  Unlocking the Power of Package Design:
Building a Business Case

Design innovation evangelists can finally take a well-deserved breather. There is no shortage of examples describing how design can resurrect once-troubled firms such as Apple and elevate others such as LG and Samsung to premium status. Brands like Method, with its category-busting aesthetic, leapt straight onto the big grid of home and personal-care products. And juggernauts like P&G have used product and package innovation to reinforce their leadership role in categories from razors to detergent. There remains very little debate on design’s criticality, especially within the world of consumer goods.

While we can all appreciate a “good” or “well designed” package when we see it on the cover of Business Week, it’s harder to know “how good is it?”, “is it good enough?”, and “is it worth it?” before making the investment.

This last question – “Is it worth it?” – is the focus of this paper. All too often, package design innovations fail to see the light of day not because they lack shelf impact or functionality, but because their sponsors lack the tools or understanding to fully frame the benefits a new package can bring in the form of lowering costs, improving efficiencies, and increasing sales.

Understanding how to frame decisions about design at the project or product level – in theory and in practice – can accelerate a brand’s growth and profitability. We will address this in three parts:

First, by recognizing the importance of quantification when building a business case.
Second, by identifying design-influenced value levers.
Third, by using a simple calculator that can help elicit decision criteria and facilitate optimized choices.

Before addressing the necessity of quantification, we begin with some research that underscores the power of design.

Beyond Anecdotes: The Financial Impact of Design Innovation

Research has shown a link between the use of design and improved business performance across key measures, including share price, profit, and market share growth.

A comprehensive study by The UK Design Council, titled The Impact of Design on Stock Market Performance, followed a group of more than 150 public companies recognized as effective users of design.

Over a 10-year span, this group of design-oriented companies out-performed the stock market indices by over 200%. From 1994 to 2004, design-oriented companies saw their stock prices appreciate over 260%, while the general stock market grew by less than 60%. This strong performance was true across industry segments and in both bull and bear markets. Indeed, the design-oriented companies saw their stocks appreciate more in bull markets and decline more slowly (or not at all) in bear markets.

Recognizing the Importance of Quantification

The discipline of package design operates alongside many other functions within a typical firm. The package designer (be it a person, a team, or an outside agency) needs to work hand-in-hand with these other functions to effect change. Efficient and profitable custom packaging programs demand that all players impacted by a package introduction (or change) be aligned on the strategic goals and critical actions. Furthermore, the final decision on whether to introduce new packaging will usually be made by someone other than a package designer, such as an individual who is accountable to the overall P&L.

One challenge for design innovation champions is that these other corporate functions are generally more numbers- and metrics-oriented (note the left-brain emphasis on analysis and numbers vs. the right-brain emphasis on imagination and spatial perception). Consider these scorecards used by other functions:

Sales: revenue growth, number of customers, price realization.
Procurement: cost per component, gross-margin percent.
Manufacturing: line speed, uptime, scrap rate, conversion cost.
Operations: storage cost per pallet, inventory turns, freight rates.
Finance: capital spending, EBITDA growth, working capital levels.

To get approval and support for a custom package development project, design innovation proponents must appreciate the “quantitative world” that they need to please and build a business case that enumerates the benefits of a packaging change in the language the other stakeholders will understand: numbers.

Identifying Design-Influenced Value Levers

An effective package design ultimately needs to drive profit dollars to a brand. At its core, a successful package should better connect with consumers and retailers; it should make the brand more relevant. This, in turn, increases the perceived value of the total product, increasing consumer loyalty and the brand owner’s pricing power.

There are multiple value levers that design can influence, and all should be examined for their positive or negative effects.

Price

The everyday selling price could increase because the new design imparts a more premium image. The brand’s promotion depth or frequency could be reduced, improving the average selling price. And the retailer margin might decline as brand strength increases, unlocking higher pricing to the brand owner.

Variable Cost

Package component costs could decline if the redesign removes material or shifts spending to components with higher volumes or more competitive suppliers. The cost of the product being packaged could decline if package downsizing is incorporated into the strategy. And freight costs could decline if the pack-out efficiency improves or the redesign allows for manufacturing or filling at a location closer to the point of distribution or the end customer.

