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Packaging buyers tend to stick with branded products because they’re familiar with them and they know what they are getting. Generally, most successful packaging suppliers follow a strategy based on building brands.

What comes to your mind when you think of Bubble Wrap, Tyvek, and Valeron? These are all well recognized brand names in the packaging industry that are known not for what they are made out of but for what they do. Their suppliers — Sealed Air Corp., DuPont and Valeron Strength Films (formerly Van Leer Flexibles), respectively — could completely change the underlying material of construction, but their users will continue to buy these as long as they perform the functions that the brand is associated with.

Despite this, it continues to amaze me that the number of well recognized brands in the packaging industry is still so small. Our industry has been so focused on product attributes, manufacturing capabilities and materials of construction that we have failed to build brands.

The traditional approach to marketing in our industry has been rather product-centric. The basic assumption has been that if your product is superior to competitive offerings, customers will simply rush to buy it. Secondly, it has been generally believed that the customer is technical-competent enough to disregard the marketing message and evaluate the product strictly on its attributes and performance.

Thirdly, customers have been successful in commoditizing packaging materials so that they can negotiate better prices, and suppliers have fallen into this trap by introducing products that are practically indistinguishable from competitive products (or, in other words, customers do not always like brands because they are reluctant to pay premium pricing).

But why do companies continue to buy branded products despite the availability of cheaper/better alternatives? The answer is relatively simple: because they are guaranteed a definite level of performance on a consistent basis.

Developing brand equity
To develop brand equity, packaging suppliers must consider a number of factors regarding their product(s):

Performance: While the basic concepts of brand equity in the packaging industry are the same as those for consumer products, there are a few subtle differences. While heavy advertising with creative commercials may lead to building a consumer brand, this is not enough in our industry. Remember, the customers of these products are knowledgeable enough to still evaluate a product on its merits. Thus, you have to make sure that your product is as good as other competitive products.

Innovation: Product innovation is extremely critical to buyers of packaging materials. As companies struggle with either increasing shelf-appeal or reducing damage during shipping, they look to their packaging supplier for innovative solutions. Make sure that your product development does not become stagnant. Instead, as customers’ needs change, your product must continue to operate at the cutting edge.

Addressing product problems: There are innumerable examples of how companies can destroy years of brand equity simply by poor handling of product problems. The only time when product problems do not affect brand equity is when management reacts responsibly by immediately addressing the issue. My simple recommendation is to address a product problem immediately rather than denying it or blaming others.

Features and benefits: Suppliers of high-tech products get so enamored with the properties of their products that they fail to fully advertise what the product does for the customer. While charts and tables are needed, make sure that you connect the features with the benefits. Thus, the advertising message has to strongly emphasize how the product will add value to the user.

Co-branding: Consider a co-branding campaign with your key customers. Perhaps a clearly visible logo on a bag of potato chips with the message “Packaged in [name of packaging product].” While a company like Intel can successfully market an extremely high-tech product to an average consumer, packaging companies do not establish a similar connection with the consumers when packaging might very well be the reason they buy the product.

Look at products as brands: The most important approach to building a brand is to completely redefine the way you internally look at your products. If you think of yourself merely as a supplier of products that have certain attributes similar or better than other products in the marketplace, your customers will perceive these in the same manner and will compare them accordingly. If you think of yourself as a seller of brands that make your customers’ brands even stronger, your customers will start setting your products apart from competitive products.

Impact of brand equity on profitability
There is no hard evidence at this time that developing brand equity alone will necessarily result in higher profitability. However, my limited research shows that most successful packaging companies follow a strategy based on building brands. It is increasingly important to do so at this time when emergence of e-marketplaces is based on essentially eliminating product differentiation.

I can clearly visualize a future in which a product will either be a brand or a commodity. The former will demand premium pricing while the latter will be traded on an online exchange like any other commodity. Where do you want your products to be?

Labels: brand management, innovation, marketing, packaging industry, profitability

posted by eCreativa Media  # 2:27 PM 0 Comments

As access to pricing information becomes more readily available to packaging material buyers, suppliers will need to rethink some of their strategies and embrace business models that are based on much more than price alone.

The packaging industry remains one of the few privileged industries since customization is still widely popular. Manufacturers of both industrial and consumer goods may have almost indistinguishable products, but they still make their best efforts to use unique packaging.

The obvious advantage to packaging material manufacturers is that, despite the underlying raw materials being essentially commodities, they can still differentiate their products and obtain premium pricing. This differentiation has been the major driver for pricing patterns, and consequently, margins.

Information access
The second dimension of pricing is not talked about openly very often. The price that a supplier quotes for its products is also largely dictated by the amount of information that its customer can access about competitive products, number of suppliers, supply situation and pricing levels. Over the next few years, this will likely change dramatically. The business environment will see radical changes and competition will intensify as efficient access to information will be more widely available.

Whether buyers purchase a million pounds or a thousand pounds, they will have almost equal access to information. Pricing will become increasingly transparent in contrast to traditional practice in which price was top-secret. Buyers already find it easier and cheaper to obtain comprehensive information about a supplier, its products, inventory levels and its pricing relative to every one of its competitors. As a result, suppliers will find that the power they derived from information gaps in the past will disappear, to the point that pricing will no longer be their prerogative.

In fact, low price will no longer be a privilege available to large-volume customers but will be a prerequisite for being a player in the broader marketplace. Once the first low-cost supplier publishes its prices, the competitors will have to follow, and prices will stabilize at a point that will be set by the most efficient manufacturer.

The third dimension to margin compression is the emergence of online marketplaces that are based on maximizing purchasing efficiencies through encouraging real-time price-based competition among suppliers and making the purchasing process more efficient by use of information technology. Such marketplaces have only a limited role to play in the packaging industry at this time but will very soon become fairly dominant.

Strategies to meet these challenges
In this new business environment, several new businesses will emerge, and small companies will be able to thrive by serving niches. Manufacturers of consumer goods and other specialized products will continue to work closely with their packaging suppliers to create unique, proprietary package designs.

Improvements in information flow will still drive packaging industry growth, but there will be market share shifts as those companies that embrace business models for the new market realities will emerge as the winners while the laggards will struggle trying to compete on price alone.

In this environment, companies will have to do a lot more than just managing their costs and embracing sophisticated customer relationship management programs. Here are some ways that companies can succeed going forward:

• Follow the 80/20 rule. If 80% of your business comes from 20% of your customers — which is true for most small and medium sized packaging companies — then make sure that you do everything possible to hold on to these customers. Give them the most competitive price, and control them through eliminating any layer that may exist between you and them.
• Research has indicated that despite commoditization, it is possible to create a brand identity in the packaging industry. A brand makes it harder for customers to price-shop the product. If you have a new product, try to brand it from day one.
• Product differentiation and customized solutions for your key customers will not only make them recognize the value of having you as a supplier but it also makes it harder for them to switch by increasing the cost of switching.
• Sharing knowledge can be critical in developing customer loyalty and increasing retention. As customers increasingly rely on their suppliers for technical support, sharing market and technology-related information will be instrumental in building long-term relationships.
• Put programs and systems in place that will enable maximum purchasing efficiencies in your organization as well.

All packaging companies have unique market and technology situations, but the impact of margin compression will be most pronounced on suppliers of such products as corrugated boxes, wood-based packages and basic substrates like films and paper. Now is a good time to rethink your pricing and customer relationship strategies.

Labels: investment, pricing strategy, profitability

posted by eCreativa Media  # 2:25 PM 0 Comments