Strategic management Case: Bitter Competition
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1. How should Vermijs expect NutraSweet to respond to the Holland Sweetener Company’sentry into the European and Canadian aspartame markets?NutraSweet was able to maintain his worldwide monopoly position because it was secured by two key patents on aspartame in the Canadian and European market. But in 1987, NutraSweet’s patents were due to expire so HSC wanted to enter the market. During the secured times of NutraSweet, the company could create advantages to protect his market position.
Those advantages:-The two key patents, the ‘use’ patent obtained in 1970 and the ‘blend’ patent in 1973, so nobody could make the aspartame or use it.
-Economies of scale, cost advantages (ex. By 1992, NutraSweet would be proclaiming that it had cut its manufacturing costs by 70% over the previous decade) and efficiency who were created over time.
-Brand recognition by the clients who were familiar with the product, by 1986, the company was claiming that 98% of American consumers recognized its logo.
-NutraSweet knows already how the cookie crumbles on that market and could sold aspartame directly to major buyers such as Coke and Pepsi.
Vermijs knows that the patents will disappear but also that his company doesn’t have the other advantages of NutraSweet. So Vermijs expectations should be that NutraSweet is going to protect his other advantages and even try to improve them. Only by doing that, NutraSweet could protect his position on the market for the long terms.
2. Specifically, how should Vermijs assess the relative likelihood of the two scenarios-price war and normal competition-he has in mind?Vermijs should assess the likelihood for a price war bigger than for a normal competition because NutraSweet not going to give his superior market position away that easy. A normal competition will cost to many market shares for NutraSweet. NutraSweet is in a stronger position (competitive advantages) to fight a price war or in other words cutting back on the prices.
NutraSweet turned to Ajinomoto for the commercial scale and the process improvements so a strong worldwide position was created. An other argument for a price war is that NutraSweet don’t has to make the start up cost, who are very expensive, because they did it already in 1981. That is a big disadvantage for HSC if they want to engage in the price war.
The fact that the company gave discounts of up to 40% off the list price of aspartame to become the exclusive worldwide supplier or with other words, they gave up profit to maintain leader. This is an attitude of a company who doesn’t want any other companies in the market and so probably would chose for a price war.
In the summer of 1985, NutraSweet was acquired by Monsanto Corporation for $2.8 billion which is a large amount so with the eye on the loss of the patents, I think it’s logical that they going to defend their position with a price war.
Conclusion: NutraSweet will probably do a price war because all the competitive advantages. With normal competition, NutraSweet will lose to much market share.
– Harvard online, buy case bitter company- Strategic Management: Concepts, Second Edition (2008), by Mason A. Carpenter and Wm.
Gerard Sanders, Pearson Prentice Hall. ISBN-10: 0132341409; ISBN-13: 9780132341400