Brand Building and Messaging when Updating Packaging

If you are in a business that sells products, the time will inevitably come when you will want to update the look of your packaging.  Overtime you will learn things about your existing package that need to be changed, you will desire to modernize the feel, you will want to evolve the logo or communication, etc.  Updates to packaging are perfectly natural and healthy as long as the changes do not erode your consumer base.  Frequent changes are unhealthy since it destroys your brand equity.

Brand Equity

What is brand equity?  In the world of accounting, it is considered an intangible asset which is quantified to add value to a companies assets.  In marketing, it can be defined as the awareness or recognition of a brand.  The stronger the equity of a brand, the more recognizable it is.  With that in mind, brand equity is a function of the things that help consumers to recognize the brand.

Let’s look at Goldfish by Pepperidge Farm as an example.  On the packaging examples below, you will see the original Goldfish Cheddar and a line extension – Goldfish Colors.  I’ve circled in red and pointed to in blue the significant points of recognition on this package that contribute to the brand equity.

Goldfish Brand Equity

You will see that whether on the original item or the line extension, Goldfish marketing has kept the following consistent to maintain the brand’s equity in order to help consumers recognize the brand:

  1. Central lock up with brand and product logo
  2. Goldfish illustrated character at the same location and same look and feel
  3. Product imagery to set consumer expectation on the bottom left
  4. The colored swivel shape that wraps around the central lock up (yes, a shape can be an equity!)
  5. The white background (believe it or not, color does contribute to the equity!)

I’m classifying these as the consistent factors that significantly contribute to the brand equity.  If Goldfish were to redesign their packaging, maintaining these 5 characteristics in the above would be a must and changing any of the five would result in severe risk to the equity that the brand has developed.

Communication Hierarchy

Another packaging component that you will want to consider is the ranking of the messaging that you want to communicate.  Typically a consumer makes an impulsive purchase decision within 2-3 seconds of looking at a product.  You may have 5 things that you want to communicate on your product, but in reality, only 1-2 of these will be seen within this 2-3 second window.  Therefore, you need to prioritize the messaging and the placement of the messaging to get your points of difference or product benefits across.  If you attempt to communicate too much, the package will look too busy and the messaging will be lost.

Let’s look at Fruitables for example:

fruitables packaging

I notice the following messages being communicated on this pack:

  1. Standard of Identity: Fruit & Vegetable
  2. Benefit: 1 Combined Serving of Fruits and Vegetables
  3. Flavor: Tropical Orange
  4. Pack Size: 8 Pack

The most prominent messaging is that this is made with Fruits and Vegetables. This is right in the center of the package and arguably communicated twice through the branding and the identity. The second most prominent message is the flavor, since this is second largest and takes up quite a bit of real estate on pack. I’m sure that the brand team did some decision tree mapping to determine how consumers shop. In this case, it appears that consumers first shop by positioning (fruit and vegetable beverage) and then by flavor. Lastly, the product benefit of 1 combined serving of fruits and vegetables is the third thing that pick up on since it is not as large and has more fine print.

What packaging related questions do you have?

The Basics of a Product P&L

Creating a P&L for all products that you sell will ensure the success of your small business.  The purpose of a P&L is that it allows you to have visibility into your profitability, costs, opportunities for cost reduction, and better management of your final retail price points.

My favorite P&L template divides your inputs and factors into four sections:

