Bittersweet Competition

Game Theory & Strategy

 Pay-offs in Europe

contribution margins

NutraSweet HSC

Fight
$___/lb

Accommodate
$___/lb
 Pay-offs in Europe

contribution margins

NutraSweet HSC

Fight
$ ($25 - 18) x ($25 - 25) x
1,300 tonnes x 0 tonnes x
$25/lb 2,205 lb/tonne) =
2,205 lb/tonne) =
$20 mm $0 mm

($50 - 18) x ($50 - 25) x

Accommodate 800 tonnes x 500 tonnes x
$50/lb 2,205 lb/tonne) = 2,205 lb/tonne) =
$56 mm $28 mm
 Bitter Competition (1987-89)
1987-HSC launches; 500-tonne plant on stream
in 1988; no branding; customer can blend.

Feb. 1987-NS responds to complaints by Euro-

pean commission; opens 50% of European
contracts with Coke & Pepsi to competitive
bidding. Both gave HSC some business.
NS drops price to $22-30. Angus Chemical & 3
Italian firms exit; no other entrants.

In 1981, NutraSweet in Canada was $90/lb. As

HSC entered, NS lowers price to $40-$50/lb.
HSC finds that NS signed Coke & Pepsi to
exclusive, multi-yr contracts that include:
Meet or Release clauses -- give NS the right

to meet any price by a competitor

MFN clauses -- NS guarantees the price

charged to Coke/Pepsi would match the

lowest price to the other competitor.
 Bitter Competition (1989-91)
Late 1989, NS announces plan to double capacity at
Augusta to 6,000 tonnes (1991 demand forecast:
8,000 tonnes in U.S.; 10,000 tonnes worldwide.)

HSC lodges dumping complaint with EC; Nov. 1990,

EC levies $15/lb duty on NS imports.

HSC files complaint in Canada: NS dropped prices

in Canada to $23-34 and forced buyers to sign
exclusive contracts to drive us from the mkt.
Oct. 1990-Canadian court prohibits NSs use of:
1) exclusive contracts, and 2) discounts in exchange for
exclusivity or use of the NS logo on products.
Also prohibits NS from MOR clauses, and requires that
MFN clauses be offered to all customers or none (not just
Coke and Pepsi)
HSC:We are convinced that NSs game plan has been to
drive us out of business and then retain the mono-poly. All
we have ever wanted is a level playing field.
Bitter Competition (mid-1991)

September 1991, NS-Ajinomoto joint

venture announces $130 million plan
to build 2,000 tonne plant near
Dunkirk in France.
Plant will come on stream in summer of
1993.
Bitter Competition (late 1991)
Worldwide demand and price:
US: 8,000 tonnes @ $50-70/lb
EC: 1,400 tonnes @ $37-40/lb (reflecting $15 duty)
Canada: 400 tonnes @ $30 per lb
RoW: 200 tonnes

HSC has 30% of EC and 5% of Canada

Soft drinks = 80% of aspartame sales;
Coke and Pepsi = 70% of soft drink market
Tabletop aspartame grows rapidly in US; NS
earning 30% on $200 million with Equal. Equal
had 54% market share; SweetN Low had 31%.
NS builds 25-person service/sales staff to provide
customer assistance and mkt research to customers.
New CEO Robt Flynn offers dedicated sales force to
serve Coke/Pepsi, plans to cut mfg cost 60%.
 Pay-offs in the US
contribution margins

NutraSweet HSC

Fight
$___/lb

Accom
$___/lb
 Pay-offs in the US
contribution margins

NutraSweet HSC

($25 - 17) x ($25 - 25) x

Fight 8,000 tonnes x 0 tonnes x
$25/lb 2,205 lb/tonne) = 2,205 lb/tonne) =
$141 mm $0 mm

($50 - 17) x ($50 - 25) x

Accom 6,500 tonnes x 1,500 tonnes x
$50/lb 2,205 lb/tonne) = 2,205 lb/tonne) =
$473 mm $83 mm
 Pay-offs in the US
contribution margins

NutraSweet HSC

($25 - 12) x ($25 - 25) x

Fight 8,000 tonnes x 0 tonnes x
$25/lb 2,205 lb/tonne) = 2,205 lb/tonne) =
$229 mm $0 mm

($50 - 12) x ($45 - 25) x

Accom 6,500 tonnes x 1,500 tonnes x
$50/lb 2,205 lb/tonne) = 2,205 lb/tonne) =
$545 mm $66 mm
Bitter Competition (mid-1992)
February 1992, NS launches $10 million
campaign for Equal (starring Cher).

April 1992, Pepsi announces new long-term

global supply contract with NS. Coke
discloses it signed similar deal in December.

Analysts estimated that Coke and Pepsi

would save $200 million per year over next
2-3 years, as prices drop to low $30s / lb.

Coke announces it has a worldwide

agreement with HSC as well as NS.
Analysis indicates that it is for a very small
volume.
 Factors that Influence
NutraSweets Aggressiveness

Cost in terms of lost profits

Position on the experience curve
(relative cost position).
Signaling to other potential entrants
Patents (strength of patents)
Timing of incumbent introducing a
next generation product (if it will be
soon, less likely to be aggressive).
 Summary
Dynamics of competition
Allocentrism vs. egocentrism (understand how your
actions affect the value net)
NS acted aggressively in Europe/Canada where it had
little to lose (develop tough reputation). NS
accommodates small HSC entry in U.S.

Once it entered, HSC had no added value

Since HSC added no value, it could expect to capture
little value once it entered

HSCs entry substantially changed the division of

value, however -- in favor of Coke and Pepsi

If your entry shifts the division of value but creates no

new value, GET PAID TO PLAY!!!
As a provider of aspartame, HSC was a weak second
player. As a provider of competition in the market for
aspartame, HSC was a monopolist

Know your effect on the creation and division of value,

and exploit it!!!
 Traps of Strategy

Thinking that your win must come at the

expense of other players.
Believing that you must do something
others cant do.
Failing to see the whole gamethe
interactions of actions/reactions of all
players in the value net.
Failing to think systematically about
changing the game; influencing the actions
of other players.
There are no silver bullets for changing the
gamethere is no end to the game of
changing the game.
The importance of pre-emption

Those who win every battle are

not really skillful

Those who render others armies

helpless without fighting are the
best of all

Sun Tse