Quantity

Forecasting demand is difficult but essential. It begins with using current conditions as a base case (e.g., market share, penetration of consumer segments) and considering variables such as trial rates for new users and repeat rates (and impact on longer-term loyalty) for existing customers. An effective package redesign should improve awareness, trial, and repeat sales for a brand, driving greater overall demand.

Fixed Cost

Most package changes come with fixed or one-time costs. These can include cost of building a mold, the cost of plates for new labels, or the cost of transitioning or scrapping the old packaging stock. Not all of these costs need be borne by brand owners, who often work with their supply bases to offset one-time costs.

The graphic below depicts one way of visualizing these elements. On the left, we see the profit pool created today. On the right, we see a larger profit pool created by the movement of these levers.

This snapshot does not capture all the nuances of the elements highlighted above. It also does not capture the notion of time – how do these prices, costs, and quantities change this year vs. next year? Assuming that the status quo package has no “costs” may be foolish if the firm is selling less and less each year, at lower and lower prices, as consumers move away from today’s products to more relevant offerings.

Case Study: VPX Redline

VPX Redline is a super-premium line of advanced nutritional supplements designed to help consumers lose weight, build muscle, and improve focus and reaction times.

Originally packaged in aluminum cans by Vital Pharmaceuticals, Redline’s packaging was functional but expensive. In addition to the high unit costs of the container itself, VPX was saddled with high scrap rates from dented and scraped cans, either or both of which could occur at any point in the supply chain.

VPX engaged Berlin Packaging and its design division, Studio One Eleven, to analyze Redline’s packaging and to provide a solution that was functional, attractive, and profitable.

Within a matter of days, Studio One Eleven offered a PET package that was less expensive at the piece-price level without the denting and scratching issues of the outgoing container. Since the Studio designed the new container to work on the same filling equipment as the outgoing container, changeover costs were minimized and the process was quick and painless. The new container saved over $1 million in COGS in the first year.

All this was forecasted in the business case at the outset of the project, making a compelling case for redesign. In addition, consumers have great things to say about the new package. Sales of VPX Redline are up over 200% in the year since the packaging change.

Using a Simple Calculator

As noted above, the most compelling business cases show strong contrast between the economics of implementing a new package and the economics of retaining the status quo.

It’s easy to get into a complex, burdensome analysis, but we recommend starting with a simple, top-down approach. The outcome of this analysis can easily be shared with stakeholders to lay the groundwork for a more detailed business case or to identify the key areas of concern that warrant further study.

Berlin Packaging offers a Package Design Benefit Calculator to help with this step. This calculator has three key elements.

First, the user enters some data about the current situation – the annual unit volume, pricing, and variable costs.

Second, the user provides assumptions for the potential impact of a redesign on volume, price, and variable and fixed costs. They also provide this same information under the “do nothing” Status Quo scenario of retaining the current package. These assumptions are provided for each of two years.

Third, the calculator delivers the net benefit of design by comparing the “Pursue Design” economics with the “Status Quo” scenario. Sensitivities to the assumptions can easily be modeled to find break-even points below which custom development may not make sense.

A snapshot of this tool is provided below. This example models a brand that sells 5 million units annually. Over the course of two years, the assumptions suggest that a new package design will generate almost $2 million in additional profit.

This is a simple tool, but it is based on sound principles. It encourages design champions to build quantified business cases and to engage other corporate functions in discussions that will build consensus around the role that package design can have on a brand’s success.

To download a copy of this calculator (a Microsoft Excel workbook), click here or visit BerlinPackaging.com/DesignCalculator.

Getting Started

Building a business case for design innovation starts with good design solutions. The CEO and CFO will have little patience for pursuing design as an activity for its own sake; rather, it needs to be for the sake of marketplace success.

So a package designer must first uncover their consumers’ needs, their brands’ category language, and structural and graphic cues that will communicate clearly and effectively. (This, of course, is a gross simplification of the design process. The salient point is that the onus is on the designer to advocate for contextually relevant solutions.)

The next step is for the package designer to build a business case using tools such as Berlin Packaging’s Package Design Benefit Calculator.

