prices. It can hold a grip on the market.
Sample Response
The categories of powers that can be held by Company S are as follows:

Coercive power: Company S can pose a threat to the suppliers by eliminating them.
Legitimate power: Company S is well established and high brand value that can help in exercising control over suppliers.

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