1. How should Vermijs expect NutraSweet to respond to the Holland Sweetener Company’s entry into the European and Canadian aspartame markets?
Initiate Price War
Although we discussed in class that price wars could be detrimental to the industry, NutraSweet has the upper hand. Because NutraSweet controls an overwhelming majority of the market, the company could simply lower their margins for a short period of time. This would make it much more difficult for Holland Sweetener Company to enter the market. With lowered profit margins, HSC would be forced to acquire more financing to go head to head with its competitive giant. It would be a financial battle between David versus Goliath, and victory would be uncertain.
Continue Normal Competition
Even if NutraSweet decided to stay competitive in a normal market, Holland Sweetener Company would still be at a disadvantage. NutraSweet has signed a number of exclusive clients. Due to NutraSweet’s strong brand recognition ––NutraSweet is already established in international markets— people are not likely to switch to HSC products other than possibly Canada. HSC will struggle to find a large client base in this competitive market.
2. Specifically, how should Vermijsassess the relative likelihood of the two scenarios—price war and normal competition—he has in mind?
Price War vs. Normal Competition
Revisiting the first scenario, the company has several competitive advantages that will allow a price strategy. NutraSweet’s market power can sustain lower prices. While NS has the capacity to extend production, HSC’s production processes are bank financed, leaving it vulnerable topotential default. HSC has also significantly lowered prices in the past. According to historical data, NutraSweet has offered discounts as high as 40% through various advertising promotions.
However, I believe that NutraSweet will...