The Holland sweetener company is aiming to access the high depth, low calorie sweetener market, which reaches the moment dominated by a single company called "NutraSweet". NutraSweet has guaranteed patent for its products in the industry. In this paper, we will strive first to investigate the existing sweetener industry, using Porter five pushes industry examination. Also, we will evaluate the likely response by NutraSweet on the threat of new entrants "HSC". Furthermore, we will also examine the initiatives considered by NutraSweet and HSC throughout the truth like vertical integration and strategic alliances, and how these initiatives created value for the company. Finally, we will also evaluate the potential scenarios that are appeared by HSC on joining the market like "Normal rates" and "Price war"
The high depth, low calorie market as that which you explained above was dominated by a single company "NutraSweet" with twelve-monthly sales of $711 million, which is just about 80% of the $844 total sales of the industry in 1986( see show 1). Also, NutraSweet was able to charge skimming charges and get large stake on the market. Furthermore, according to the circumstance, the sweetener is likely to grow by 15%, with major sales in Europe. Alternatively, as mentioned above the patent of NutraSweet is due to expire in European countries and Usa, which generate a threat of new entrant to enter into the sweetener industry like HSC.
NutraSweet through the patent life has maintained several obstacles to entry to safeguard the business from possible entrant risk.
High startup cost: the Aspartame making industry need a high capital outgo and very long time to improve the efficiency of the manufacturing facility. Also, based on the case NutraSweet has reduced processing cost by 20%. All of this provides clear communication that accessibility is difficult for new entrants.
Switching cost and buyer locked up: NutraSweet has inserted into exclusive contact with Pepsi and Coca-Cola to market new aspartame for a number of years, this will lead to troubles for new entrants to determine high market share.
Consequently, this all show that the barrier to entrance is high.
Substitutes: High strength, low calorie sweeteners are used in the structure or many Products, but have no absolute replacement. Aspartame and sugar can't be substitute since it does not contain all the quality in Aspartame.
Suppliers: L-Aspartic and L-phenylalanine are essential structure of aspartame and are count up in a number of sources, however, suppliers for L-phenylalanine weren't many, which generate a supplier power because of this supplies also, this means that why NutraSweet and HSC has proceeded to go into different proper alliance and vertical integration in their resource chain
Buyers: Soft Drinks manufactures, iced desserts, gum, and stand top products are the main buyer of the sweetener industry. However, according to the case, carbonated drinks accounts for 80% of aspartame sales, table lop for 15% and 5% for owner different products This shows, that coca and Pepsi has buyer electricity but credited the Monopolistic position of NutraSweet, the power isn't that big since patent has been secured for years
In 1986, rivals on the market of aspartame is very low as a result of exclusive rights NutraSweet's to produce aspartame in several countries for example, US, European countries and Canada. Alternatively, the development of a substitute high intensity sweetener is growing on the market by using different kind of mixes, this sector of the market symbolize an important menace to NutraSweet's market talk about. NutraSweet will have different rivals in the tag of producing aspartame when the patent will expire in the different parts they dominate.
After the expiration of aspartame patent for NutraSweet, the predicted answer Holland sweet company accessibility will be. NutraSweet gained remarkable amount of gain offering a high price on the market because of their monopolistic position in the market. NutraSweet's management will respond aggressively to danger created by Holland Sweetener company admittance to advertise of aspartame to protect their control of the market.
Any fresh company gets into the market require to possess either Coke or Pepsi as their clients to perform performance in producing aspartame. This is actually the point where NutraSweet's will have upper hand against their rivals in leading the marketplace. Through the use of their brand, high gains and excellent marriage with customers, NutraSweet's will have the ability to afford putting your signature on a long and exclusive agreement with the major customers of aspartame. This airplane can make it harder for Holland Sweetener Company to locate buyer to buy their potential agreement to produce 500 tons of aspartame. The major hazard from NutraSweet's to Holland Sweetener Company is the capability to have high income. Even thought, Holland Sweetener Company alleged that their development cost of aspartame will be lower and even more flexible than NutraSweet's; they still have to compete against NutraSweet's experience in operations, popular brand and their well-construct relationship with major clients on the market.
Differentiation strategy is expected to be taken care of by NutraSweet to possess high earnings in the forex market. Differentiation strategy can help them to create s solid brand in a few markets like the one they may have in the US for example, the European and Canadian markets. NutraSweet can benefit from the patent they may have in US which scheduled to expire in 1992 to aid their market in European countries and Canada which is due to expire in 1987. They can gain high income in america market which will aid them in the Canadian and Western market by reducing the price of the product so it will be difficult for rivals to be competitive. The excess of earnings in US market covers losing in the Western and Canadian market segments.
