What is interesting about the article in the url link below is not that the Fair Trade coffee company (AMT) lost its license to operate coffee kiosks at London railway stations to a competitor that doesn’t stock any Fair Trade coffee (Issues: Fair Trade, p175). What is interesting about this story is that the reason the firm lost relates back to a strategic decision not to pass on its higher supply chain costs to its customers, which has a direct impact on the firm’s profits. It is not clear whether this is due to a managerial misstep, or whether the firm has no confidence that UK consumers are willing to pay the price premium associated with Fair trade coffee (the article suggests it is the latter, but it would be nice to know now much per cup is involved). Either way, it is not good news for AMT and potentially has implications for the fundamental CSR business model.
For example, it is fine for AMT to say:
“We can sleep at night knowing that the people picking our beans that go in our cups are being looked after – unlike the high street guys who are trying to take over the world.”
But, the reality is that:
“The closures slashed a hefty £6 million off AMT’s £15 million revenue in one fell swoop.”
Firms that differentiate their products on some aspect other than price (i.e., quality, technology, design, etc.) charge a corresponding price premium because, in general, the consumers who buy such products are less price sensitive than consumers who make their purchase decisions based primarily on price. The same laws of economics apply to firms wanting to differentiate their products based primarily on socially responsible products, which often incur a higher cost structure. Due to the awareness surrounding the Fair Trade brand in the UK (“Four-fifths of UK consumers now recognise the Fairtrade brand, according to the Department for Environment, Food and Rural Affairs”) and the likely small increase in price per cup involved, my sense is that UK consumers place a higher importance on CSR issues than most and would be willing to pay the difference. But, that won’t help AMT if the firm goes out of business without testing to see whether or not this is true.
Take care
Dave
Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther
UK Fairtrade – Shunted into a siding
The closure of Fairtrade-only coffee kiosks at prime locations in London raises the age-old question of whether the movement can ever beat big business
David Vetter
December 14, 2007
http://www.ethicalcorp.com/content.asp?ContentID=5583
