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 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 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; 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
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
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