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… If they lose market share some plants become unprofitable and the possibility of necessity of closing some plants would increase. This scenario would lead to huge losses. Also we should take into consideration the financial potential of the new owner Monsanto which is leading agricultural producer.
3. Only one competitor
- This factor means that if the NutraSweet force HSC to escape the market the NutraSweet would become the monopolist again for some time. The initial investments are comparatively high and the specific experience is very important.
Normal competition
1. B2B market
- The NutraSweet operates primarily in the B2B market and works as a supplier for manufactures. The prices on the B2B markets are not public and it doesn’t make any sense to announce the price cutting because for different companies the conditions are also different.
2. 80% of NutraSweet market due to contracts with Coke and Pepsi
- The contracts with these two companies are secret and multi-year. It means that in that period the Price War in order to get the two main manufactures doesn’t make sense.
3. Difficult to increase prices after the price war
- In B2B market the contracts are concluded usually for more than one year and if the NutraSweet would cut prices, it would decrease the profit margin for the nearest future.
The strength of these factors is approximately the same but the main problem for
