Sealed Air CorporationCase Analysis

MK810 Adrianne WenischTeopaco Christopher BuckwellJune 21, 2010 Matthew WhitenPosition

Sealed Air should move forward with the introduction with an uncoated bubble product. (1) Coated bubble market share has been declining over the past ten years. Sealed Airs AirCap product initially dominated with their strong patent protection though recent new players in the industry have proven that they cannot ignore the growth of uncoated bubbles. (2) Sealed Air has a strong Brand Image in the industry that will enable them to be strong player in this market proof strong AirCap sales and good relationships with distributors. (3) Gain market share prevent new companies from gaining market share in the US with cost conscious buyers proof -

Arguments

1. Low market entry barriers (US and Europe).Sealed Air is regionally well established to market an uncoated product in the United States and in Europe. Given Sealed Airs selective distribution policy, Sealed Air can take advantage of distributor loyalty. Sealed Air should utilize their strong standing relationships and have them adopt Sealed Airs uncoated bubble over the competition; this will streamline the distributors product offering while maintaining their current portfolio. Unlike GAFCEL, Sealed Air is also well distributed throughout the United States and therefore maintains a superior operational advantage for product expansion. There is a greater share of uncoated product in Europe than in the United States. Sealed Air has a particular advantage in England where they were the first to develop the protective packing market and they have a solid distribution. Ownership of the uncoated bubble manufacturer, SIBCO, in France, also provides Sealed Air with an inside perspective of the uncoated market in this country. Finally, although Sealed Air was a late entrant in Germany they do have presence for the uncoated demand.

Sealed Air is also well established to produce an uncoated bubble given their available manufacturing equipment and similar production process to the existing Solar Pool Blankets. The minimal expenditure required for Sealed Air to introduce an uncoated bubble minimizes time to market and overhead expenses as compared to GAFCELs relatively new product introduction.

Finally, the Sealed Air brand name is recognized throughout the world as the leader in the packing market. Introduction of an uncoated bubble will simply expand on an already strong presence and the product will be quickly adopted due to customers brand recognition.

2. Protect Market & Grow Market ShareLaunching an uncoated bubble product to market will help Sealed Air protect its market share and provide growth opportunities. Over the past nine years Sealed Air has built 82% market share in a $31M market for coated and uncoated bubble products. Recently, new entrants, specifically GAFCEL are threatening Sealed Air via the introduction of uncoated bubble products, which although functionally inferior to coated bubbles, are generally 5-25% less expensive. Having an uncoated product will protect Sealed Air from losing any customers who opt to downgrade from coated to uncoated. Market trend from coated to uncoated bubble is not unprecedented. In England, where Sealed Air once has 90% market share based on the coated bubble, company officials anticipate losing 50% market share to uncoated bubbles over three years.

For many customers, price has always been the primary factor in the buying decision. Evidence of this is the $91M market for cellulose (paper-based) and polyethylene (foam) products which are an alternative to protective packaging in the flexwrap segment. Sealed Air will now be able to compete directly against these alternative products with the introduction of the uncoated bubble. Offering both uncoated and coated bubble products will transform Sealed Air into a more complete solutions provider and compliment their philosophy as a market leader.

3. Company Performance ConsistencyWith its new uncoated product offering, Sealed Airs remains committed to its long-term strategy of remaining a market leader. This market leadership is sustained by improving upon quality deficiencies currently present in the uncoated market. With the addition of a competitive, quality uncoated bubble solution, Sealed Air can further strengthen its market approach to customer orientation. Equipped with an expanded product mix, Sealed Air once again proves its commitment to being a market driven organization by being the first company to offer both uncoated and coated solutions for the flexwrap market.

Action

Product MixWith its product expansion into the flexwrap uncoated bubble market, Sealed Air must continue to anticipate and monitor market trends. Understanding how customers use flexwrap, what alternatives or substitutes are readily available and what motivates purchasing behaviors will allow Sealed Air to offer a relevant and targeted product mix. In parallel to producing its uncoated bubble, Sealed Air should implement the following changes to its product suite:a. Eliminate its lightest AirCap product lines, specifically A-100 and SB-110 as they will likely be cannibalized by the new uncoated product. (United States, England, France and Germany)b. Improve uncoated bubble quality in SIBCO uncoated bubble. In 1980, SIBCO, a subsidiary of Sealed Air, achieved 16.7% of the French bubble market. With product enhancement similar to that of Sealed Airs uncoated offering, SIBCO will be in a better position to compete against recent market entrants and gain market share. As to not create a brand that might cannibalize or confuse the uncoated market in France, Sealed Air will not launch its uncoated product in France. (France)

BrandIn the United States and select parts of Europe, the Sealed Air name carries with it significant brand equity established with its market leadership in both its technical innovations and its customer orientation. As a result, Sealed Air should leverage its brand with the launch of a new uncoated bubble product called Bubble LT by Sealed Air. The familiarity with the Sealed Air brand will help distributors facilitate an easier introduction of a new product in a market when confusion among products already exists. To differentiate Bubble LT amongst its competitors, product branding should extend beyond the product name. The product itself needs to convey its superior performance features. Sealed Air should consider manufacturing Bubble LT in various colors and offer distinct packaging.

PriceSealed Airs uncoated bubble product pricing strategy strives to accomplish the following:

Compete in a land grab for uncoated bubble market share through aggressive pricing. Purchasers of uncoated bubbles are extremely price-sensitive and are willing to sacrifice performance for a lower-priced product. Sealed Air will continue to offer a coated bubble for customers who value performance over price. Enable Sealed Air to compete on price, against paper-based and foam products. Sealed Airs coated bubble products have traditionally been more expensive than these alternatives. The uncoated bubble will enable Sealed Air to tap the balance of the $126M flexwrap market. Maintain attractive margins to Sealed Air and distributors. Sealed Air must ensure its margins on uncoated bubbles are not significantly different from their coated bubble products should the balance of market share shift from coated to uncoated. Additionally, distributors margins will be an important consideration in the pricing strategy. Allow flexibility for Sealed Air to offer discounts in key strategic geographies (if warranted). For example, Sealed Air may opt to offer discounts in the New York market where GAFCEL is beginning to establish operations.

The following schedule articulates Sealed Airs costs and pricing strategy for and 3/16 inch uncoated bubbles:

The following observations can be made from this pricing strategy. The $36 and $32 distributor truckload price is identical to GAFCEL. Sealed Air anticipated is brand recognition and distributor relationship to result in a competitive advantage. The 72% and 66% distributor margins are on par with existing Sealed Air coated bubble product margins. Distributors margins are similar, and in some cases slightly higher (depending on order size / square foot) than that of existing Sealed Air coated bubble products. Sealed Air will be price competitive with paper-based and foam products for higher order size / sf.

Incentive Structurea. Increase incentives for distributors to immediately thwart GAFCELs uncoated expansion into Ohio and California. Offer incentives for converting a GAFCEL customer to SA.b. Direct Sales force should be incentive structure should be more aligned with selling higher margin AirCap although they should be knowledgeable to cross sell during consultative approach focusing on Packaging Engineers.Sales force time allocation:TBD determined - do we know margin on Instapak? If not, then Air Cap: 60%Instapak:35%Other 5% (includes uncoated)

Note: uncoated should be primarily sold through distributor channel

Concerns1. Cannibalization of AirCap market?2. Uncoated market already saturated? (according to some distributors)3. Brand dilution? (not big concern)4. Europe?5. Corporate Culture?

Conclusion

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