  1. Retail Price Drivers: Since the retailer that you are selling your product to typically will have a margin requirement to ensure their profitability, the price that you will be selling to them for ultimately determines the final SRP.  This is important because in small business marketing, we always want to be ahead of the game and make sure that we price competitively in-market by staying below key thresholds, undercutting or pricing in-line with competition, etc.
  2. Product Margin Factors: Your product margin is the area in the P&L that allows you to have visibility into the costs that you have control over.  For example, the cost to produce is controllable since you can always produce more efficiently, more cheaply (lower quality…not necessarily recommended!), etc.  The trade rate is the amount of funding that you want to allocate in market to offer discounts on scans (controllable) for the specific item that you are accruing a trade spend on (via the P&L).  The cash discount line is a way to incentivize retailers to order more product (i.e.: if you order a full truckload, I will knock off 2% off invoice).  And finally, if you are a food company, your spoils theoretically is a cost of manufacturing since you are over producing for what the market could bear – forcing you to buy back.
  3. Gross Margin Factors: The inputs that are typically out of your control.  For example, pre-negotiated rates if you sell through a broker, distribution costs, warehousing costs, selling expenses, and marketing spends.  Marketing spend is the odd ball here since you do have control over this spend.  However, at most companies the marketing spend is found below the product margin line since marketing dollars that you accrue don’t necessarily have to be used on the product that you accrued it on.  Therefore, removing this line from the product margin line frees up your marketing spend to be spent against any product that you sell.
  4. Profitability: The bottom line and how we manage to stay in business!

 

There are many things that I would like to explain to you on this P&L. In particular, two things that I will write about later are:

  • How to determine your trade rate and how to offer an EDLP (everyday low price)
  • How to improve your profitability while managing the retail price

In the meantime, what questions do you have on P&Ls?

Pricing Scenario: Shipping Through Distributor or Direct

If you own or manage a business that produces products or services (like essay writing where students are in search of where to pay to write essay ) that sell through a retail channel, there are two pricing scenarios that you need to develop so that you can determine what your selling price will be to either the retailer and the distributor that will sell to the retailer and within these two scenarios, two additional scenarios for a pick up price (at the manufacturing or warehouse location) or delivered price.  Potentially, you can have multiple delivered prices (full truck load, limited truck load, etc.) as illustrated below:

Pricing Scenarios

Because of the above, in order to sell efficiently as a small business owner or manager you should be creating two separate price lists if you sell your items both direct to retail or through a distributor (who then sells to the retail) – one price list for direct customers and another for distributors.  On each price list you should provide one set of prices quoted as both FOB (AKA pickup) and delivered for all of your products.  Although this is not really what I want to cover in this article, the benefits of separate price lists are:

  1. Easier to manage your targeted SRP by adjusting your sell price.  Typically, your selling price to distributors should be less than that to direct customers because ideally you want your SRP to be one price at any retail location (this will be further discussed below)
  2. Since more margin is added when going to distributor vs. direct, which results in two different sell prices, it becomes easier to manage your profitability by have P&Ls for direct customers and P&Ls for distributors
  3. Custom programs.  Some distributors are not properly educated on your product benefits.  Paying extra money for placement in their catalog so that you can drive messaging and awareness to the local reps within the distributor company could be the difference of a distributor pushing your product vs. not pushing it

Now going back to the original point of the article: how to develop the two separate pricing scenarios.  Let’s assume that the average retail margin is 40% and the average distributor margin is 10%.  Let’s also assume that at a sell price of $1.50/unit, you will be hitting your targeted profit margin.  Below are the SRPs for Direct and Distributor based on the above:

Direct Customers: $1.50/(1-.6) = $2.50 SRP

Distributor: ($1.50/(1-.9))/.6) = $2.78 SRP

As you can see from the above, you pricing structure will not be consistent in stores that ship through distributor vs. stores that ship direct from your plant.  In order for the Distributor pricing to lead to $2.50 SRP, the sell price would need to be $1.35 as opposed to $1.50. Or, your Direct price should bump up to $1.67 to deliver a $2.78 SRP.  You might be wondering what this has to do with marketing?  Well, if your direct price is the same as the distributor price then good luck trying to sell to large customers.  They will know and recognize that you aren’t giving them the best deal since going through a middle man is always more expensive.  Therefore, two separate price lists is the way to go so that you can have two different pricing structures.  Furthermore, your direct customers will never see your distributor pricing and vice versa, always giving you more leverage.