Argyle

1. As Winfried Vermis trusted advisor in the late 1989, how would you assess the relative likelihood of the two scenerios for Europe and Canada - price war and normal competition - that he has in mind? What would you recommned that he do?

Nutrisweet have two options:

Maintain normal competition or Price War.

If normal competition you would assume that HSC would build a small market and expertise by slightly undercutting the market. This would mean that HSC could develop to be credible threat when the main game opens in the US in 1992.

Therefore you would assume Nutrisweet would engage in a price war to reduce HSC as a credible threat and therefore not be viable substitute when the US market opens.

There are other reasons why HSC however is not necessarily a viable threat which centre on the barriers to entry.

Threat of New Entrants (H/M/L)

Barriers to entry Current Barriers Strength?

Economies of Scale High - Currently HSC does not have capacity to service US

Propriety Product Differences Medium

Brand Identity Highly differentiated 98% of consumers recognised the Nutrisweet logo.

Capital Requirements High. Capital expenditure was $38m in 1986R&D $25m.

Access to distribution High. CC and Pepsi were locked into contracts

Absolute Cost advantages High. In 1992 Nutrisweet had cut it's production costs by 70% over the past decade

Proprietary learning curve High.

Access to inputs Medium. Inputs could be substituted.

Proprietary low cost product design High. In 1992 Nutrisweet had cut it's production costs by 70% over the past decade

Government Policy Medium

Winfried Vermis therefore could expect a price war. Nutrisweet would want to signal to HSC and other companies that entering this market would require deep pockets.

This would be a drain on reserves but the main aim is to be a credible threat for when the US market opens. This is the main game.

Nutrisweet creates great value for Pepsi and Coca Cola which it captures through its pull stratgy and differentiated branded ingredients strategy.

Realistically the barriers to be successful are high, swticthing costs are high (Coco Cola's changed recipes in the 80's) and probability of being anything more than a small play in the non soft drink market is high.

However HSC has enormous value to Coca Cola and Pepsi. As a credible threat it introduced compeition into the supply which enables CC and Pepsi to capture more value. Therefore Winfried should be asking to be "paid to play" to introduce competition.

Nutrisweet do not want HSC to be a credible threat when the US market opens to competition. Credibility would come with have active customers, and expertise in the prodiction process. Therefore likelihood