Changing P in CPG: Packaging In The Direct-To-Consumer World

Consumer Packaged Goods (CPG) or Fast Moving Consumer Goods (FMCG) are goods that consumers buy frequently like food, beverage, makeup, household products, etc. It is an over two trillion dollar industry in North America. Some of the well-known CPG companies are Coca-Cola, Pepsi, Procter and Gamble, Colgate-Palmolive, Unilever, etc. 

CPG aisle in store (Source: Wikipedia)

It is hard to create a highly differentiated product in the CPG space. For example, soap is soap for most people. Some might want to avoid buying soap with triclosan but it is difficult to make a soap 10x better than an average soap and charge a reasonable price. Or, think of bottled water. There are over one hundred different brands which differentiate based on where the water is from and the packaging. For many CPG companies, half the sales come from WalMart so which retailers carry your products is important. There are mainly five different ways in which CPG companies differentiate their products: 

1) Branding

2) Ingredients 

3) Pricing and Discounts 

4) Distribution 

5) Packaging

Packaging has been so important to sell the products that it is in the name of the industry segment i.e. Consumer Packaged Goods. In traditional (bricks and mortar) retail, packaging serves the following purposes: 

1. Attract consumer attention: There are so many competing products in the store that packaging has to stand out among all the other options. For example, a large grocery store typically has over 100 brands of cereal. CPG companies pay extra money to retailers so that their products are placed at the eye-level. Hence, a company's packaging has to be a function of its competitors' packaging and its own placement in the aisle. Impulse purchases in stores are the result of packaging and placement. 

2. Brand validation: If the product/company has a strong brand presence repeatedly communicated via advertisements and social media then the consumer has an image of the brand in mind. The packaging is the first physical contact between the brand and the consumer so the packaging has to live up to that image. For example, if the personality of a toothpaste is serious and professional i.e. recommended by dentists then white color would work well compared with rainbow colors. 

3. Provide product details: What's inside the box, expiration date, whatever is required by regulatory bodies like nutritional information for food items, product benefits, instructions for use, etc. For example, a food item might state on the packaging that all ingredients are organic. The details help consumers make the purchase decision. Furthermore, it has a Stock Keeping Unit (SKU) for inventory management. 

4. Keep the product safe: The packaging has to be strong enough to survive all the movement from the factory to the consumer's home. Some products require protection from light, moisture, etc. and the packaging provides that protection. Also, some products come in different sizes, the packaging has to accommodate that. 

Since the shelf space is limited in a retail store, the packaging packaging has size constraints. 

Enter the ecommerce and D2C (direct-to-consumer) world where consumers buy products online directly from the CPG companies. The role of packaging completely changes. 

1. Packaging does not need to attract consumers. Consumers see the packaging after they have purchased the product. Of course, the images of the packaging are used online. However, the storytelling is much more important online. 

2. Packaging does not have to provide brand validation before the purchase because consumers have made the purchase before they get to see the packaging up close. 

3. Packaging does not have to provide product details to help consumers make the purchase decision because the consumer has already bought the product. Some regulatory information might still be necessary on the packaging. 

4. Packaging still needs to keep the product safe but the size limitations due to limited self space go away. However, companies might still have to pay extra shipping costs if the package is big. 

So, in addition to keeping the product safe, what role does packaging have in the D2C world? 

1. Reinforcement: When the consumer gets the product at home, they should feel confident that they made the right decision by choosing the product. 

2. Reuse: The packaging can be reused. For example, a shampoo bottle can be returned, refilled, and shipped back to the consumer. 

3. Engagement: Consumers can scan QR codes on the packaging to get engaging content about the product. For example, recipes for food items, videos of different shaving techniques, etc. In some cases, it might be possible that consumers download the CPG company app and deepen the relationship with always fresh content and discount offers. 

4. Feedback loop: With traditional physical retail, CPG companies did not have much data about how consumers use the product. Now, using incentives and packaging space the companies can get valuable customer feedback. For example, with a phone, a consumer can scan a QR code on the package that takes them to the company webpage to write a review and they get x% off on the next purchase. 

5. Segment aligned packaging: In the bigger scheme of things, creating different packaging for different market segments is not that expensive. And, it might be worth the additional cost if the consumers feel more engaged with the brand. In traditional retail, CPG companies do not know who is buying the product so they can not create segment specific packaging. For example, an environmentally conscious market segment might need packaging made with fully recycled materials and  they might be willing to pay more for it. 

6. Upsell and Cross-sell: With direct consumer relationships, the companies can offer free samples in the packaging to test new products and to sell related products. For example, a shaving cream company can sell an aftershave. This would work especially well for subscription based D2C businesses. 

D2C has an opportunity to change the nature of packaging in CPG.