International Law

Franchisee Purchasing Coops

Image via Wikipedia

Coke and Pepsi display promeniently the Nutrasweet swirl on their diet drink cans. Monsanto's patent for Nutrasweet in Europe expired in 1987, which allowed a rival Holland Sweenter to context Monsanto for the European market.

Holland Sweenter prevailed, and then decided to challenge Monsanto in the US.

What happened next, nicely recounted by Brandenburger and Nalebuff in Co-opetition, is described in this short piece on strategical thinking.

Coke and Pepsi, after Holland Sweenter's entry, signed a new long term deal with Monsanto.

Brandenburger and Nalebuff conclude that while every manufacturer wants to have two sources of supply, they don't necessarily want to "do too much business with it".

"Holland was in a very strong position.  In a sense, it had a monopoly: it was the only one Coke and Pepsi could use to improve their bargaining position with NutraSweet.  But Holland gave that service away."

Consider this outcome, and how the lesson might apply to franchisees who want to build a franchisee purchasing coop.

Richard Solomon laments that

"That common thread is that the franchisees got off their butts and through militancy wrested control of vendor relationships from the franchisor so that the benefits of purchasing power really did flow through to the franchisees.

It is also a common threrad amongst the failing systems that their franchisees failed in militancy and their lassitude has resulted in their not participating in the benefits of purchasing power."

But the strategic lesson for the franchisees to realize is that by building competitor, even a small one, they have assisted the franchisor in putting price pressure on the franchisor's suppliers.

Don't give away this value - find a way, as Brandenburger and Nalebuff put, to get paid to enter the game.

(There was a happy ending for Holland Sweenter.  In order to encourage Holland not to leave the game, Coke and Pepsi esssentially paid Holland to stay.)

Full post as published by Misleading Advertising Law on March 06, 2009 (boomark / email).