Bitter Competition: The Holland Sweetener Company Versus Nutrasweet

A Case Study of

Bitter Competition: The Holland Sweetener Company versus NutraSweet

1. Put yourself in the shoes of Winfried Vermijs as of late 1986. What response should he expect from NutraSweet after Holland Sweetener Company’s decision to enter into the European and Canadian aspartame markets?

As the Holland Sweetener Company prepares to enter the European and Canadian aspartame markets in late 1986, it could expect NutraSweet to employ one of (or a combination of) the following strategies – price discounting, new product introductions (e.g. Acesulfame-K, which is 200 times sweeter than sugar and has a longer shelf-life than aspartame), advertising campaigns and service improvements. A cursory analysis of the industry structure and current dynamics could lead Winfried to assume NutraSweet will engage in a price-war. After all, price competition is most liable to occur if i) products of rivals are nearly identical and there are few switching costs for buyers, ii) fixed costs are high and marginal costs are low, iii) capacity must be expanded in large increments to be efficient and iv) the product is perishable (Porter, 9)1. All of these conditions hold true in the aspartame business, which makes this strategy an obvious response by an incumbent. However, Winfried should not expect this as price competition is especially destructive to industry profitability and would hurt both NutraSweet and HSC. Rather, NutraSweet would leverage their experience and familiarity with the industry and production process to increase manufacturing efficiency and reduce costs.

        It makes more sense for NutraSweet to respond by focusing on their own production capabilities and process knowledge in collaboration with Ajinomoto. NutraSweet spent over $100M in plant construction costs and an estimated $30M annually in advertising, while also giving deep discounts of up to 40% to manufacturers that used 100% aspartame in their products. As fixed costs are extremely high and price discounts already exist, NutraSweet is unlikely to reduce prices further by entering a price war with HSC. It would be more logical to assume that NutraSweet will focus on marketing to gain brand recognition and loyalty in Europe and Canada. In addition, NutraSweet will use comparative advertising to emphasize how they have revolutionized the sweetener industry by pioneering the aspartame business in various markets across the world. Furthermore, NutraSweet can be expected to move quickly to explore blending possibilities with other new sweeteners, which would improve heat stability (and thus shelf life), sweetness, taste and nutritional value. Finally, NutraSweet will continue the exclusive contract trend and fight against HSC’s anti-competitive complaint with the European Commission.

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