Research: Innovation

Documenting the Business Value Of New Packaging Innovations

By Scott Young

If you ask a person directly if he or she would pay more for a new and better package, the answer will usually be "No." However, if you introduce the better packaging at a slightly higher price, people will often be willing to pay more.

It is well documented that packaging has a direct impact on sales, most notably in influencing many purchase decisions that take place at the point-of-sale. Research studies also repeatedly find that innovative packaging systems are very powerful in their ability to differentiate brands, justify price premiums, and increase brand loyalty. A new shape, material, or dispensing system can give a product in any category new life.

Just as often, however, potentially valuable packaging innovations are not implemented. These missed opportunities are often rooted in the fact that marketers and engineers "speak different languages" and approach packaging from nearly opposite perspectives. Packaging engineers tend to consider packaging primarily in terms of its functionality and to focus on rational benefits (easier to open, etc.). Brand managers tend to think primarily in terms of return on investment (ROI) and focus on incremental costs and sales revenue.

Since many packaging innovations require significant up-front investments or incremental costs-per-unit, they often into a "roadblock" of sorts. Engineers can demonstrate that the new system provides a functional benefit, but they can't provide marketers with the "evidence" of increased sales revenue that they need to justify an investment.

Consumer research can "bridge this gap" and help companies make informed packaging development and investment decisions, and help gauge the business value of new packaging innovations. In this article, I'll also point out several potential barriers to innovation, which are rooted in the way that companies approach and assess new packaging systems.

Qualitative research strengths and limitations

When new packaging concepts are first developed, they benefit greatly from qualitative research, often in-depth discussions with a small number of target customers, which provides the insight needed to identify and address concerns. Conversely, quantitative research--surveys with hundreds of people--is inherently less diagnostic, and it typically leads companies to declare winners and losers, and to simply discard the latter. In a recent example, we found that a new packaging structure for liquid soap was strong on a functional level, but had a shape that suggested a lower-end product. If we had conducted only survey research, this idea would have simply been rejected. However, the qualitative research setting allowed us to pinpoint the source of the problem and guide refinements that "saved" the idea.

In fact, the way companies test new ideas can also stifle innovation by killing ideas before they are fully developed and refined. Here, the problem is often rooted in what we call "the rush to judgment." Given the costs of creating functional prototypes, companies are eager to gather numerical "evidence" before investing further in a concept. This leads them to present new concepts to customers through drawings and written explanations, which rarely produce the same depth of feeling from customers as a functional package.

When performed well, focus groups can be valuable in providing initial direction and narrowing down a wide range of options, but focus groups are not an appropriate tool for documenting the added-value or the business impact of a packaging innovation. For this reason, survey research is needed to justify investments in new packaging systems and guide final "go/no-go" decisions.

The full impact of new packaging

An innovative and ownable shape can generate value, even if it does not provide a functional benefit. The L'Oreal shampoo packaging provided immediate differentiation on shelf--and allowed the brand to embody fun in a category driven by child appeal.

Of course, the value of quantitative research is tied directly to its comprehensiveness. Specifically, it is important that survey research document all the potential benefits of a new/proprietary structure. In our experience, we've seen that a new packaging system can influence shoppers on three levels:

1. Increased Shelf Impact/ Visibility: The difficulty of breaking through shelf clutter should not be underestimated: Our PRS Eye-Tracking studies have shown that even when shoppers are directly considering a category, over one-third of the brands displayed are ignored completely. However, a unique, engaging structure can help ensure that a product consistently draws shoppers' consideration and drives impulse purchases.

2. Enhanced Product Perceptions & Brand Imagery (Before Use): Two recent examples illustrate how shape influences product perceptions. In one we found that Dove's taller thinner package for women's antiperspirant suggested a more "feminine" and "clean" product than those of competitors packaged in thicker and more uniform packages., even though it did not provide a rational/functional advantage. An ownable structure or delivery system can also provide a powerful link to brand heritage or relevant imagery. In a recent study, we found that a certain shape conjured up customers' memories of old milk bottles, and linked to their nostalgia for "simpler times" in a consistently positive way.

3. Functionality and Satisfaction (After Use): A new structure that provides functional benefits can lead to an improved usage experience, increased customer satisfaction, and ultimately to stronger brand preference and loyalty. However, it is important to remember that only people who use the product will experience the functional benefits. In other words, unless a packaging innovation is clearly visible and/or well communicated, it may not contribute significantly to business value.

In order to document all of these potential sources of value, a comprehensive packaging study should simulate both the shopping and the usage experience. Moreover, it should measure a packaging system's shelf visibility and impact on product perceptions before usage.

Linking to business value

Ultimately, to provide "evidence" that a new packaging system will provide business value, it is necessary to simulate the introduction of the new system and document its impact on shoppers' decisions.

For this reason, the single most important principle is to evaluate each new packaging innovation on a monadic basis, in the context of competitive packaging. In other words, one large group, or cell, of target shoppers should encounter the current packaging in the context of primary competitors, and be asked to evaluate each package and make a purchase decision. Another matched group of target shoppers should encounter the new/ proposed packaging in the identical competitive context, and go through an identical interview process.

By comparing data across these two groups, a study can document the impact of a packaging innovation on consumers' attitudes (implied product perceptions, brand imagery, perceived functionality, anticipated pricing, etc.) and, more importantly, on their preferences/purchase decisions. In other words, a study can isolate and measure the impact of a packaging innovation along two measures directly related to business value:

1. The impact on preference vs. competition (market share);

2. The ability to justify a higher price without losing share (pricing).

These measures allow marketers to translate functional benefits into an informed estimate regarding the economic impact of a packaging change. Specifically, they allow marketers to address the primary questions on their mind:

"If we introduce the new package without changing the price,
will we pick up enough market share to justify the investment?"

"Will we will be able to pass along the additional cost per unit
without losing any market share?"

Conversely, the most misleading findings come from studies in which companies attempt to project the added-value of a new packaging system by asking people directly about how much more they would pay for a particular benefit. Unfortunately, pricing is perhaps the single area in which customers are least likely to be honest with interviewers. In other words, if you ask a person directly if he or she would pay more for a new and better package, the answer will usually be "No." However, if you introduce that better packaging system at a slightly higher price, you may very well find that people do not notice the difference, or are actually willing to pay more.

Ultimately, we've found that innovation is a question of commitment and process. The exceptional companies recognize the potential value of proprietary packaging, and they invest the time and resources needed to properly develop and fully assess new concepts. As importantly, the marketers and packaging engineers in these companies "speak the same language" through mutually understood research processes and measurement systems. For if there is one reality in the marketing world, it is: "That which is not measured is not fully valued."

Scott Young is the President of Perception Research Services (PRS), a company that conducts over 500 research studies annually to help guide packaging development and decision-making. Scott can be reached at syoung@prsresearch.com.