Game Theory, Aspartame & Psychology

”It is a bloody fight and everybody’s losing money,”

Systse T. Kuipers, Marketing manager for the Holland Sweetener Company, Netherlands

 

Aspartame, an artificial sweetener, was discovered in 1965 by James M. Schlatter, a chemist working for G.D. Searle & Company, while working on anti- ulcer drug. One day he accidentally discovered its sweet taste when he licked his finger which had traces of aspartame, to lift up a piece of paper. Later in 1985, Monsanto Company bought G.D. Searle, and the aspartame business became a separate Monsanto subsidiary, the NutraSweet Company.  NutraSweet was a one product company, and patent helped them to sell it at a very high price to its customers like Coke and Pepsi. In fact NutraSweet logo was displayed on cola cans.

diet coke

Cola companies were sick of high prices and arrogant attitude of NutraSweet Company, but patent ensured that NutraSweet had monopoly. But things changed when its patent expired in Europe in 1987 and in US in 1992. A new organisation Holland Sweetener started manufacturing Aspartame, and NutraSweet now had competition. Though potential was huge, still Holland Sweetener would not capture much of market, the big two cola companies stayed with NutraSweet.

nutrasweet

This became favourite case study for strategy and game theory. Various scenarios were played out and payoff matrix designed like what if Holland Sweetener fights, flees or cooperates.

Unfortunately, Holland Sweetener was viewing game from economics and competitor’s point of view, the psychology side of game theory was missing.

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In customer’s mind NutraSweet was associated with reliability and safety; hence removal of NutraSweet logo from cola cans would have met resistance from customers. For this reason both Pepsi and Coke were reluctant to shift to Holland Sweetener. Secondly, Holland Sweetener didn’t see game from customer’s point of view. Holland Sweetener was not bringing any value to table; they were just selling aspartame at lower price. There was not value add in Holland Sweetener’s offer- equivalent of NutraSweet’s reliability and safety. Before entering a game you should assess value you add to game.

The cola companies decided to play their own psychological game; they used threat of shifting to Holland Sweetener to force NutraSweet to lower their prices and ended up saving $ 200 million.

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