Sealed Air Corporation

Marketing Management, 45-720, Section A, Group 2

Arnab Basu
Malcolm Johnson
Douglas Meislahn
Nicholas Reid
Robert Schmidt

02/17/05
Marketing Management, 45-720, Section A A. Basu, M. Johnson, D. Meislahn, N. Reid, R. Schmidt
Sealed Air Corporation

Executive Summary

By 1980, Sealed Air Corporation had built its company culture as a market leader. As the

first developer of closed-cell, lightweight cushioning materials, foam-in-place packaging systems

and complete solar heating systems for swimming pools, Sealed Air had become very profitable

as the market leader, and the firm encouraged technological innovation to maintain that

positioning. AirCap cushioning, a coated bubble wrap product sold in the protective packaging

market, was Sealed Air’s most profitable product. However, due to new and unexpected

competition, the company was forced to consider the prospect of manufacturing and distributing

an uncoated bubble packaging product as well. In order to maintain its current level of

profitability, Sealed Air must begin production of uncoated bubble wrap in the European market

because of its large size and potentially high profit margins. These two enticements do not exist

in the US uncoated bubble wrap market; therefore, Sealed Air should forego entering the US

market with an uncoated bubble wrap product.

Problem Statement

With $25.35M in 1980 sales, Sealed Air’s AirCap product line revenue represented

approximately 38% of total sales generated in the US. The key advantage of AirCap cushioning

products was a coating on the inside of the bubble with saran that offered better protection than

uncoated bubbles during shipping. Sealed Air had done a good job of educating customers about

the advantages of coated bubbles and enjoyed a dominant market position in this industry.

However, the recent successful market penetration of new competitors forced Sealed Air to

consider the launching a new product line of uncoated bubble packaging products. A potential

entry into the heretofore less profitable uncoated bubble market was a risky proposition given
Marketing Management, 45-720, Section A A. Basu, M. Johnson, D. Meislahn, N. Reid, R. Schmidt
Sealed Air Corporation

Sealed Air’s brand recognition, core competency and expertise in developing coated bubble

packages and their corporate culture of market leadership and technological innovation.

Solution Alternatives & Analysis

Sealed Air was faced with two different options regarding the prospective launch of an

uncoated bubble packaging product. Sealed Air could either launch the product worldwide or in

selected locations or consider the option of not entering the uncoated bubble packaging market at

all.

As with all the evaluation of all new product market entry strategies, Sealed Air must first

consider its organizational strengths and how they relate to the potential product launch. More

specifically, Sealed Air must be cognizant of their widely respected brand of high quality and

superior performance coated bubble packages. With the potential launch of an uncoated bubble

packaging product, Sealed Air risks diluting their brand value, particularly in the quality and

performance conscious US market. There is also the possibility that the introduction of an

uncoated bubble wrap product might negate the consumer education the organization has

previously performed regarding the advantages of coated bubble products. An additional

organizational strength of Sealed Air is their corporate management goal of both market

leadership and technological innovation. Entry into the uncoated product market would diverge

from both goals, as Sealed Air would be neither the market leader nor the technological

innovator. A reactionary entry into the market would be contrary to their traditional corporate

culture.

In spite of the brand identity and corporate culture issues, Sealed Air must be cognizant

of the opportunities in the uncoated bubble packaging market. At first glance it would seem that

Sealed Air’s specialized AirCap product line represents a weakness of the organization in that it
Marketing Management, 45-720, Section A A. Basu, M. Johnson, D. Meislahn, N. Reid, R. Schmidt
Sealed Air Corporation

limits their potential market size. A thorough analysis of the uncoated bubble package market in

the US illustrates the limited scope of both opportunity for Sealed Air and potential competitive

threat from GAFCEL. In particular, the target market for uncoated products is very narrow. The

$1M in revenue generated by competitor GAFCEL is not due to market growth, but rather from

market share gain away from another competitor, Astro. The US coated bubble packaging

market, on the other hand, has grown steadily over the last 10 years and will continue to expand

in the future.

