Harvard Case Study - Sealed Air Corporation

1.0 INTRODUCTION

The Sealed Air corporation is committed to market leadership through technological innovation. Ten years ago, the company was first to market with a highly successful coated air-bubble packaging protection product, AirCap. However, market trends indicate a rapid displacement of coated bubble by a technologically inferior yet inexpensive uncoated product. Burgeoning demand for uncoated bubble poses a direct threat to the long-term viability of the technologically superior, premium priced AirCap.

Thus Sealed Air is situated at a critical standpoint. It can either continue to deal exclusively in the manufacture of high-end coated bubbles emphasizing performance over price, or segment the market by introducing an inferior, inexpensive uncoated bubble. To this end, this report will analyze the industry, competition, and company internal environment to assess the viability of targeting this low-end market segment. A strategic marketing plan for launching an uncoated product will follow.

2.0 SITUATION ANALYSIS

2.1 Industry Analysis ---state growing market.

The protective packaging industry can be segmented three ways by use: positioning, block, and bracing; flexible wraps; and void fill. Coated (e.g., AirCap) and uncoated air bubble products serve the flexible wrap and void fill markets (refer to Glossary). The flexible wrap market, which dwarfs void fill as measured by annual sales, is of primary concern to Sealed Air and will thus constitute the focus of this report.

Protective packaging is sold to organizational customers through select distributor networks via personal selling. Sales commissions for AirCap are set at 2%. Often, manufacturers must have a regional presence to be successful in a given locale. Distributors aspire to be full-line houses--capable of meeting a customer's complete packaging needs. As a result, larger distributors typically carry competitive products. Margins on product resale is generally higher than 10%.

The proliferation of packaging products and poor product education has caused confusion among end users. US consumers have traditionally viewed packaging supplies as a cost-saving resource. Consequently, packaging engineers are accorded high status and influence roughly 40% of material purchase decisions. The US market is experiencing strong growth, driven in part by the growth of the coated and uncoated bubbles segment. However, AirCap's market share remains stagnant (Appendix A).

It is apparent that a growing segment of end users are willing to forgo product quality for a lower price. European firms, in particular, are price conscious and less technically oriented; many firms view packaging supplies as expendable commodities. This has enabled manufacturers of technically inferior, inexpensive uncoated bubble to co-opt AirCap customers with increasing success (Appendix B).

2.2 Competitive Analysis--there are many minor ones....GAFCEL in NY

Sealed Air faces both direct and indirect competition in the flexible wrap market. Astro Packaging is the only other producer of coated bubbles in the US; it also serves the low-end of the market with uncoated bubbles. GAFCEL recently began manufacturing uncoated bubbles in the eastern US, and has gained access to several AirCap distributors.

In Europe, Sansetsu has substantial ($6 M) sales for its high-quality uncoated product.

Despite the lower price of uncoated bubbles, the above competitors each have strategic weakness that leave them vulnerable to a strategic attack by Sealed Air should it enter the uncoated segment. Astro is limited by the fact that it is a Sealed Air licensee and manufacturers an inferior product. As a small producer, GAFCEL lacks a regional presence beyond New York State. Similarly, Sansetsu lacks the financial resources and global reach of Sealed Air. Refer to Appendix C for a complete competitive analysis.

Indirect competition stems from paper-based products (e.g., cellulose wadding), and foams (e.g. polyurethane). Yet tests prove AirCap more effective and cheaper.

2.3 Internal Analysis

Sealed Air's strengths lie in its technological leadership, which include a number of manufacturing process patents. The company has a strong global presence, and owns SIBCO, the only marketer of uncoated bubbles in France. The company has a consumer orientation, strong sales, loyal distributors, and a knowledgeable commission-based sales force that specializes in consultative selling. Sealed Air's weakness include a product portfolio that excludes uncoated bubble and is so broad it overburdens its sales personnel. The prime opportunity in the market is for the company to leverage its strengths to enter the uncoated bubble segment. The rapid displacement of coated by uncoated bubble constitutes a salient threat. A detailed SWOT analysis can be found in Appendix D.

3.0 SEGMENT EVALUATION

3.1 Arguments in Favour of Introducing Uncoated Bubble

It is of critical importance that Sealed Air address the threat presented by the growth of the uncoated bubble segment, which outstrips that of coated bubble in the US and Europe. Serving the lower end of the market is consistent with the company's customer-focused market leadership and provides distributors with a full-line of product. In addition, there appear to be a number of segments that may be serviced by uncoated bubble (e.g., the Ð... in. GAFCEL bubble is comparable to Sealed Air's ST/SD-120 for light loads) . Further, uncoated bubble would require minimal capital as the company possesses the requisite equipment and knowledge. Refer to Appendix E for more detail.

3.1 Arguments Against Introducing Uncoated Bubble

Introducing uncoated bubble is contrary to the company's emphasis on technological leadership. With comparable production costs and margins to GAFCEL, Sealed Air possess no unique manufacturing or cost advantages that underlie competitive advantage. A key concern involves negative affect or cannibalization of AirCap sales. Distributors who have already complained about below-par selling efforts of AirCap and too many grades of bubble may be unreceptive to taking yet another product to market. Given the company's selective distribution network, it is important that distributors remain committed to Sealed Air. At the customer level, the manufacture of inexpensive, low-performance bubble may debase the premium image of the company and AirCap.

However, market shifts