A new article from McKinsey considers how consumer goods companies can design their packaging to appeal to consumer desires, provide a positive unboxing experience, and facilitate minimal but easy returns – and how high-ranking executives can unite packaging teams across their organizations.
Thoughtful design
Designing for sustainability is upfronted as an important consideration; this includes aligning with sustainability regulations and differentiating product packaging to appeal to sustainability-minded consumers.
Packaging should be optimized for the continued rise of dot-com channels, the article says. For instance, packs should be designed to fit more product into the same amount of space in its shipping container or on a truck.
McKinsey cites an example wherein a manufacturer redesigned a packaging component to directly assist in the at-home assembly of its heavy consumer product, meaning the consumer now had to lift a maximum weight of 30 pounds during assembly, compared to the previous 80 pounds.
PPA simulations are set to help identify a suitable combination of packaging size and configuration for specific consumer segments and channels: convenience stores vs. warehouse clubs and big-box stores, professional vs. home users, etc. The correct balance is set to cut down on packaging consumption while expanding share within target groups.
For instance, an unnamed beverage company is said to have utilized in-depth consumer insights and PPA tools to model over 1,000 price and pack combinations based on brand perceptions, unmet needs, opportunities for differentiation, and more. Following sensitivity analysis for distribution, velocity, and pricing, around 100 design concepts were created across formats, then assessed against costing impacts and competitor pricing, packaging, and claims.
Then the company tested 21 design concepts with consumers to understand their preferences compared to current and competitor offerings, as well as their willingness to pay for the product. McKinsey describes the final designs as ‘bold’ and ‘consumer-validated’, helping the company give a premium to its offerings, enter into new channels, and deliver increases of 15% by volume and 45% by value across the two-year strategy.
Branding and shelf appeal
On the shelf, distinctive packaging – be it the shape of the container, unique on-pack claims, or some other differentiator – can help consumer goods companies boost on-shelf visibility, expand into new channels, and improve the consumer experience, especially in flat or slow-growing markets.
In one instance, a global beverage business reportedly intended to differentiate its packaging in light of cost inflation related to margin pressures, as well as growth challenges from perceived commoditization and shifting consumer preferences. Consumer insights led the business to develop a distinctive, squared-off bottle with an ergonomic pinch grip; this helped consumers grab the pack off the shelf and pour the drink.
Apparently, the product itself was 18% less expensive as a result of the redesign, while the consumer experience was also said to improve.
McKinsey advises companies to link on-pack messaging and visuals to the aspects of the product consumers are most drawn to; for example, statements like “75% less plastic” or “10% more cheese” can be featured on-pack. Gen AI technologies can help companies quickly test new ideas and differentiate their products by producing animations and retail shelf simulations.
Digital A/B testing allows at least 20 concepts to be assessed by ‘hundreds’ of target consumers in the space of ‘just a few weeks’, McKinsey explains. It combines visual and artwork rendering, price point estimation, and the mining of product reviews and social media posts to optimize differentiating on-pack claims – all of which help companies discern which elements appeal to their target demographic.
For instance, a ‘well-known’ snack bar brand sought to find out whether it was beneficial to highlight a particular ingredient and healthiness aspect. Using a third-party, tech-enabled platform, it conducted a forced choice exercise and found that 72% of consumers preferred the new packaging over the old one.
The unboxing process
Packaging is a consumer’s first interaction with a product. If a pack is difficult to open, it impacts the consumer experience and may dissuade individuals from repeat purchases. As reviews and ‘unboxing’ videos become increasingly popular and influence consumers before the product is even sold, the article highlights frustration-free packaging as an important consideration.
One food product manufacturer reportedly consulted data from social media and found that one of its product lines ranked the lowest compared to six competitors, with damage to its glass jars cited as one of the top three pain points. This finding was then carried into the packaging improvement process.
Optimizing price pack architecture (PPA) is also set to improve margins, as well as identify opportunities for growth and differentiation, by finding the ideal combination of product price, pack size, and assortments.
Another food manufacturer sought to expand its market share with a new packaging innovation, but feared the cannibalization of existing sales due to the amount of products already competing in its segment. It used a PPA analysis to select the best package size and price point to expand incremental sales without impacting other products’ market share.