We described above; fresh entrant requires having at least Coke or Pepsi as their purchasers to efficiency in this industry. If NutraSweet's loss of the firms that means that they will lose a huge market share. The only real achievable method Holland Sweetener Company can tempt Pepsi, Coke or both of them to signal a agreement with them is by offering lower price than NutraSweet's. Since NutraSweet's had not been flourishing in Canada and European countries, Pepsi and Coke are improbable to provide a far above the normal prices to NutraSweet's one time when Holland Sweetener Company gets into the market and provides a new product. With the start of new goods in the aspartame industry will lead enhance purchasers' power that may lead to a reduction in the price of the product?
As mentioned in the last paragraph, price war strategy will a sever influence on the marketplace of producing aspartame by reducing the worthiness of both competition. Really the only solution for NutraSweet to avoid brutal price war is to pressure Holland Sweetener Company to exit the market when they get into or the two firms could keep dropping their prices to get more market talk about and bear damage or low earnings. You can find another technique to avoid price battle which is game theory.
Game theory, this is a situation capacity is recommended to keep away from having a price conflict between NutraSweet and Holland sweetener Company. The price tag on each organization should indicate the intention of each company. Following the patent expires in both Europe and Canada Holland Sweetener Company price access in the aspartame industry will point out their rates strategy. If Holland Sweetener Company give you a suprisingly low price compared to NutraSweet original price on the market, it will speak that they are using price battle strategy. Alternatively, if Holland Sweetener Company offers same or substandard lowering from NutraSweet original price, it will talk that Holland Sweetener Company would like to have peacefulness. This plan by Holland Sweetener Company will certainly reduce the risk it poses on NutraSweet market management of the aspartame industry. In the meantime, this plan will realize NutraSweet as the command of the industry and understand Holland Sweetener Company as inferior supplier of aspartame. Game strategy depends upon the response of NutraSweet, if NutraSweet reduce their price less than Holland Sweetener Company this means that they are going to a price battle and if they did not answer this means that these are will to talk about a small area of the market with Holland Sweetener Company.
The important question in this case is if the capacity of the market can maintain two suppliers. If it can so there is absolutely no worries both companies can get high earnings without needs for fights for market shares. Both of them can find equilibrium to have high profits. It really is discussed in the case that is likely to have a 500 ton plant to aid their Canadian and Western european market. This course of action for sure will lead to a severe attack because the complete Canadian and Western capacity for aspartame is 550 ton.
Taking into account that price warfare strategy is probably to occur, before the end of NutraSweet patent they will react violently. If NutraSweet can secure their exclusive multi-year contract with Pepsi and Coke it'll make it harder on Holland Sweetener Company to truly have a good share in the market. Considering that Pepsi and Coke will reap the benefits of Holland Sweetener Company entrance in the market, it can help them to hint a agreement with Pepsi or Coke before spending considerable quantity of profit their seed. Holland Sweetener Company will take a substantial amount of the market show of aspartame industry
After the entrance of HSC, corresponding to Goodman " NutraSweet lost some market show in 1992, when aspartame went off patent and Holland Sweetener Co. (Maastricht, holland), a joint venture between DSM (Heerlen, the Netherlands) and Tosoh (Tokyo), came into the market. Within the U. S. , the artificial sweetener market will expand from $774 million in 1995 to more than $1. 1 billion by 2000, in line with the Freedonia Group (Cleveland)".
In addition to the, in May 21, 2007, Relating to NutraSweet CEO Craig Petray, there exists tremendous opportunity to leverage the NutraSweet brand in consumer market segments throughout the world. "The NutraSweet brand name and its own familiar 'swirl' sign remain one of the very most recognized and respected consumer brands on earth, " Petray said. "With the energy of the NutraSweet brand name and the sweetener experience of Domino, we are positioned to become a major player in the billion buck retail sweetener business, " Petray said.
D'Amico, Esther. "A heap of competition to come. " Substance Week 158. n31 (August 14, 1996): 24(1). Basic OneFile. Gale. LIRN. 3 December. 2010
NutraSweet "NutraSweet and Domino Form Alliance to Market Sweeteners", MAY 21, 2007. Pressrelease http://www. nutrasweet. com/media/domino. pdf
Harvard Business College "BitterCompetition:The Holland Sweetener Company versus NutraSweet (A)" November 13, 2000.
Joe Garma, "As will be the NutraSweet, Equivalent and Sugar Twin brands under which Aspartame is marketed", August 28, 2010. http://www. garmaonhealth. com/2010/08/aspartame-neurotoxin/