65812038 Case Study 2 NutraSweet
Question 1
The Holland Sweetener Company (HSC) prepared itself to enter the European and Canadian Aspartame Markets in late 1986. NutraSweet however had a majority market share in this region. This would be then considered by one of the Porter’s Five Forces as a threat of the entry of a new competitor.
Profitable markets that yield high returns such as the Aspartame market would sooner or later attract new firms. This would result in having HSC as a new entrant, which eventually will decrease profitability for NutraSweet in the industry. Unless the entry of HSC can be blocked by incumbents, the abnormal profit rate will tend towards zero i.e. perfect competition.
The existence of barriers to entry such as patents, rights, etc. can make it harder for the new competitor to penetrate the market.
Factors that count towards market penetration:
Economies of product differences
Brand equity of HSC
Switching costs or sunk costs
Capital requirements
Access to distribution
Existing customer loyalty to NutraSweet
Absolute cost
Aspartame was a new-to-the-world product. The aspartame market also being highly lucrative and profitable should be more than a sufficient reason for HSC to want to be a new competitor in the market and give NutraSweet a run for their money.
Naturally, NutraSweet would not be happy with the presence of this new competitor as they would have to fight for their current market share and to cling on to their current customers.
Normal Competition
NutraSweet has the advantage of deciding what to do upon HSC’s entry. This is simply because they have the first choice of the market segment and position. Hence, there is no need for them to respond with aggressive price wars via price slashing schemes.
They are able to promote attributes that favour their form of Aspartame as compared to the generic version HSC manufacture. Contract renewals with leading soft drinks companies like Pepsi and Coke could be established in that manner. Given that NutraSweet
The Holland Sweetener Company (HSC) prepared itself to enter the European and Canadian Aspartame Markets in late 1986. NutraSweet however had a majority market share in this region. This would be then considered by one of the Porter’s Five Forces as a threat of the entry of a new competitor.
Profitable markets that yield high returns such as the Aspartame market would sooner or later attract new firms. This would result in having HSC as a new entrant, which eventually will decrease profitability for NutraSweet in the industry. Unless the entry of HSC can be blocked by incumbents, the abnormal profit rate will tend towards zero i.e. perfect competition.
The existence of barriers to entry such as patents, rights, etc. can make it harder for the new competitor to penetrate the market.
Factors that count towards market penetration:
Economies of product differences
Brand equity of HSC
Switching costs or sunk costs
Capital requirements
Access to distribution
Existing customer loyalty to NutraSweet
Absolute cost
Aspartame was a new-to-the-world product. The aspartame market also being highly lucrative and profitable should be more than a sufficient reason for HSC to want to be a new competitor in the market and give NutraSweet a run for their money.
Naturally, NutraSweet would not be happy with the presence of this new competitor as they would have to fight for their current market share and to cling on to their current customers.
Normal Competition
NutraSweet has the advantage of deciding what to do upon HSC’s entry. This is simply because they have the first choice of the market segment and position. Hence, there is no need for them to respond with aggressive price wars via price slashing schemes.
They are able to promote attributes that favour their form of Aspartame as compared to the generic version HSC manufacture. Contract renewals with leading soft drinks companies like Pepsi and Coke could be established in that manner. Given that NutraSweet
References: McCann, JE 1991, 'Design principles for an innovating company ', Executive (19389779), 5, 2, pp. 76-93, Health Business Elite, EBSCOhost, viewed 11 September 2011. Mathewson, F, & Winter, R 1997, 'Tying as a Response to Demand Uncertainty ', RAND Journal of Economics, 28, 3, pp. 566-583, EconLit with Full Text, EBSCOhost, viewed 11 September 2011.