Are Consumers Willing to Pay More for Fair Trade Products? Yotam Margalit Aner Sela Stanford University Just Supply Chains Conference Stanford University, May 2008

1. Are consumers willing to pay more for fair trade, and if so, by how much? Motivating Questions 2. What is the relationship between product brand and willingness to pay for fair trade? 3. Does knowing more about what fair trade means increase consumers’ premium?

Experimental Approach 240 participants from nationwide database (ages 18-69, mean 34; 62% female) Method: Choice Based Conjoint Analysis (CBCA) A popular multiatribute choice model used in marketing research (Srinivasan and deMaCarty, Marketing Research, 2000)

Experiment Setup Respondent Completes Two Unrelated Studies Receives $10 Asked to Participate in Marketing Research on Coffee

Experiment Setup Respondent Completes Two Unrelated Studies Receives $10 Asked to Participate in Marketing Research on Coffee t Rate the Clarity of Several Essays t-7

Experiment Setup Starbucks CoffeeMillstonesStarbucks Coffee None of these Options BoldRegular Fair Trade $6$5.5

Calculating the Fair Trade Premium Starbucks Bold FairTrade Certified $8 Brand Roast Certified? Price

Starbucks Bold FairTrade Certified $8 Purchase Likelihood 28.9% Brand Roast Certified? Price Calculating the Fair Trade Premium

Starbucks Bold FairTrade Certified $8 Purchase Likelihood 28.9% Starbucks Bold $8 21.6% Calculating the Fair Trade Premium

Starbucks Bold FairTrade Certified $8 Purchase Likelihood 28.9% Starbucks Bold $8 21.6% Starbucks Bold ???? 28.9% Calculating the Fair Trade Premium

Starbucks Bold FairTrade Certified $8 Purchase Likelihood 28.9% Starbucks Bold $8 21.6% Starbucks Bold $ % Calculating the Fair Trade Premium

Starbucks Bold FairTrade Certified $8 Purchase Likelihood 28.9% Starbucks Bold $8 21.6% Starbucks Bold $ % “Fair Trade Premium”: $8 – $7.26 = $0.74 or 0.74/8.0= 9.25% Calculating the Fair Trade Premium

The Premium Starbucks Consumers are Willing to Pay for Fair Trade Coffee (in US$)

The Premium that Starbucks Consumers are Willing to Pay for Fair Trade Feature (as % of cost)

The Fair Trade Premium is Higher in the Absence of a Well-Known Brand (in US$)

The Fair Trade Premium is Higher in the Absence of a Well-Known Brand (in %)

Increased Information about Fair Trade Has Little Impact on Willingness to Pay

Consumers are willing to pay more for the fair trade “feature” (~ 9%-16%) Preliminary Conclusions Increased knowledge about the meaning of fair trade does not increase the premium consumers are willing to pay The fair trade premium is larger for products with less established brands

This session consists of several unrelated studies, including a decision making study, a memory study, and a market research study for a new online store specializing in gourmet coffee. If you choose to participate, you will receive $10 through PayPal for your participation in the first 3 studies. In the final study (the coffee study) you will be asked to state your preferences among different quality coffee products. A limited number of participants will actually be required to purchase the product they selected in the study (all products are priced at less than $10). Therefore, your final payment will consist of EITHER the $10 payment OR the coffee product you selected + whatever remains of the $10. Instructions

Please read the following instructions carefully A new online store specializing in gourmet coffee is about to be launched. In this survey, we are interested in learning about people's preferences among different types of coffee. The feedback you provide will be used to design a better online shopping experience for consumers. How this survey works Imagine you are shopping for coffee. In each of the next few screens, you will see 3 coffee products. The products differ with respect to brand, roast type, certification, and price. All prices refer to a 12 oz pack of coffee. Please select the option you like best in each screen. If you cannot find any option you like, you can select "None". Throughout the study, it is very important that you make candid selections which reflect your true preference. At the end of the study, a random draw will be made among participants. If you win, you will actually buy the product that you selected most frequently. That is, you will actually receive that product and its listed price will be deducted from the $10 payment you received previously (all products are priced at less than $10). The remainder will be sent to your PayPal account. Please note that if you select the "None" option in all screens, you might get a random product. Therefore, it is in your best interest to always select the option you truly prefer.

Instructions At the end of the study, a random draw will be made among participants. If you win, you will actually buy the product that you selected most frequently. That is, you will receive that product and its listed price will be deducted from the $10 payment you received previously (all products are priced at less than $10). The remainder will be sent to your PayPal account.