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Bitter Competition

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Bitter Competition Take-aways The Game through 1991 How effective a strategist has NutraSweet been so far? + Branded ingredient and cost reduction strategies, pursued ... – PowerPoint PPT presentation

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Title: Bitter Competition


1
Bitter Competition
  • Take-aways

2
The Game through 1991
  • 1990
  • HSC lodges dumping complaint against NS with
    European Commission
  • Hoechst files petition for FDA approval for use
    of acesulfame-K in soft drinks
  • Canadian Competition Tribunal disallows certain
    of Nutrasweets contracting practices
  • European Commission imposes anti-dumping duties
    on NS
  • 1986
  • HSC begins work on 500 ton aspartame plant
  • HSC and Angus Fine Chemicals complain to
    European Commission about NSs contracting
    practices
  • Pfizer files petition for FDA Approval of
    alitame
  • 1988
  • Tosoh Canada files complaint againstNS with
    Canadian Bureau of Competition Policy
  • Hoechst gains limited FDA approval for
    acesulfame-K

1985
1991
  • 1987
  • European Canadian use patents expire
  • NS drops exclusivity clauses in European
    contracts with Coke Pepsi
  • HSC begins selling aspartame out of pilot plant
  • Miwon (South Korea) announces plans to enter
  • JJ files petition for FDA approval of sucralose
  • Tosoh announces plans to import HSC aspartame
    into Japan
  • 1989
  • HSC and United Sweeteners USA file suit in
    Delaware to declare NSs patents invalid
  • NS announces plans to double annual capacity in
    Augusta plant
  • 1985
  • HSC Formed
  • Monsanto AcquiresSearle
  • 1991
  • NS Ajinomoto announce plans to build 2,000 ton
    plant in Gravelines, France

3
How effective a strategist has NutraSweet been so
far?
  • Branded ingredient and cost reduction
    strategies, pursued in advance of patent
    expiration, generated a significant competitive
    edge over any future competitors
  • Decision to fight in Europe / Canada seemed to
    be effective.
  • No lasting entry by a third player
  • Although prices have fallen, with a third player
    they may have fallen more
  • May have deterred HSC from expanding capacity
    sooner

4
How effective a strategist has NutraSweet been so
far? (2)
  • Building a plant in Europe early on could have
    been a more effective deterrent against entry
    there, since anti-dumping duties could not have
    been imposed
  • ? Given that a European plant wasnt built
    pre-1987, the decision to build one there later
    effectively eliminated any chance of reducing an
    implicit agreement with HSC to develop separate
    spheres of influence
  • The launch of SweetMate seems likely to
    trigger an expensive reshuffling of market share
    in the tabletop segment. Possible additional
    impact of cannibalizing Equal sales.

5
How effective a strategist has HSC been so far?
  • Small-scale entry created an incentive for
    NutraSweet to cede part of the European /
    Canadian market rather than initiate price war
  • Problem figure out a way to commit or signal
    intention to staying small
  • HSC allowed itself to be bluffed into delaying
    expansion
  • Waited for resolution of the legal battle in
    Canada / Europe before installing more capacity

6
Decision-making about plant expansion at HSC
Was NutraSweet bluffing?
Analysis Logic
First Level Single market / Static Small scale entry in U.S. makes accommodation preferable for NutraSweet than fighting
Second Level Single market / Dynamic Potential profits in the future for NutraSweet more than compensate for a period of low profits But can NutraSweet really bring prices back up?
Third Level Multi-market / Dynamic US market is 10X the size of Europe / Canada Makes sense for NutraSweet to fight there if it delays HSCs entry into the US
7
How effective a strategist has HSC been so far?
(2)
  • ? Better to commit to a larger facility in the
    beginning?
  • Sinking the capacity to enable HSC to enter the
    US market would have reduced NutraSweets
    temptation to fight in Europe/Canada and may have
    deterred NutraSweet from expanding.
  • Also a larger facility would have yielded a lower
    cost-gap with NutraSweet
  • ? HSCs best opportunities may lie outside the
    US.
  • There Coke, as a dominant player, may benefit
    more from having a second source (and suffer less
    from not being able to use the NutraSweet brand)