For companies without design resources or those that wish to augment their internal team capabilities, the best design partners and agencies (like Berlin Packaging’s Studio One Eleven) can shepherd you through the innovation process and help quantify how the proposed custom solutions mesh with the business’s overall goals and objectives.

Summary

Superior design is strongly, positively correlated with business success. But all too often, companies burden design projects with all the “costs” without considering the benefits of design. This incomplete framing leads some firms to forgo innovation, leaving their products with a stagnant shelf presence and their consumers disenchanted. Indeed, innovative custom packaging can increase prices, reduce costs, and improve volume and loyalty. Employing a numbers-based business case approach to innovation advocacy is the best way to demonstrate the power of design and build support among key constituents and decision makers. Even simple tools that compare “Pursue Design” to “Status Quo” financial scenarios do much to promote discussion about how best to build successful brands and the role design innovation can play.

Designing a Winning Package Structure: A Process for Delivering Delight

Studio One Eleven · February 10, 2015

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Designing a Winning Package Structure: A Process for Delivering Delight

Package design can be a powerful differentiator and growth catalyst. But when pursued without understanding the implications of packaging change, uninformed design can lead companies down a path of value destruction. For every company that has transformed itself through smart design and branding (e.g., Target, Apple, Kia, Dyson), there are many that have wound up with egg on their faces (e.g., Tropicana’s failed 2009 rebranding). With product life cycles shrinking and shelves filled with custom designs, many marketers view inaction as a non-option and embark on “design for the sake of design” projects that fail to deliver results or even damage their brand.

As a result, if you’ve been involved with a package design process, you likely have polarized opinions about the benefit of design: either you have seen the uplift in your brand and market performance, or you have been disappointed in the experience due to the time investment, cost penalties, and consumer or retailer disengagement.

Our companion white paper, Unlocking the Power of Package Design: Building a Business Case, provides a roadmap for getting the right design projects approved. But then what? This paper is about setting up a design process for success. There are many steps to take and partners to engage; each one presents possible perils. We aim here to reduce the risk of failure.

To ensure a healthy design process, we will address four key imperatives:

First, don’t design on a whim.
Second, have aligned incentives.
Third, embrace a complete, end-to-end process.
Fourth, anticipate bottom-line results.

All of these imperatives apply when designing a package structure, and this paper focuses on structural design more so than brand strategy or graphic design. However, these imperatives can also apply to brand strategy, visual identity, decoration, and other non-structural disciplines.

Before digging into our first imperative, we will visit some of the common pitfalls that arise from packaging designed without a proper process in place.

Design Pitfalls

Every design project and product launch is filled with challenges that can wreak havoc on the outcome. Some of the most notable risks include:

Ignoring the product category dynamics. Each category has an identifiable visual language and specific competitive dynamics. Landing too close to other brands or too far away from category signposts can confuse consumers and jeopardize your launch.
Not capturing the consumer’s imagination and needs. A redesign that violates preferred ergonomics or is dissonant with a brand’s personality is a step backwards.
Failing to accommodate the needs of manufacturing and operations. Without the right technical expertise, it’s easy for a package to be a logistical albatross. No matter how compelling a package concept looks on paper, the engagement is a failure if the concept doesn’t fill, take decoration, and move through the whole supply chain smoothly.
Alienating retailers. From shelf height to facing width, retail placement constraints must be understood and adhered to. Lacking support at the shelf is a tall hurdle to overcome.
Paying expensive fees. Six-figure invoices from design firms are commonplace. And that’s just for design sketches and maybe prototypes, not commercially-viable packaging options.

So the question is: how do you unlock the benefits of design while avoiding the landmines? Following these four imperatives can help you do both.

Don't Design on a Whim

Many of the pitfalls described above occur because the entire design endeavor is approached with the wrong mindset. Even the best companies and brand managers can be plagued by hubris that leads to shortcuts.

If you have mere opinions on consumer preferences and some ideas of design elements “that might be cool to explore” without a substantive understanding of either consumer needs or how design can fulfill them, then you are designing on a whim. This whim-based approach kicks off what we call the Design Doom Loop.

