27-Feb Bitter Competition: The Holland Sweetener Co. vs. NutraSweet (A) (HBS 9-794-079) 1. How should Vermijs expect NutraSweet to respond to the Holland Sweetener Company’s entry into the European and Canadian aspartame markets? Ans: 1. NutraSweet had a very high Cost of Goods Sold in producing the Aspartame. So it was not a wise move for NutraSweet goes for Price war with Holland Sweetener Company, which might possibly results in a negative gain on the product. . Even though price war is not expected, NutraSweet possibly might use his advantage as the first one introducing the market to continue dominated the market. NutraSweet might also increase its advertisement expense to reintroduce and redirect consumers’ interest back to NutraSweet. 3. In response to Holland’s sue against the company; NutraSweet might probably try their best to fight against it, since they wanted to continuously dominate the soft drink industry.
However, even though NutraSweet succeed to defend its anti-competitive, if Holland Sweetener Company or other sweeteners offered a rather better price, similar quality, and comparable distribution offer, in a long run, the drink industry might go to the use of multi-sweetener to lower the suppliers’ control power and to follow government’s suggestion. 4. Since the market shares for NutraSweet will drop with the entry of Holland Sweetener and other Sweetener companies, NutraSweet may expect a sales decrease. Thus, NutraSweet will continue to improve their operation to make it more profitable. . Specifically, how should Vermijs assess the relative likelihood of the two scenarios—price war and normal competition—he has in mind? Price war Anw: Vermijs can use game theory to assess the relative likelihood (N -0. 7, H-0. 3) Holland Enter the Market Normal (N 0. 6, H 0. 4) Nutra Holland did not enter the Market (Nutra 1, Holland 0) When Vermijs think about the likelihood of the two scenarios, he needs to stand in NutraSweet’s shoes to think what Holland will do. If Holland did not enter the market, then Holland will get nothing.
But if Holland enter the Market, there’s 50% chance Holland will get some revenue. So Holland will enter the market. When Holland enter the market, Nutra had price war, then they both lost revenue, but if Nutra just normally compete with Holland, then at least Nutra still have positive revenue gain. So Nutra will not start a price war. 3 Other Notes: NutraSweet once reached 711 million for Aspartame business from 1965 to 1987 (patents’ expiration in European and Canadian market); 1986, Holland Sweetener Company prepare to enter this market.
NutraSweet’s decision: Normal competition & Price war. NutraSweet has limited production capacity, which hinders the growth of sales and limited their profit; so either NutraSweet increase more capacity to expand their market shares, or after the expiration of exclusivity, let other company get in. Extensive advertising led to wide use of Aspartame by food/beverage manufacturer. Huge price discount first to raise awareness and then put its foot onto soft drink and powdered drink industry.
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