8
How effective a strategist has HSC been so far?
(3)
  • HSC seems poised to shift the game over time
    to cost, where they may have an edge over
    NutraSweet through their patented enantiomer
    separation process
  • HSC should have viewed itself as selling
    competition offering a bargaining chip to Coke
    and Pepsirather than aspartame.
  • Given NSs brand and cost advantages, HSC is a
    duopolist in a weak position when it comes to
    selling aspartame
  • However as the last hold-out in the aspartame
    business, HSC is in a strong position when it
    comes to selling competition
  • Challenge get paid to play
  • Demand fixed payment to enter / expand
  • Demand a long-term contract from Coke

9
The Game between HSC and NutraSweet played out on
two levels
  • Tactics
  • Shaping the perceptions of the other player
  • Value
  • Securing added value, denying it to the other
    player

10
NutraSweets tactical strategy
  • Dropped price sharply when HSC entered European
    and Canadian markets
  • Goal shape perceptions of HSC managers about how
    tough competition would be in Europe and in the
    US
  • Starve HSC of funds
  • Deny HSC learning-related cost reduction
    opportunities
  • Effectiveness delayed HSCs entry into US
    market
  • In games of this sort, the effectiveness of
    tactical
  • moves depends on how opponents interpret them.

11
What is added value?
Source Brandenberger and Nalebuff (1996),
Co-Opetition, p. 45
12
NutraSweets added value strategy
  • Investments in brand building
  • Increase end-customers WTP ? generate pull
  • Decrease direct customers (Coke, Pepsi)
    willingness to gamble by switching
  • Emphasis on cost reduction

Enabled NutraSweet to continue to operate
profitably even after legal barriers to entry
(patents) eroded.
13
What is HSCs added value?
  • Proprietary cost-reducing technology
  • Primarily, HSC destroys NutraSweets added value
    (and increases the added value of Cola makers)
  • Thinking ahead, HSC might have captured some of
    this by getting paid to play.

14
From the Where are They Now Files
  • 1992-2000
  • 1992
  • Pepsi and Coke re-sign exclusive deals to buy
    artificial sweetener exclusively from Nutrasweet
  • Holland Sweetener Company enters the U.S. market
    for aspartame as Nutrasweets patent expires
  • 1996
  • Nutrasweet turns to Tony Bennett and actress
    Jamie Lee Curtis to fatten its Equal brand's
    share of the flat 225 million artificial-sweetene
    r market
  • Coca-Cola blames slow growth in diet soft drink
    market on NutraSweet

15
2000-Present
  • 2000
  • Monsanto said it agree to sell its bulk
    NutraSweet business to J. W. Childs Associates LP
    for 440 million.
  • Present
  • NutraSweet is still maintains its position of
    leadership in the artificial sweetener market.
  • Both HSC and NutraSweet continue to pursue
    research on next-generation sweeteners.

16
Ticket Scalping Example, Part A
  • The Producers starts in 5 minutes
  • Outside the theater, there are two scalpers with
    two tickets each
  • Five people who want to attend the play, each
    willing to pay 100
  • What do you expect will happen?

This example is courtesy of Prof. Meghan Busse.
17
Ticket Scalping Example, Part B
  • The Producers starts in 5 minutes
  • Outside the theater, there are two scalpers with
    two tickets each
  • Four people who want to attend the play, each
    willing to pay 100
  • What do you expect will happen?

18
Ticket Scalping Example, Part C
  • The Producers starts in 5 minutes
  • Outside the theater, there are two scalpers with
    two tickets each
  • Three people who want to attend the play, each
    willing to pay 100
  • What do you expect will happen?
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