Bitter Competition: The Holland Sweetener Company versus NutraSweet (A) Case Solution

1. How should Vermijs expect NutraSweet to respond to the Holland Sweetener Company’s entry into the European and Canadian aspartame Markets?

Vermijs can expect two types of reactions from NutraSweet. This is because even though new competition is always a threat to the current company’s market share, the existing company at times can have an edge when it comes to competition. As NutraSweet was already expecting to cut its manufacturing costs in the coming years, this meant that it was in the position to rage price war with Holland Sweetener Company by reducing its price to such an extent which drives any competition out of the market and restore its previous position as the market leader.  Therefore, one of the responses that Vermijs should keep in mind is of a severe price war scenario after HSC’s entry into the European and Canadian market.

Secondly, considering the fact that NutraSweet’s patents were about to expire at the time when HSC was planning to enter the market, Vermijs could also expect a response of NutraSweet being threatened with new competition, especially if it considered the competitor to be a strong one. With HSC’s discovery that NutraSweet had signed the leading companies, Coke and Pepsi, in a secretive, exclusive, multiyear contract, and the fact that HSC was planning to lodge a complaint against NutraSweet with the European commission, NutraSweet reaction might be defensive, preventing it from ranging a price war against HSC.

2. How should Vermijs assess the relative likelihood of the two scenarios – price war and normal competition – he has in mind?

In a situation with Holland Sweetener Company planning to enter the European and the Canadian market where previously NutraSweet had full control over the market, price war scenario is only a feasible option under two circumstances. Firstly, if HSC manages to have a grip on the market and establishes itself successfully in its initial days in the new markets, only then it will be able to rage a price war with NutraSweet. Secondly, if NutraSweet loses its grip, considering the fact that HSC is planning to lodge a complaint against NutraSweet because of its secretive contract with Coke and Pepsi, NutraSweet might react aggressively and start a price war itself. In such a situation, Vermijs can choose the former option instead of the latter.

On the other hand, there is a possibility that NutraSweet does not react aggressively to new competition once it realizes that the patents have expired in the European and Canadian markets and that new and strong competition is inevitable. In this case, it might also compete with new competition in a normal way rather than trying to drive any competitor out of the market by raging a price war. If this happens, a normal competition is a more feasible option for Holland Sweetener Company.

3. What are NutraSweet’s strategies to extend their competitive advantage beyond the patent expiration date?

During the time when the patent secured NutraSweet’s right to manufacture and supply aspartame, NutraSweet was not only exclusively enjoying these rights, but it was also striving to ensure that once the patent expires; NutraSweet would still be able to successfully establish its rights on the market and fight off competition. Therefore, a number of strategies were designed in order to lead the market without patents, as well. Firstly, it determined the best way in which the sale of aspartame would enhance revenue, and this was through the sale of aspartame to the soft drink industry. In the United States, NutraSweet lodged a contract with the famous brands of Coke and Pepsi, and they became the major buyers of aspartame from NutraSweet. This was done in order to extend the rights NutraSweet enjoyed beyond the patent expiry period.

Probably, in NutraSweet’s view, getting hold of the soft drink leaders was the way to ensure that the period after the patent expires would still make NutraSweet’s aspartame number one in the market.

Furthermore, the company gave huge discounts to manufactures to make them use aspartame and to make them loyal customers of NutraSweet. The idea was successful and not only did the market recognize the brand NutraSweet, manufactures sought it, as well.

Lastly, another attempt that NutraSweet made in order to compete beyond advantage was to seek other markets in the international arena so that the post patent expiry period would still benefit NutraSweet.

4. Will HSC be successful in the European and Canadian markets? How should they execute their strategy?

Firstly, HSC needs to ensure that the European Commission takes action against the exclusive, long term contracts that NutraSweet has with Coke and Pepsi. This is because partially, HSC’s success depends on how the future of NutraSweet unfolds. Further, there is a chance of HSC being successful in the European and Canadian market provided that are able to match the level of competition. It is in their interest to have a normal competition in their early days so that they are able to create their brand image successfully in the markets. If they rage a war, or if NutraSweet rages a war to drive HSC out, it might be a disadvantage for HSC given its condition and the fact that NutraSweet is already a well-established company with loyal customers in the market. HSC should focus on its brand instead of the prices in the short run. However, in the long run, it would be in a better position to rage price war if it chooses to.