Stoguard: Spray-On House Wraps1

UVA-M-0747R STOGUARD: SPRAY-ON HOUSE WRAPS1 Introduction In February 2003, David Boivin became CEO of Sto Corp. after spending more than 10 years in the insulation industry. Boivin believed that there was a lot of potential for a recent innovation from Sto Corp.—a product called StoGuard. The product was outside of the traditional exterior insulation and finish systems (EIFS) applications Sto Corp. had focused on so far. This was a shot in the arm for the StoGuard team, which comprised Sto Corp. Director Alec Minne and Product Manager Lisa Petsko. Attention from Boivin implied a significant increase in resources for marketing StoGuard in 2007, and was a realization of persistent efforts by the StoGuard team to convince top management that StoGuard had potential as an independent product. StoGuard was a breathable house wrap that could be sprayed (or hand-rolled with a paint roller) on to a building’s wall structure. The primary function of a house wrap was to provide a moisture and air barrier to the wall structure, while simultaneously allowing vapor to pass outside. “StoGuard could be considered as a GORE-TEX for houses” Minne explained. A plastic-based material, such as DuPont Tyvek, which was wrapped around a building’s wall structure, was the dominant material in the house wrap market at the time. Despite evidence from company tests proving that StoGuard was superior to other house wraps, building contractors and other customers had not shown the expected level of interest in adopting this product. About 15 million square feet were sold until December 2006, since the product’s launch six years earlier. This was very small compared with the total sales in the house wrap market of approximately 2.3 billion square feet per year.2 The excitement from Boivin’s attention was therefore tempered by the challenge of developing an effective marketing plan for StoGuard. The problem was not a lack of data. A plethora of information was collected over the years from focus groups and customer surveys, and market-research consultants provided 1 This case is currently restricted to use at Darden. Please return your case copy after the class discussion. 2 Estimate obtained by The Kiemle Company by combining estimates from the NAHB builder practices survey, the Pennsylvannia Housing Research Center, and the Freedonia Group. This case was prepared by Associate Professor Rajkumar Venkatesan with the assistance of Professor Paul W. Farris. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright 2007 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. -2- UVA-M-0747R multiple estimations of market size. Sifting through this information, Petsko needed to devise creative ways of leveraging the $350,000 allocated for marketing StoGuard. Her earlier conversations with Minne revealed that he favored developing a marketing plan that used the current distribution system and effectively established credibility among builders with the limited funding available. Future budget increases for marketing StoGuard depended on the success of the current plan. Company History Sto North America was a subsidiary of the German construction and building materials supplier, Sto AG. Since going public in 1994 on the Frankfurt and Stuttgart stock exchanges, Sto AG had rapidly expanded its products, systems, and services to more than 19 countries. In 2005, Sto AG’s international sales exceeded its sales in Germany for the first time. Select financials for Sto AG are provided in Exhibit 1. Sto’s products were primarily targeted at professional users, such as craftsmen, architects, and development companies. The Sto Group attached key importance to research and development. StoCoat Lotusan was one such product generated by the research and development at Sto. The Lotusan exterior coating possessed a highly water-repellent surface similar to that of a lotus leaf. Its microstructure was modeled on the lotus plant to minimize contact area for water and dirt. As a result, dirt simply ran off with the water that fell on the façade, leading to walls that looked dry and attractive for several years. Lotusan was included in Architectural Record magazine’s 2005 “Editor’s Picks,” a list of the year’s 13 most outstanding building-product introductions. Such innovations led the Sto Group to be listed among the 100 most innovative companies in Germany in 2006. Sto North America was based in Atlanta, Georgia, and had plants in three locations: Atlanta, Georgia; Glendale, Arizona; and Rutland, Vermont. Its products were sold through 170 Sto-authorized distributors across North America and Canada. These distributors were supported by 30 sales representatives. Product Line Description Sto North America manufactured specialty coatings, exterior insulated wall claddings (EIFS, or synthetic stucco), cement hard-coat stucco, concrete repair, and house wraps. Coatings A wall coating formed the outermost layer of a building and was meant to provide protection, decoration, and texture. In addition to providing the desired texture and look, the external coatings were also meant to span small gaps or cracks and provide superior weatherproofing. In a wall structure, the wall coatings were applied on the surface of wall -3- UVA-M-0747R claddings. The latest innovation in this product line was StoCoat Lotusan, a patented external wall coating that had a self-cleaning effect. This resisted the growth of mold, mildew, and algae in the wall façade, because dirt particles were washed away from the wall during rain. Cement stucco Some wall structures were covered with moisture barriers and then a stucco mixture. Traditional stucco was a cement mixture used for siding, usually on Spanish-style homes. Traditional hard-coat stucco essentially covered a building (or home) with a layer of cement plastic, and provided weatherproofing. It was attached to a building using galvanized wire mesh and metal flashings (devices that channeled water to the exterior of a wall). The stucco façade provided a primary barrier, but a secondary barrier directed any water that got behind the façade to the exterior. This created a dual barrier to wind, rain, snow, and ice. Sto provided traditional stucco under the brand name of Sto Powerwall. Sto Powerwall systems were positioned as offering a one-stop solution that combined both regional and national products for complete- system quality control and cost effectiveness.3 Sto accomplished that by producing Sto Powerwall cement plaster, in regional production facilities with local raw materials that were then sealed with an exterior finish or coating. The Powerwall system was expected to provide good crack bridging, fewer pin holes, and to be lightweight. It could be applied at half the thickness of conventional stucco. As a lighter-weight cladding than field-mixed stucco, Sto Powerwall stucco necessitated fewer and less-expensive structural requirements—which saved time and was less costly. Exterior insulated wall claddings Many homes built after the 1950s used a variety of synthetic materials that resembled stucco. One type of synthetic stucco was EIFS. Developed in Europe in the 1950s, EIFS was introduced in the United States in the 1980s. The system was first used on commercial buildings, and later on homes. According to the EIFS industry members’ association (EIMA), by 2002, EIFS accounted for nearly 30% of the U.S. commercial exterior-wall market. Commercial customers included national retailers, restaurants, and hotels. A typical EIFS consisted of a layer of insulation and a multi-layer, reinforced coating system. The insulation layer of an EIFS was attached to the wall with adhesives or mechanical anchors. The insulation was in the form of preformed sheets of foam plastic, such as expanded polystyrene, Styrofoam, and similar materials. The reinforced coating system consisted of an adhesive, into which was embedded a glass fiber reinforcing mesh, and an attractive, colored, textured, finish coating. In appearance, EIFS resembled portland cement plaster (stucco) and concrete, but it could also be made to mimic many other common materials and architectural styles such as stone. 3 Stucco composition varied by each region in the United States depending on the weather conditions in that region. Different compositions provided optimal insulation in different climates. -4- UVA-M-0747R EIFS was usually installed at the construction site by plasterers, but it could also be produced off-site, being made in the factory in the form of panels. EIFS panels had a metal subframe, and were complete, ready-to-install, wall units. Panels, used mostly for commercial building, were trucked to the site, lifted into place, and attached to the building’s frame. While it had the appearance of stucco, EIFS did not have an open-air gap behind it to act as a water drainage point if water got through the outer layer. EIFS would not allow water to pass back through its coating in liquid form once moisture got behind the system. By contrast, traditional stucco was a porous material that permitted moisture to move both in and out of the wall cladding. Therefore, EIFS needed to be correctly installed and sheathing of the home had to be properly detailed if it was to perform properly. Otherwise, moisture could get behind the systems and cause damage, just as it could with wood siding, brick, or any other exterior. Sto was a leading manufacturer of EIFS claddings in the United States. Sto provided EIFS cladding under the Sto brand with three versions: Essence, Classic, and Premier.

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