Additionally, the introduction of uncoated bubble wrap in the US would have the

undesirable effect of shifting Sealed Air’s production and manufacturing focus to a lower margin

product. Production of an uncoated bubble package product would force Sealed Air to enter a

price sensitive market, thereby necessitating the reduction of product prices to levels competitive

with GAFCEL. Should Sealed Air choose this option, the organization would be shifting

production from higher margin goods such as AirCap, which has profit margins of 87-88%, to

products yielding margins of only 57-64% (see Exhibit A). Though these margins are still highly

profitable, there is no logical reason for Sealed Air to shift production capabilities to lower

margin products with such a limited market scope.

Although the US market is unattractive for entry into uncoated bubble packaging, there

are significant opportunities in the European market for the launch of an uncoated bubble wrap

product. Total bubble packaging sales in Europe topped $15.8M, with Sealed Air’s European

market share falling just shy of $3.5M (see Exhibit B). However, trouble loomed in England,

Sealed Air’s strongest European market. Distributors there expected AirCap’s nearly $2.5M in

sales to slide downward due to several competitors’ introduction of low-priced competing

uncoated bubble packaging of tolerable quality. As more European suppliers choose to move to
Marketing Management, 45-720, Section A A. Basu, M. Johnson, D. Meislahn, N. Reid, R. Schmidt
Sealed Air Corporation

uncoated bubble wrap, Sealed Air will miss a lucrative market opportunity if they do not launch

an uncoated bubble wrap product in Europe. There is relatively little at stake in France and

Germany with market shares of 13.2% and 5.26% respectively; the small and dwindling market

position of coated bubble wrap in these markets is not the most significant reason that Sealed Air

should enter the uncoated bubble wrap market in Europe. The average price levels of uncoated

bubble compared to coated bubble in England, France, and Germany are lower by 50%, 40%,

and 35% respectively. Particularly in the market for ½-inch thickness bubble packaging, Sealed

Air could meet or beat these price levels and be in line for the roughly 60% margins shown in the

earlier analysis. While some costs such as common labor rates are higher in Europe, Sealed Air

could offset the higher cost of labor because the European market affords them significant

flexibility with regard to pricing. Given the rising demand for uncoated bubble products of

acceptable quality levels, and the fact that Sealed Air could sell its products in the European

market at their current prices (see Appendix), an uncoated launch would allow Sealed Air to

undercut competitors while maintaining the attractive profit margins demonstrated in the earlier

analysis.

Recommendation

Sealed Air should forego a US rollout of an uncoated bubble product. Unlike Europe, the

potential market and margins are too small to merit the introduction of a uncoated bubble

product.

Sealed Air should increase its presence in the European uncoated bubble wrap market

because of the market’s size and potential profit margins. While Sealed Air currently owns an

uncoated bubble wrap factory in France, Sealed Air’s play for European market share should
Marketing Management, 45-720, Section A A. Basu, M. Johnson, D. Meislahn, N. Reid, R. Schmidt
Sealed Air Corporation

include building a modern factory capable of competing with other uncoated bubble wrap

producers in Europe or making significant upgrades to the current factory.

The risks associated with moving into only the European market revolve around the US

market morphing into a closer facsimile of the European. However, the experience gained from

the European operation could be transferred to the US. Improving production in Europe not only

exploits a market opportunity but it also hedges against unfavorable market trends in the US.
Marketing Management, 45-720, Section A A. Basu, M. Johnson, D. Meislahn, N. Reid, R. Schmidt
Sealed Air Corporation

Exhibit A

Variable Cost Sales Price Margin % Margin Market Size

AirCap 3/16" $26.51 $49.40 $23.38 88.19% 0
1/2" $50.52 $94.95 $44.43 87.95% 0
GAFCEL 3/16" $31.63 .75M
1/2" $36.03 .25M
New Cap 3/16" $19.00 $30.00 $11.00 57.89% 0
1/2" $21.00 $34.50 $13.50 64.29% 0
Astro 3/16" $47.00 5.25M
1/2" $65.75 5.25M

*Sales Price & Variable Cost are per 1000 square feet

Exhibit B

Country Total Bubble AirCap Market

Sales Share
England $3,649,000 $2,488,500 68.20%
France $4,480,000 $592,200 13.20%
Germany $7,688,000 $404,600 5.26%
$15,817,000.00 $3,485,300.00