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 NS’s 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 NS’s 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; Sweet’N 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
NutraSweet’s 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

 HSC’s 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 can’t do.
 Failing to see the whole game—the
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
game…there 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