This cycle, which starts with a person designing on a whim, leads to a series of self-reinforcing consequences:

Added complexity as products get new bells and whistles.
Higher costs as design changes create direct and/or indirect costs through the supply chain.
Raised prices to offset the unexpected higher costs (only rarely will someone anticipate that their redesign will lower margins).
Damaged brand due to poor fit with consumer needs and a higher price. Disengaged consumers who vote with their wallets; instead of your product, they opt for competing products that deliver better value.
Overall total profit declines.
A scramble to repair the brand’s financials. “This wasn’t the intent of the redesign! We need to fix this quickly!” This scramble often leads to more shoot-from-the-hip fixes and more design-on-a-whim actions, which start the whole cycle again.

We advocate a more thoughtful approach that will instead yield a Design Delight Loop.

By starting on a firm foundation of insights around the category, the consumer, the customer, the brand, and manufacturing protocols, the design loop can be much more satisfying. Indeed, the Design Delight Loop sees:

Complexity managed.
Costs coming down even in light of necessary capital expenditures.
Prices held fl at or increased to capture more of the consumer value created.
Improved brand impression.
More loyal and engaged consumers.
More profit that can be returned to stakeholders or reinvested to make the product even stronger in the marketplace.

The “loop” you pursue depends very much on your mindset. But there are other factors at play that also influence the effectiveness of your design approach. We now address the dynamics of partners and process.

Have Aligned Incentives

Most companies will turn to outside support and consultants for design assistance. This makes a lot of sense for two reasons. First, design is a specific skill-set that’s often needed in sudden spurts, so having people full-time on staff doesn’t make sense for most companies. Second, the best designers get better by being exposed to many industries, situations, and brands; so the variety of a consultancy model inherently delivers better results. What’s critical, however, is that the design assistance you choose has the right incentives.

Most independent design firms charge by the hour. The more hours they invest, the more they earn. If it’s in your interest to move quickly, there are misaligned incentives with firms that sell their time.

Another solution is to work with the internal “design department” offered by package manufacturers. There are two problems here. First, these departments don’t have leading-edge creative resources. Second, the overall incentives are not well aligned. A manufacturer who owns machines is incentivized to fill capacity on those assets. Designers working in this environment will strive to give you a solution that runs on their machines rather than a solution that best meets your goals.

A better solution, regardless of the partner you choose, is to pay only if the redesign is successful. This perfectly aligns incentives, as the designer is forced to give you a solution the marketplace accepts. Very few design firms will accept these terms.

The ideal solution is to find a qualified, unbiased designer that doesn’t charge at all. We will see one example of this model later in this paper.

Embrace a Complete, End-to-End Process

With the right design resources engaged, the next step is to pursue a thorough process to uncover, refine, and execute the best design. When it relates to package structure, we recommend a six-phase approach.

Phase 0 – Pre-Design Analysis

This first phase is about research, understanding, and goals. Key elements include a complete situation assessment of the target brand’s positioning and equity, its history, its category, its competitors, and the channels it competes in. You want to learn about who the target consumer is, the way they interact with the product, and the attributes to which they assign value. No design work happens in this stage. Instead, the foundation on which design can occur is established. In addition, Phase 0’s output includes success criteria against which Phase 1 ideas will be judged.

Phase 1 – Ideation

Pen hits paper in Phase 1. Taking all the insights learned in Phase 0, this step is about exploring creative solutions. Solutions in this phase should be far-reaching and include designs with different degrees or applications of:

Features and functionality,
aesthetics,
risk, and
unit costs or system costs and investments.

Divergent thinking is the rule of the day in this phase. The output of Phase 1 consists of pages of sketches and ideas.

Phase 2 – Evaluation

In Phase 2, we pass the solutions generated in Phase 1 through the success criteria “filter” we developed in Phase 0. This Evaluation phase applies a reality check and forces tradeoffs against the goals. To ensure an efficient subsequent process, it’s critical that all stakeholders have a chance to weigh in at this stage. All parties affected by a change in packaging (or a new package) should be represented.

The output of Phase 2 consists of dimensional drawings and a list of areas for further consideration and refinement. Sometimes preliminary consumer or customer reaction can also be an outcome of this phase.

