Packaging costs - reduction strategies offered
Thursday, 10 February, 2005
Mike Carter
90 percent of brands fail in the first year, and of the 10 percent of new products that are successful, life expectancy is only about five years. Once your product is on the shelf it must sell itself. Because packaging 'makes the sale' in the majority of purchase decisions, your packaging may well be the most important part of your marketing plan. Mike Carter explains.
Is your packaging still working well? Can the package be improved? Have your competitors changed their packaging and now yours does not stand out as much, or no longer has as strong a positive image as it used to? Does your product scream 'me, me!' from the shelf?
Because packaging costs impact directly on the bottom line, even minor savings make a significant difference to your company's cash flow. The key is to be aggressive about pursuing those savings that make the most sense for your business.
Before you invest tens of thousands in your new packaging design, here are six key strategies you can use to lower your packaging costs.
1. Packaging efficiencies begin at the front end of the supply chain - the concept and design stage. The overall cost of packaging should be closely aligned to the product price point and image. Ask yourself: is the cost of the packaging relative to the selling price of the wine? It's unwise to spend R7 for packaging on a R14 bottle of wine. Conversely, a higher priced wine can carry the cost of added value packaging. Brief your designer and talk to your customers. Research your market. If necessary, reverse-engineer to bring costs in line with expectations.
2. Explore the cost advantages of commonality and standardization throughout your range. Learn to recognise waste. Studies show that 70 to 80 percent of product costs are determined during the design stage and designers should be familiar with these design-for-supply principles. Capsules, boxes and labels come into play here. A while ago, a local wine company had 26 different back labels for one range of wine!
3. Evaluate your package design. Research shows that 70 percent of purchase decisions are made in-store and up to 60 percent of these decisions are unplanned. You have the potential to at least partially influence your prospective customer. Does your package communicate essential information to potential customers? Even basic market research such as chatting with customers will provide some form of measurement of consumer reaction to the new or revised packaging.
4. Keep track of your package designs. Over time you can easily lose control of your package designs, specifications and standards. Dozens, even hundreds of variants may exist at any one time or accumulate over the years. This information needs to be accessible and easy to retrieve.
5. Global best practice is shifting towards 'single sourcing'. In this environment collaboration and partnerships with suppliers work to the benefit of both parties. For the customer this should mean better prices and service, for the supplier guaranteed business and a barrier to entry for competitors. Supplier relationships are often a complex mix of collaboration and competition, which needs to be managed.
6. And lastly, how often and when, did you last benchmark and evaluate your packaging suppliers? Do you have a service level agreement (SLA) in place? The wine business relies closely on relationships and trust. Don't let suppliers abuse this!
Marketing is what drives business - and packaging is often a major determinant of marketing success. Whether you see packaging as an expense, or as adding value – there is one certainty - the quality of your packaging will in large part determine the success and life expectancy of your product.
Mike Carter offers cost effective, value added services to the wine industry that include packaging and supply chain analysis, project management, and growth strategies. Mike can be contacted on 082 706 5599 or mike@veritasconsulting.co.za