On the other hand, a consumer durables company responded to consumer complaints that the product was too expensive compared to market competitors by analyzing its packaging. After finding that consumers were already buying the product in multiples, it designed a double pack to save space in shipping containers and on the shelf.
Apparently, this led to 10% savings in packaging, manufacturing, and shipping costs – which were then used to lower the product price – alongside reduced carbon emissions and increased visibility and shelf-holding power. Revenues and unit sales also increased by 30% year-on-year.
Accommodating product returns
McKinsey asserts that, where possible, returns should be prevented in the first place – but, if they do happen, packaging should be designed to allow non-defective products to return to shelves. At the same time, companies should consider both upstream and downstream supply chains, and whether either one requires extra elements such as secondary packaging.
According to the National Retail Federation, product returns account for 10% of sales for brick-and-mortar purchases and 17% of online purchase sales. The article suggests that designing protective packaging with better reshelvability can help conserve product stock and keep unnecessary waste out of recycling or disposal.
In response to damage rates of approximately 5%, a manufacturer of water purifiers is said to have used advanced computer simulation techniques to examine how packages dropped during handling could break the product; it then used simulation to design protective inserts that apparently reduced damage rates tenfold and lowered packaging costs by a fifth.
Another means of reducing returns is to understand consumer pain points and redesign packaging accordingly, the paper explains. This can involve specifying product attributes on-pack, such as the spice level of hot foods or a ‘scent-o-meter’ to help gauge the strength of a fragrance.
Meanwhile, a do-it-yourself (DIY) company is said to have implemented graphics onto its door packaging, depicting a large impact of the product and a complete list of included components and required tools. This is intended to give consumers a better idea of the scope of the installation task before they commit to the purchase.
Also inside the packaging is a step-by-step breakdown of the key elements to cover prior to unboxing; a QR code linking to instructions for measuring and confirming the correct door size; and a ruler printed on the top of the box to double-check that the door will fit the frame. In case a return is necessary, the box opens on a hinge for easy reclosing, and to prevent the package from being destroyed while opening.
E-commerce channels face the challenge of product transit, with the product often nestled within protective dunnage materials inside another delivery box. Implementing ships-in-own-container (SIOC) packaging designs has apparently been proven to lower costs, improve freight efficiency, and deliver a more positive consumer experience.
Reportedly, a toy maker took the SIOC approach to replace 19 separate packaging components with a single box – a move said to lower packaging volume for e-commerce shipments by 88%.
Company structure
Last but not least, McKinsey notes that packaging constitutes between 15% and 25% of direct costs for consumer goods companies; yet packaging full-time equivalent (FTE) employees account for 5% to 10%, sometimes even less, of the global R&D team at many companies.
Within that figure, the staff members are often located at different points around the world and operate in silos within category-specific R&D teams. Therefore, the article recommends that CPG companies make packaging an important strategic priority that encompasses the whole company, rather than a ‘discrete cost centre’.
Clear, ambitious targets and KPIs around sustainability, cost reduction, growth, and consumer experience should be established first, McKinsey says. To meet them, companies must upscale their packaging capabilities, with ‘some leading consumer products organizations’ already identifying and sharing best packaging practices via global centres of excellence.
Finally, McKinsey notes that the ‘top players’ are investing in databases, advanced tools, and other resources, while also reorganizing their companies – for example, by establishing cross-functional teams that give relevant stakeholders (including finance, marketing, logistics, manufacturing, and sustainability) a say in packaging-related decisions.
Previously, McKinsey discussed the ‘win-win’ merits of ‘skinny design’ – the use of fewer or different materials in a packaging design, or otherwise rethinking the shape of a pack – when it comes to business, consumers, and the environment. It also considered the roadblocks of this approach; for example, the difficulty of allocating credit for the value created, which can disincentivize real change.
In other news, Paul Hamilton, head of Wines & Spirits at Hunter Luxury, recently spoke to us about the key role of trust and reliability in the luxury packaging space. In his view, these factors must be considered to develop a pack that communicates a brand’s identity and attracts consumers, and in the collaboration between brands and packaging suppliers.
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