Sealed Air Case Comments

Sealed air case is a comprehensive case that captures many issues that we have discussed
in the marketing course. It is also one of the best selling marketing cases and I think for
some very good reasons.
Here are my comments on the case questions.
Question !
Sealed Air created value to its customers by building high performance "technical#
product quality in its coated bubbles and by educating the customers about the benefits of
coated bubbles through the educational efforts of its salesforce and its brochures. Sealed
Air$s salesforce also used %consultative sales approach& and provided problem solving
advice to the customers. However' there are also indications that the company may be
providing too high performance"technical# quality at least for some applications. (he
company created value for its distributors by the strength of its brand equity' the strong
demand for its products and its helpful salesforce. (he company also used selective
distribution policy which meant less competition among distributors and thus this policy
preserved the distributors$ profit margins.
Question )!
(here are several possibilities here. (he important ones "not counting no response# are!
Spend more resources in educating customers about the benefits of bubbles
*aunch uncoated bubbles
Cut prices of the products most directly affected by the uncoated bubbles
+rovide additional services to the coated customers to offset the effects of lower
prices of competing uncoated bubbles
,evelop intensive sales efforts directed at distributors with the goal of getting them
to stay away from uncoated products
Question -!
"In the discussion below' when I say .A/C0*' I mean .A/C0* and other similar
producers who may come to the market.#
In analy1ing what part of Sealed Air2s coated business will be threatened by the
uncoated bubbles' we have to e3amine the price and performance of uncoated bubbles
in comparison to various types of coated bubbles. 4e cannot go by thickness of the
bubble but the case provides assessment of how .A/C0*$s uncoated bubbles
perform relative to Sealed Air$s coated bubbles. (he case states that in terms of
product performance' .A/C0*$s uncoated bubble is comparable to S(567 and S,5
67 lines for applications involving light ob8ects. (he case says that at higher loads'
the cushioning curves of .A/C0*$s uncoated bubbles go above S95667 bubbles.
(his does not mean that .A/C0*$s bubbles get better than S95667 at higher loads
but that they get worse than S95677 at higher loads. 4hat the case does say is that
.A/C0*$s uncoated bubbles are as good as S(567 and S,567 coated bubbles.
(his means that for lighter applications' .A/C0*$s uncoated bubbles will compete
with S(567 and S,567 lines. :ow' SC567 coated bubbles are worse and so are
S95667 and A5677. (his means that all three 67 lines and S95667 and A5677 face
competition from these uncoated bubbles. 4hen we look at the prices of all of these
products' we discover that S95667 and A5677 are actually lower priced than
.A/C0*$s uncoated bubbles and hence they will not lose much share to the uncoated
bubbles. However' the three 67 lines can lose sales to .A/C0*$s uncoated bubbles
for lighter applications.
Some of you have written that customers with %purchasing department& metality or
%price sensitive customer& will buy the uncoated bubbles. (hat may happen. 9ut
sales of uncoated bubbles will :;( be restricted to only those customers. Customers
where packaging engineers make the decisions will be perfectly happy buying these
.A/C0*$s uncoated bubbles for light loads because in terms of product performance
they are as good as the coated bubbles and of course they are significantly cheaper.
9ased on the case data' we can also conclude that the uncoated bubbles are unlikely
to be a serious threat to the -7 or -<7 lines because of the performance gap.
4e don$t know the fraction of short=light applications in the total mi3 business that
Sealed Air has. 9ut the total 67 business can be an indicator of how big is the threat
posed by the uncoated bubbles to coated bubbles.
9ased on the (able C and (able , data given in the case' the three 67 grades have
the following sales and dollar contributions "profits# in the >S.
.rade Sales in ?an5?une
6@<7 in thousands
"A of total sales#
,ollar contribution
in thousands
"A of total
contribution#
SC567 )'B-.66 "C.@A# 6<B<.-D ")6.CA#
S,567 6C7.< "6C.A# <CD.)D "6-.@A#
S(567 <B7.< ".DA# 6DD.<- "6.DA#
If you want to take a more global perspective on the nature of the threat' you can add an
analysis of how uncoated bubbles are growing in 0urope. However' we don$t have data
similar to (ables C and , for 0urope.
Question B!
Some of you have written fairly long answers to this question. I am going to focus on
some key issues here.
+ositive ;utcomes! Salespeople will have additional products that can help them sell to
customers=distributors who are looking for cheaper' uncoated bubbles.
:egative ;utcomes!
Selling any additional product requires more efforts and leaves less time for the e3isting
product portfolio. (his product will be a new product so this will mean a lot more work
for the salespeople.
Sealed Air salespeople have all along been selling against uncoated bubbles and
%educating& customers about why uncoated bubbles were not good for them. :ow' if
these salespeople try to promote uncoated bubbles as a good solution for any customer'
the customers will wonder how the same salesperson recommended a higher price coated
bubble in the past for the same application. (his can call into question all the past
%consultations& and advice that the salesforce gave to customers. Some of these
customers may not be able to trust Sealed Air salesforce and their advice.
0ven if the salespeople are able to sell the uncoated bubbles' the salespeople may end up
with lower commissions. (his is because the uncoated bubbles will be lower priced than
the coated bubbles that some of the uncoated customers would have previously bought.
