Case Study: Monsanto's Roundup
Case Study Analysis: Monsanto’s Roundup
The July 14, 2003 case study entitled, “Monsanto’s Roundup®,” describes the rise to market dominance of The Monsanto Company’s leading product, Roundup. In 1999, Monsanto merged with the pharmaceutical company Pharmacia and Upjohn, Inc., to form a new company, Pharmacia Corporation. The resulting new Pharmacia Corporation spun off the former Monsanto Agriculture Division into a separate company in 2000, also called Monsanto Company (Monsanto, 2002-2012). The case study’s authors reveal that the U.S. patent for Roundup expired in 2000, and by mid-2002, the newly spun-off Monsanto’s share price had fallen by 50% (Baccara, Backus, Bar-Isaac, Cabral, & White, 2003). The first part of this paper explores the alternatives Monsanto could have taken to avoid the loss of revenue that occurred with their Roundup product, resulting in the precipitous drop in the price of their stock. The second part takes a step back and provides an overall analysis of Monsanto’s situation as described in the case study.
Part I – Explore the Alternatives Prior to the expiration of the patent on Roundup, Monsanto held a virtual monopoly on the U.S. herbicide market. After the patent expiration, Roundup revenues dropped sharply (Baccara, Backus, Bar-Isaac, Cabral, & White, 2003). What could Monsanto have done to avoid the loss of revenue? Certain factors such as changes in pricing, product bundling and advertising were within Monsanto’s control and should have been considered. Pricing. Monsanto had already reduced prices by 9% per year in the five years preceding the U.S. patent expiration of Roundup. This helped them increase market share by 22%. In anticipation of the increased competition once their patent expired, Monsanto could have made further strategic price cuts in order to gain a larger share of the market and make it more difficult for competitors to enter the market and compete effectively. As Samuelson and Marks
The July 14, 2003 case study entitled, “Monsanto’s Roundup®,” describes the rise to market dominance of The Monsanto Company’s leading product, Roundup. In 1999, Monsanto merged with the pharmaceutical company Pharmacia and Upjohn, Inc., to form a new company, Pharmacia Corporation. The resulting new Pharmacia Corporation spun off the former Monsanto Agriculture Division into a separate company in 2000, also called Monsanto Company (Monsanto, 2002-2012). The case study’s authors reveal that the U.S. patent for Roundup expired in 2000, and by mid-2002, the newly spun-off Monsanto’s share price had fallen by 50% (Baccara, Backus, Bar-Isaac, Cabral, & White, 2003). The first part of this paper explores the alternatives Monsanto could have taken to avoid the loss of revenue that occurred with their Roundup product, resulting in the precipitous drop in the price of their stock. The second part takes a step back and provides an overall analysis of Monsanto’s situation as described in the case study.
Part I – Explore the Alternatives Prior to the expiration of the patent on Roundup, Monsanto held a virtual monopoly on the U.S. herbicide market. After the patent expiration, Roundup revenues dropped sharply (Baccara, Backus, Bar-Isaac, Cabral, & White, 2003). What could Monsanto have done to avoid the loss of revenue? Certain factors such as changes in pricing, product bundling and advertising were within Monsanto’s control and should have been considered. Pricing. Monsanto had already reduced prices by 9% per year in the five years preceding the U.S. patent expiration of Roundup. This helped them increase market share by 22%. In anticipation of the increased competition once their patent expired, Monsanto could have made further strategic price cuts in order to gain a larger share of the market and make it more difficult for competitors to enter the market and compete effectively. As Samuelson and Marks
References: Baccara,M., Backus, D., Bar-Isaac, H., Cabral, L., & White, L. ((July 14, 2003). Monstanto’s Roundup®. [Case Study]. New York University Leonard N. Stern School of Business. Balch, O. (February 22, 2006). Seeds of Dispute. The Guardian. Retreived from http://www.guardian.co.uk/science/2006/feb/22/gm.argentina Barboza, D. (December 20, 1999). Monsanto, Pharmacia to Merge. San Francisco Chronicle [online version]. Retrieved from: http://www.sfgate.com/business/article/Monsanto-Pharmacia-To-Merge-2888430.php Hilton, C. (June 2012). Monsanto & the Global Glyphosate Market: Case Study. The Wiglaf Journal. Retreived from http://www.wiglafjournal.com/pricing/2012/06/monsanto-the-global-glyphosate-market-case-study/# Monsanto Company. (2002-2012). Relationships Among Monsanto Company, Pharmacia Corporation, Pfizer Inc., and Solutia Inc. [Company history]. Retrieved from http://www.monsanto.com/whoweare/Pages/monsanto-relationships-pfizer-solutia.aspx Pro Farmer. (July 31, 2000). Monsanto Guarantees Roundup Ready System Will Improve Soybean Profits. [Release – originally from agweb.com]. Retrieved from http://www.biotech-info.net/monsanto_guarantee.html Samuelson, W. & Marks. S. (2012). Managerial Economics (7th ed.). Hoboken, NJ: Wiley