The Last Mile: Thoughts on the evolving role that product packaging must play for the consumer in an e-commerce world
By Eric Hartman, Product Ventures Vice President Technologies & Commercialization
Long ago, in the early 1990’s, a guy working at D.E. Shaw & Co., a global investment management firm, got the idea that he didn’t want to have any regrets about not participating somehow in the internet business boom. After quitting his job as a Vice President at Shaw he moved to Seattle and searched around for a way to make his dream a reality. Twenty-three years later the company that began because of an idea that that guy had is now the world’s largest e-commerce retailer and the world’s third-largest retailer overall. The company ranks No. 83rd on Forbes’ Global 2000 list of the worlds’ biggest and most powerful public companies, as measured by a composite score of revenues, profits, assets and market value. And while Jeff Bezos’ Amazon.com originally started out as an on-line bookstore it is now the source for everything from power tools to personal care products to groceries and still even books.
What Amazon has done in its twenty-three-year history is fundamentally change the way consumers interact with the acquisition of products. One could argue that other on-line retailers are also part of that evolution, and I would agree that that is largely true. Yet it is Amazon that continues to push the boundaries of how we as consumers interact with products that for years had been more conventionally seen on a grocery store shelf.
In the early 1980s, Jan Carlzon, then president of Scandinavian Airlines, (SAS), conceived of and defined the Moment of Truth in business like this: Any time a customer comes into contact with a business, however remote, they have an opportunity to form an impression.
Carlzon felt that if you managed every consumer interaction to create a positive outcome, the business would be successful. The result of his insight, and execution of a strategy built around it, was that in an incredibly brief time SAS went from being ranked no. 14 of 17 airlines in Europe to being one of the most admired in the industry.
Two decades later, A.G. Lafley, Chairman, President and CEO of Procter & Gamble, developed his own version of the Moment of Truth. Rather than focus on customer service, his Moment of Truth was related to consumer sales, better reflecting the CPG business that P&G was in.
In addition, A.G. believed that there are several Moments of Truth: The First is when a customer is confronted with the product in-store or in real life. The Second, he thought, is when a customer purchases and uses a product and experiences its quality as per the promise of the brand. He later coined a Third Moment of Truth as the time when consumers provide feedback or a reaction towards a brand or product and share it with the company as well as their friends, colleagues, family members, etc.
In A.G. Lafley’s world, packaging played a huge role in both the first and second moments of truth.
In a traditional retail outlet packaging is what the consumer sees on the shelf. It’s the color and the three-dimensional shape that catches their attention and that they ultimately have the opportunity to interact with. Packaging acts as the brand’s ambassador, drawing consumers in, enticing them to “try me.” Ultimately playing a role in convincing them to place the product in their cart for the journey home, the last mile if you will, in a products’ lifecycle from production to use.
In today’s evolving e-commerce world, packaging must function in a way that is ever further and further beyond what was important to Mr. Lafley. While packaging will always be important to the use experience of a product, the role that packaging plays in pulling consumers into a brand and its promise, and delivering the contents that it protects safely and securely into the consumers home, must evolve.
It’s true that up to now the astronomical growth in e-commerce has been more in durable goods rather than in traditional food, beverage and personal care products. In fact, most large CPG companies still derive well over 90% of their revenues from traditional retail sales. However, forecasts from McKinsey & Company in late 2015 suggested that e-commerce could account for as much as 5 percent of total food sales over the next five years if retailers move aggressively and in nonfood categories such as cosmetics, diapers and wipes, pet food, and skin care, online penetration could reach as high as 10 percent in the same period.
Conventional retail packaging has, for more than half a century, been designed to ship en masse, (i.e. in cases on a pallet), to a location where it is broken down into individual units that would be offered for sale to the consumer. The consumer purchases the product from the shelf and then carries it home. In this typical production, distribution and sale scenario there are a minimal number of actual packaging interactions or touch points with the individual package between the end of the production line and the ultimate point of use in a consumer’s home. That primary package is more or less protected in the supply chain and through limited instances of handling before it reaches the consumer.
In an e-commerce scenario, there can be up to a dozen or more touch points that the packaging must survive either still in its shipping case, but more likely on its own or packed with a wide range of other products. And because e-commerce systems vary there is a higher degree of uncertainty as to how a package will need to perform or what hazards it will encounter in its journey from the end of the line to the consumer’s home.
Current producers of food, beverage and other CPG products acknowledge that e-commerce is a growing part of their business. Some that produce more “shippable” products like toilet paper or cotton swabs or certain canned goods may have an easier time embracing an e-commerce economy from the packaging perspective. There is a good chance that those types of manufacturers can distribute their products directly to consumers with very little change to their primary packaging and manufacturing infrastructure. On the other hand, providers of more fragile products like pretzels, chips or beverages may really have to “change up their packaging game” in order to distribute their products through e-commerce retailers or directly to consumers.
I have yet to hear much about how producers of the types of products which would not do well in a multiple touch point distribution system, like a typical e-commerce scenario, are taking a strategic approach to the idea of developing specific e-commerce SKUs. Embracing the idea that the packaging they use should be designed from the beginning anticipating an e-commerce distribution system rather than shoe-horned in after the fact.
I realize that for manufacturers the idea of producing e-commerce only SKU’s can be daunting and potentially costly. I’m not necessarily suggesting that every size or count or SKU that a company produces for a regular retail environment should be produced for e-commerce. But I do believe that as consumers’ expectations for instant gratification with purchases continues to grow, and the frequency of on-line shopping for products that they might typically buy in a grocery store increases, those manufacturers who do not change up their game and commit to a product portfolio strategy that embraces the production of e-commerce specific packaging will be left behind. I believe that in my lifetime we will not see the demise of the typical retail grocery establishment but we will see an increasing use of the point and click approach to grocery shopping. I haven’t completely gotten on that bandwagon yet but I do like my Amazon Prime and I like having “presents” show up at my house without too much effort on my part. Who knows before too long I may be one of those on-line grocery shoppers.
For those that have not yet done so I think it’s time to step back and consider the development of an e-commerce packaging strategy from the ground up. Look at your product portfolio. Determine which products and packaging could live in an e-commerce world and which could not. For those products or packages that cannot, begin to develop a portfolio of e-commerce specific packaging options, or consider modifying the products themselves to help them better survive a distribution system with multiple touch points. Consider developing packaging that that better takes into accounts the needs of e-commerce, (shipping in its own container or working well in an overboxing scenario.) Look at how you can change up your package offerings to be more frustration free. Focus more on delighting consumers in the Second Moment of Truth, when the product arrives at their home and they have the opportunity to interact with it, rather than on the First Moment of Truth which would be more relevant in at a typical retail scenario.
For those of you who have not yet started to embrace the development of an e-commerce packaging strategy, Product Ventures can assist you in envisioning what your e-commerce packaging world could look like. Please feel free to give us a call to discuss your needs and challenges. We have a broad range of experience conceptualizing e-commerce packaging systems. Perhaps we can provide the unlock that you need to continue to grow your business in the evolving world of e-commerce and in “The Last Mile” to the consumer’s home.
Eric Hartman is the Vice President Technologies & Commercialization for Product Ventures.
Contact Eric at 203.319.1119 or ehartman@productventures.com.