The context in which the decision is to be made is that Sealed Air is facing competition from unexpected quarters. The company Sealed Air had achieved market leadership by differentiating its AirCap cushioning materials by using the “barrier-coating” making AirCap cushioning material more versatile and reliable.
The company had depended on this crucial differentiating factor that had been communicated to its customers in different ways. In addition, its salespersons had also been trained to project the superiority of coated bubble cushioning. Sealed Air technology is patented and so it enjoyed leadership in the cushioning market. What is more important is that the brand AirCap was positioned as high quality, premium-cushioning material.
Currently, there is an increase in competition from two quarters. First, there are several small manufacturers that have invented processes similar to that of Sealed Air and have produced cheap substitutes. Second, there is an increase in uncoated bubble cushioning manufacturing and marketing in the USA especially by a new competitor that is GAFCEL.
The issue to be decided is whether Sealed Air should commence manufacturing uncoated bubble operations to counter this new competition or should Sealed Air continue with its strategy of emphasizing the benefits of coated bubble technology. There are pressures from several quarters on Hauser to make the decision.
The GAFCEL sales are increasing very quickly, the distributors of AirCap have also taken up the distribution of GAFCEL and the distributors are actively asking for uncoated bubble cushioning. On the other hand Hauser is torn because Sealed Air has been positioned as a coated bubble company, it has communicated the benefits of coated bubble technology over the years and its sales force is also oriented towards selling coated bubble cushioning.
There are several requirements and limitations. The requirement for Sealed Air is to stem the falling market share at home and abroad. For example, in England, Sealed Air needs to counter the challenges thrown to it by the Japanese firm that is selling uncoated bubble products at 50% less price than AirCap cushioning. Similarly, in France the market share of AirCap has fallen from 50% to 30% because of increased competition from uncoated products.
Finally, In Germany, AirCap was losing its share at the rate of 20% to 30% per year. Even though the gross sales of AirCap in the US market are increasing, the rate of increase is much slower than what it was in early ‘70s. For instance the increase in sales from 1973 to 1974 was 30%, the increase in sales from 1979 to 1980 was only 19% (Dolan p4). The basic requirement for Sealed Air is to counter the fast eroding market for its coated AirCap.
It must be able to regain its market share to at least 1978 levels. Sealed Air has other requirements; it must be able to protect its current positioning in the market, it should be able to protect its coated bubble sales and must not dilute the brand equity of AirCap. Further, Sealed Air should endeavor to follow the twin objectives of providing market leadership through technological leadership.
Till now Sealed Air has technological leadership as well as market leadership because AirCap had been selling coated bubble cushioning. Sealed Air also needs to ensure that its distributors continue to sell its coated bubble products as they have done in the past. However, Hauser has some limitations. These are that the company does not have any means of differentiating if it goes in for uncoated bubble products. It has to compete on price with GAFCEL. There is no technological leadership for Sealed Air if it goes in for uncoated bubble technology.
Moreover, the sales force of Sealed Air is oriented towards selling strongly differentiated high quality premium AirCap products. This sales force is not suitable for uncoated products.
The sales of AirCap products are limited by the demand for high quality versatile packing material. Similarly, the distributors and their selling methods are suited more for uncoated bubble cushioning rather than AirCap products that needed more demonstration and selling time.
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