Today, as we look to our new administration to right the economic wrongs, our focus has shifted dramatically. As a nation, we have been obsessing over the economy, specifically trying to understand consumers’ spending habits in this environment. Companies and retailers alike are focusing on how to survive in these unprecedented conditions. These difficult economic times call for smart thinking from our industry leaders as we strategize on how to protect brands from the effects of the recession with long-term packaging solutions. Short-sightedness has no place in the packaging industry in today’s economic climate if we are to survive.
The Value of Packaging:
Consumers have become skeptical of traditional advertising campaigns that make false promises and unrealistic claims. The enormous diversity of media outlets today also adds to the fragmentation and ineffectiveness of traditional advertising. This fragmentation reduces the potential to reach large numbers of consumers, and the Wall Street Journal points out that “the $138 billion dollar advertising
industry seems unprepared for an interactive future.”
As a consequence, some companies have shifted their marketing budgets away from advertising and are finding package design to be a far more efficient use of their dollars and a more successful means of connecting directly with the consumer. Packaging has come a long way in recent decades – evolving from generic cost-driven formats to the highly differentiated value-added brand ambassador
it is today.
In the current economic environment, there’s a need for brand building that’s right for the times and
acknowledges consumers’ interactive experience with the package itself. This ability for packaging to double as “visual advertising” has always been one of its primary strengths, particularly as shoppers are far more cautious with their spending. For many brands, the package provides the tangible point-of-difference from one product offering to another, particularly when there is no perceptible difference.
The Rise of Store Brands
Walmart reports that sales of many private label categories are up by 40 percent this year. According to the Nielsen Company, private label sales account for more than $81 billion in the United States, up 10.2% over 2007. With the pressure of today’s economy, consumers are opting to purchase store brands rather than the more expensive national brands. In fact, 72 percent of shoppers in 2008 purchased store brands, up from 69% in 2005, according to the Nielsen Company. Most store brand innovation has traditionally come by way of graphics changes, with Target, Safeway, and Publix leading the way. But store brands are becoming more sophisticated than ever before. Take Target’s Archer Farms Cereal canister, for example. The innovative package has hand-friendly proportions and a flip-top lid, differentiating it from the generic bag-in-box format that is difficult to recluse. The brand has also brought reclosability to the chip aisle, with flexible bags that feature a press-to-close zipper. This may be the sign of more structural innovations to come from store brands.
With the rise of store brands and structural innovation, there has also been the escalating fight for companies to get “green marks” for sustainability. Over the last decade, studies have shown that Americans’ awareness of and sensitivity to the environment has continued to grow. However, because there aren’t many short term ways of addressing the sustainability challenge, companies have begun to make minor and/or cosmetic changes in an effort to be part of the movement.
Many of today’s environmental strategies play on the misperceptions of consumers and offer erroneous “green claims.” “Greenwashing” is a serious threat to building and maintaining brand trust. This is a classic over-correction, knee-jerk reaction due to the lack of concern for the environment in
the past. If the environment had been a package requirement, along with cost and convenience, we wouldn’t be in this “quick to fix” situation. Like all other decision-making processes, to make a major, meaningful change requires forethought, time and investment.
The Economic Downturn
In these economic times, consumers are scrutinizing prices and sizes very carefully and are looking to determine whether there is an intrinsic value to the product. Brands are struggling to maintain margins with the rising costs of goods. Companies are reacting by reducing the amount of product in a package that looks like it contains the same amount as before. This strategy may fool consumers, but potentially threatens brand trust.
On its web site, Ben and Jerry’s vocalized buyers’ concerns over the recent reduction of the pint-size ice cream package by Häagen-Dazs. “One of our competitors (think funny-sounding European name) recently announced they will be downsizing their pints from 16 to 14 ounces to cover increased ingredient and manufacturing costs and help improve their bottom line," the copy reads.
Hard Times Call for Smart Thinking
It is imperative during these tough economic times for brands to discover what consumers perceive to be the fundamental value of your brand’s packaging. Consumers will often say they want everything included in a new package design, but are not willing to pay for it.
Marketers and designers must engage with consumers and understand the brand’s assets so as to effectively target the “sweet spot” between what a consumer desires and can afford and a brand can make for a profit. The point here is to save money by eliminating unneeded features and unnecessary waste, and focus your investment on those meaningful differentiators that drives brand value and maintain consumer loyalty.
Too many brands suffer from SKU proliferation which leads to consumer confusion, added costs and brand/product cannibalization. According to McKinsey, there were 15,000 brands on American grocery shelves in 1991. A decade later, there were 45,000 brands. Clearly, the choices are exhaustive for consumers.
Costs can be saved by focusing on primary SKUs. Instead of downsizing to maintain margins, companies need to focus on how their consumers actually use products and invest in research to discover product consumption patterns and retail turn rates. Right-sizing can maximize shipping and distribution costs as well as limit SKU proliferation. A right-size package may offer creative
pricing flexibility as well as drive brand loyalty.
Packaging systems entail scale and efficiency derived from significant manufacturing capital investments. One cannot simply scrap a factory and build another one for a short-term solution. Companies will succeed by focusing on planning ahead, staying the course and avoiding short-term distractions.
The key during these tough economic times is to be smart with your investments, cut costs that aren’t fruitful and apply the savings to areas that continue to deliver. Packaging must be thought of as a long-term investment in brand differentiation and the most effective form of advertising to create sustained brand value and maintain loyalty.
Peter is a visionary entrepreneur who founded Product Ventures in 1994 to create the ultimate strategic creative agency for the research, design and development of manufactured goods. His passion for excellence and dedication to helping clients shape products and packaging to enhance consumers’ lives have garnered Clarke enormous recognition throughout the industry. He is a frequent commentator in the media, as well as a sought after speaker. Contact Peter at 203.319.1119 or firstname.lastname@example.org.