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 ...