Bitter Competition: the Holland Sweetener Co. vs. Nutrasweet (a)
904 WordsNov 28th, 20114 Pages
Bitter Competition: The Holland Sweetener Co. vs. NutraSweet (A)
1. How should Vermijs expect NutraSweet to respond in the Holland Sweetener Company’s entry into the European and Canadian aspartame markets?
Vermijs could expect two responses from NutraSweet: try to “save” its monopoly by fighting and low the price and start a price-war with HSC; or accept the entrant and its pricing and finally share the market.
With the acquisition of Searle in the summer 1985 by the giant Monsanto, NutraSweet became a stronger brand. In 1986, the net income of Monsanto Corporation was $433M, and NutraSweet net sales rose to $711M.
With Monsanto support, NutraSweet was strong enough to conduct a price war, but the HSC had strong resources…show more content…
The two manufacturers Ajinomoto (NutraSweet) and Tosoh Corporation (HSC) could compete, with quite same net income in 1985, but with two advantages for Tosoh: around $150 000M more assets value than its competitor and an important decrease in Ajinomoto’s net sales (thus in net income) in 1985.
Moreover, another advantage for NutraSweet was the leadership of Monsanto in several U.S. markets, and its partnerships with Coke and Pepsi, allowing the brand to expand easier in the rest America, especially in Canada.
In conclusion, NutraSweet could launch a price-war in Canadian market, because of its size and presence in America, but should compete in Europe with its less comfortable position there than NutraSweet beneficiating from the DSM strong presence in Netherlands, Germany and others European Countries.
2. Specifically, how should Vermijs assess the relative likelihood of the two scenarios – price war and normal competition – he has in the market?
In order to evaluate the relative likelihood of the two scenarios – price war and normal competition let us list the factors that would lead to one of the two scenarios.
1. Previous experience
- When the NutraSweet entered the market they followed the strategy of Price War. In order to get the significant market share of sweeteners the company offered up to
Should companies protect dominance through monopolies or should they give room for fair competition? The Alumni Breakfast learning session was a hub of ideas as attendees engaged thoroughly with the case study discussion facilitated by Professor Ramon Casadesus. Through a case study based on the US Sugar sweetener industry, Prof. Casadesus brought an attentiveattentive audience, through lively interactions with the case study as well as vibrant energy.
The case titled; “Bitter Competition: The Holland Sweetener Company versus NutraSweet” was segmented into various parts with each section highlighting an action and reaction feel for both companies, whilst giving room for the audience to do an analysis on the strategies adopted by the two companies.
In late 1986, the Holland Sweetener Company (HSC), based in Maastricht, Netherlands, was preparing to enter the European and Canadian aspartame market, largely dominated by NutraSweet Company (NS). HSC, an upcoming company engages in a war with NS, which chooses to stifle competition through a price war brawl.
“Many companies when caught in such encounters primarily settle upon a price war, rather than an accommodative competitive engagement. Whereas a price war may seem logical for the dominant company with deep pockets, it is highly likely that the company will succumb to weakening profits against the cost of production. On the other hand, an upcoming company may not be able to match lower prices against the cost of production and still obtain profits. An accommodative, normal competition ground is a safe place where losses can be contained other than during a price war,” Prof. Casadesus highlighted.
What is the outlining factor to consider when dealing with competition? “It is always important to think of the value created when it comes to establishing a competitive edge. A key factor is to considerably evaluate the degree of willingness to pay against the cost of production,” explained Prof Casadesus.
Another key element from the discussion was on how to deal with failing markets. At the end of the case study, Prof. Casadesus evaluated the case from the perspectives of the two companies, highlighting some of the good and bad strategies the two companies deployed.
From the analysis , it was clear that strong companies in the market savor victory against competition, based on; brand strength, winning production costs effective for high inputs and low outputs, strong networks and contracts and lastly, deep markets. As for upcoming companies tasting waters into new territories, it is always favorable to get “paid for playing.” This he explained by mentioning that a company may not have its strengths on profit gains or market penetration, but may manage to acquire strength through playing as a monopoly competitor.
Prof. Ramon Casadesus -Masanell is the Herman C. Krannert Professor of Business Administration at the Harvard Business School. He studies strategic interaction between organizations that operate different business models. He is also a member of the SBS Advisory Board.