Bittersweet Competition

Game Theory & Strategy

Pay-offs in Europe
contribution margins

NutraSweet
Fight
$___/lb

Accommodate
$___/lb

HSC

Pay-offs in Europe
contribution margins

NutraSweet
Fight
$25/lb

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

$20 mm

Accommodate
$50/lb

HSC
($25 - 25) x
0 tonnes x
2,205 lb/tonne) =

$0 mm

($50 - 18) x
800 tonnes x
2,205 lb/tonne) =

($50 - 25) x
500 tonnes x
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 European 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 monopoly. 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

1993.

will come on stream in summer of

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
Fight
$___/lb

Accom
$___/lb

HSC

Pay-offs in the US
contribution margins

Fight
$25/lb

Accom
$50/lb

NutraSweet

HSC

($25 - 17) x
8,000 tonnes x
2,205 lb/tonne) =

($25 - 25) x
0 tonnes x
2,205 lb/tonne) =

$141 mm

$0 mm

($50 - 17) x
6,500 tonnes x
2,205 lb/tonne) =

($50 - 25) x
1,500 tonnes x
2,205 lb/tonne) =

$473 mm

$83 mm

Pay-offs in the US
contribution margins

Fight
$25/lb

Accom
$50/lb

NutraSweet

HSC

($25 - 12) x
8,000 tonnes x
2,205 lb/tonne) =

($25 - 25) x
0 tonnes x
2,205 lb/tonne) =

$229 mm

$0 mm

($50 - 12) x
6,500 tonnes x
2,205 lb/tonne) =

($45 - 25) x
1,500 tonnes x
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