Question D!
(here are many arguments on both sides. Some of these arguments are fairly comple3.
Arguments for!
As mentioned earlier' if we carefully investigate the case data' it becomes clear that
for some applications customers$ needs would be met very well by the uncoated
bubble. /or e3ample' for lighter loads' the uncoated bubble was comparable to the
three 67 lines of coated bubbles. As customers discover this fact about uncoated
bubbles' they are likely to switch to the uncoated bubbles and uncoated bubbles can
potentially put a large part of Sealed Air revenues and contributions from this market
at risk. Introducing uncoated bubbles can allow Sealed Air to retain these customers
whose needs are met with uncoated bubbles. :ote that these customers are not only
price sensitive customers but also customers with light loads or short shipping cycles.
(rends in 0urope give additional support to the above argument. Similarly'
.A/C0*$s ability to get sales at the rate of E6 Fillion=year with only 6.B salespeople
from only the :ew Gork market is a strong indication that the uncoated bubble is
going to be a strong competitor for Sealed Air$s coated bubble business.
As the case states' introducing uncoated bubbles would require no additional capital
or HI, investment. In many situations' high5end companies like Sealed Air have a
higher variable cost of production than low5end companies like .A/C0*. (his cost
difference could be a competitive disadvantage. It is important to note that Sealed Air
does :;( have any variable cost disadvantage over .A/C0*.
?ust as Sealed Air would like to retain the customers whose needs are met with
uncoated bubbles' distributors would also like to keep them by stocking uncoated
bubbles. If Sealed air does not have uncoated bubbles' distributors may end up
selling other companies$ "such as .A/C0*# uncoated bubbles. (his would weaken
Sealed Air$s relationship with these distributors.
Arguments against are many.
A ma8or argument in favor of launching uncoated bubbles is that the company can
lose as much as D<A of the profit contribution of the coated bubbles business to the
uncoated bubbles. However' even if Sealed Air retains this business' it would get
much lower price for this business. In other words' the low margin uncoated bubbles
would cannibali1e the high margin coated bubbles.
(o see the e3tent of cannibali1ation' let$s see what would happen if the company
launched uncoated bubbles and priced them comparable to .A/C0*$s bubbles. *et$s
say Sealed Air charges E)D.7) for J inch uncoated bubbles. /rom page @ of the case'
the variable production cost is about E6 and assuming the freight to be comparable
to the 67 line' it would be EC.@)' giving the total variable cost of E<.@). (he
contribution "profit# margin then is EC.67. In comparison' the S,567 line has a
margin of EDB.)B5)D.)6KE@.7-. (hus' launching the uncoated bubble would mean a
reduction of
04 29
10 7 04 29
. E
. E . E
K CB.BBA reduction in the profit contribution dollars
for S,567 line. (hese numbers don$t look much better than Q- numbersL
Some distributors are already complaining about having too many products. Adding
some new products may result in them cutting back on some of the coated products.
As the company adds more products to the salesforce portfolio' the distributors will
get less support from the salesforce which will make them unhappy. ,istributors
have been complaining about the reduced level of support since the launch of
Instapack.
Sealed air$s position in the market is that of a technology leader. It has had a history
of innovations. :ow if it introduces' uncoated bubbles' it would be doing so after
several smaller players have already done so. In other words' introducing uncoated
bubbles would mean introducing a me5too product. (his could hurt the company$s
reputation and brand equity in the market place.
Sealed Air can either create a new brand name for the new uncoated bubbles or keep
the current name.
If they keep the current name' there is going to be some confusion about Sealed Air$s
products and some dilution of the brand equity of the current name because the new
product is so much different from the current products. Some of this problem can be
mitigated if the company launched the uncoated bubbles under a different name.
However' if the company adopts a new name' it will incur significant additional costs
for building the awareness and overall equity in the new name.
:ote that this point is different from the previous point about innovation above. (his
point would apply even if Sealed Air was the first company to launch the uncoated
bubbles. (he previous point applies because Sealed Air is relatively late in launching
the uncoated bubbles.
Heading the first paragraph of the case' it is clear that the company$s C0; ",unphy#
is very much focused on technological leadership and technical quality of the
company$s product. It will be very difficult for Hauser to do the %inside sell& to get
,unphy to agree to launching the uncoated bubbles.
/or years' Sealed Air has told the customers that coated bubbles are better than
uncoated bubbles. How can the company now tell the market that for some
applications' the uncoated bubble is as good as coated bubblesM 4ouldn$t these
customers feel that the company deceived them for yearsM 4ouldn$t these customers
have difficulty trusting the company in the futureM (he company will also lose its
credibility as the technology e3pert in the marketplace.
:ote that this issue is different from confusion. (his is about the trustworthiness of
the company in the eyes of the customers.
A similar situation may arise with respect to the salesforce. All this time' Sealed Air
has taught its salespeople that coated bubbles are better than uncoated bubbles. If the
company now tells the salespeople that uncoated bubbles equally good for some
applications' the company would lose its credibility among the sales people. In other
words' the salespeople may not have confidence in the company.
(here may be challenges in getting the salesforce motivated for the new product. If
the salespeople have to sell the lower priced bubbles "that are replacing the higher
priced bubbles#' then their commission income will get reduced.