In addition to gaining a high percentage of the 15-29 segment as defined in the case study, there is the added strategy of being able to take more of the mainstream customers from cellular service providers with bad service, high prices, and complex programs to understand. Presented below are the specific assumptions that illustrate the financial viability of this strategy:
Pay-as-you-go is expected to be the fastest growing segment of cellular telephone service industry (SEC 2007) as defined by research firms the Yankee Group and Current Analysis. Included in this analysis by these research firms is significant churn from existing cellular telephone service providers, which is a strength of Virgin Mobile.
Cost of Goods Sold (COGS) is assumed to stay flat over the forecast period for both basic and deluxe service levels, further increasing profitability and the potential for increasing investment in capital equipment and service assets, including customer service centers and systems.
Mobile Entertainment Services' growth is expected to contribute significantly to revenue and profit growth, growing at over 70% in revenue throughout the customer base. This also includes 40% or more mark-ups on MTV and proprietary digital content.
Multichannel-based selling strategy for both minutes and add-ons, including extensive use of the Internet site, use of retail locations and directly through IVR systems.
Significant launch events and branding building events to expand the overall pay-as-you-go marketplace as well. Virgin Mobile also has the strength from a marketing perspective to increase the size of the pay-as-you-go market through innovative and focused marketing, further making the revenue forecast discussed here attainable.
Juniper (2006) - Entertaining Mobile. Mobile Entertainment Markets. Opportunities and Forecasts, 2006-2011. Bruce Gibson, Author and Researcher. Accessed from the Internet on June 23, 2007 from location: http://www.ihollywoodforum.com/documents/White_Paper_Mobile_EntertainmentJuniper.pdf
SEC (2007) - Filing with the Securities and Exchange Commission. S1/a Registration Statement. Accessed from the Internet on June 23, 2007 from location:
Barrett Hauser, manager of Sealed Air's Cellular Products, has asked for your help putting together a marketing plan for a new product from Sealed Air an uncoated bubble product. Whether S.A. introduces the new product is not at issue - the issue is "how" to introduce it.
Specifically, Barrett has asked for you to provide a quick overview of the competitive landscape, your recommendation for a positioning statement for the new product (with justification for each element), and your recommendation for two of the 4Ps: the product (size, items in the line, brand name if any, and so forth), and the price.
He'd like you to justify those decisions as well.
In defining a launch strategy for S.A. To launch uncoated bubble products globally with specific attention to the U.S. market, where the competitive dynamics need to first be considered, and then the foundations of any marketing plan, the 4 Ps of product, price, promotion, and place need to next be included. The competitive environment in the U.S. specifically is dominated by GAFCEL, a competitor known for their price penetration strategies and willingness to sacrifice margins for market share. For all their competitiveness and attempts to create a market, GAFCEL only has sold $1M in uncoated bubble wrap in the year of study within the case. GAFCEL has also gained significant market share at the expense of Astro, focusing on price competition to lure customers away from this competitor. Despite the high levels of price competition by GAFCEL it still has not impacted the growth of the U.S. market, which continues to grow for uncoated bubble wrap. While GAFCEL strives to find price elasticity in the market by continually lowing prices and creating lower margins industry wide, delivering between 57% and 64% margins overall while AirCap, a S.A. product, hover in the range of 87% - 88% range.
Given the high level of price competition, it is critical on a global scale to have a marketing mix (product, price, promotion and place) that seeks to compensate for plummeting prices with a concentrated message of quality and customization. The product strategy needs to stress customization and even an Original Equipment Management (OEM) strategy, where uncoated bubble wraps can be customized and therefore have higher prices associated with them, keeping margins high. It is critical that the S.A. product strategy focus on customization to drive up gross margins and keep them away from the pure price competitive nature of GAFCEL. Pricing strategies, the next aspect of the marketing mix, needs to focus on keeping margins as high as possible through a very focused and niche-based marketing programs that align product functionalities with the needs of OEM customers, who will pay more for a packaging product precisely aligned to their needs. Promotional strategies need to also align with the product customization processes to ensure that higher prices can be justified, leading to higher margins. The concentration of effort on customization across the promotional strategy will result in longer sales cycles as the company strives to find those OEM customers who wanted customized packaging, yet this sycyhr9onized strategy will yield more profitable sales in the long run. The final product mix variable, place or distribution, needs to be focused on making a more stable and long-term relationship work with the distributors, many of which have seen S.A. be predatory in their selling efforts. There needs to be a concerted strategy towards creating higher levels of service to the distribution channel partners to regain and strengthen their trust. In addition to pure-play channel management efforts, the company must find an approach to managing sales leads from OEMs and not taking all customized business direct. Resolving this issue will lead to significantly greater sales long-term through the channel. To cap all these efforts together, a partner portal needs to be created that will allow resellers and distributors the opportunity to attract, sell and serve resellers more effectively than other competitors in this market.
He'd like to know the financial implications of your decision.
You know that he would like the cannibalization problem to "go away," i.e., he wants S.A. To be at least neutral with respect to dollar margin.
This is purely a function of pursuing a mass customization strategy, in order to attract those customers who will pay a price premium for customized products for their needs. Using this strategy S.A. will be able to keep margins above 80% and also create more shared goodwill with the channel. What'd.A. should not do is enter the U.S. market with a pure price-driven penetration strategy which focuses only on competing on a per product price. It must seek out opportunities for customization and services selling to maintain higher margins and reduce cannibalization.
Show that you are aware of how those who do want to introduce the bubble are likely to defend their point-of-view (and vice versa for those who want to introduce the bubble).
In essence the pros and cons of entering the U.S. market with the uncoated bubble market are as follows and will be used by each respective group of manager to validate and defend their position:
Pros or reasons to enter the market
Only one dominant competitor who is competing purely on price, leaving many opportunities to go up-market.
No competitor in the product customization area of the market, which looks very attractive from a pricing perspective.
Considerable price differences between the many niche-based vendors and where'd.A. can be with a product customization strategy.
Considerable brand identity and the ability to move through the upper and lower sales funnels with both packaging engineers and purchasing departments.
Cons or reasons not to enter the market
Entrenched competitor who focuses on competing with price only, and will immediately initiate a price war in any segment S.A. moves into.
Lack of sophistication with many purchasers when it comes to getting a highly tailored, customized packaging material, which would be the one area that is defensible from a margin perspective.
No clear direction of how quickly the market for uncoated bubble coating is growing and what the drivers are. Many seem to think it is a somewhat elastic market driven only on price.
Lack of goodwill with the distribution channels need to be fixed before any highly customized, commodity like product is introduced.
Assuming Barrett accepts all your recommendations, what is the worst case scenario that could result?
That the mass customization strategy does not work and sales cycles move well into nine months or even a year, and the uncoated bubble market appears so unattractive after a pre-emptive price war from GAFCEL will also force profitability to drop.
Are the risks sufficient to try to reverse the boss's decision to introduce the product?
No, they are not, as a mass customization strategy of uncoated bubbles could potentially revolutionize the entire market and clearly differentiate away from GAFCEL.
What would you do instead to address the larger threat that'd.A. is facing, i.e., to address the problem this new product is supposed to solve?
I would first create a Customer Advisory Council and a second Distributor Advisory…