Phase 3 – Refinement

The Refinement phase involves functional or visual prototyping (rough or fancy) and consumer feedback. Manufacturing engineers should be engaged to check that the design solution is manufacturable and to weed out production surprises. Unit-cavity molds are often made to see a true representation of what the product will look like.

Up to this point, the phases can occur in sequence, but also with iteration and backtracking. If new consumer learnings arise in Refinement, for example, it might make sense to backtrack to Ideation and Evaluation. As we exit Refinement, there should be very firm confidence in the design solution.

Phase 4 – Preparation

Phase 4 is about preparing the package for implementation. Final drawings are prepared and approved, steel is cut for molds, production-tool samples are evaluated, color matches are reviewed, and testing is performed as required (e.g., drop tests or child-resistance tests).

The cooperation between design and manufacturing must be very tight at this point. Project management is an essential skill throughout the six phases, but it is mandatory at this stage. All the work that’s been put into the design is coming down the home stretch.

Phase 5 – Production

We are now in full production. The design process is not over, though, as we now listen closely to all key constituents. How is the package manufacturing and filling going? What are retailers saying? Are consumers engaging? Even when a package is in production, enhancements and tweaks can be made to maximize impact and efficiency.

These six phases may seem long and bureaucratic. They don’t need to be. What’s important is to have these phases in mind and to not skip steps as you pursue your new design.

Case Study: Turtle Wax

Turtle Wax has been a global leader in car care for over 70 years. No single item in the company’s 1000+ SKU line-up was more closely associated with the brand than the iconic Super Hard Shell Paste Wax.

Although the SHS package was universally recognized, it had a history of consumer and retailer complaints and had fallen behind the times against a backdrop of competitors’ new packaging.

Turtle Wax engaged Berlin Packaging’s Studio One Eleven division to assist them in contemporizing and improving the functionality of the SHS package without losing any of the equity the brand has in the market.

Following is a quick illustration of each of the six design phases.

Phase 0 – Pre-Design Analysis
An in-depth review of the car care category and paste wax competitive landscape was conducted, including consumer data reports, user interviews, and retail visits to support and build an understanding of “automotive culture.” The team identified two target user groups and defined target audience needs.

Phase 1 – Ideation
A wide array of ideas covering a range of functional package themes and architectures were sketched, with a focus on maintaining the “core equity” of the Turtle Wax brand as well as improving the entire product experience. Starting with retail merchandising, the team incorporated locator pins into the top and bottom of each container so that product facings were aligned. Perhaps most important to the end user, the opening and closing of the container was simplified to greatly reduce the chances of accidental opening and spilling.

Phase 2 – Evaluation
After the sketch concepts had been vetted with consumers, preferred concepts were built in CAD and modified for operational constraints. A range of prototypes were created for additional consumer testing, starting with photo-realistic renderings and ultimately leading to full appearance prototypes.

Phase 3 – Refinement
Once a preferred solution had been identified, design and engineering teams worked hand in hand to tackle the technical challenges of the four-component assembly. This included several rounds of functional prototypes and refinements to unit-cavity tooling of the jar and snap-on overcap.

Phase 4 – Preparation
With the same design and engineering team as well as the manufacturing partners selected in Phase 2, lead times and launch dates were seamlessly aligned with machine platforms and schedules on two continents. Although the two custom injection-molded components were made across the ocean from the jar, the package quickly proceeded through the filling line trials and production sample approvals.

Phase 5 – Production
Production ramped up smoothly. Design elements – notably the proprietary twist-open, locking mechanism engineered to ensure that the package stays neatly sealed and stacks properly on shelf – worked as planned. The shipper carton was modified to achieve tighter packout per carton and more cartons per pallet, which lowered freight costs.

The new Turtle Wax package entered the market in 2010, and the results have been excellent. Unit sales increased immediately and continued to climb, with increases at both the six-month and one-year reporting periods. Ultimately, the improved shelf presence and optimized overall packaging costs have significantly contributed to Turtle Wax’s bottom line. In addition, the new package has been featured in a variety of industry publications and has won design awards.

Anticipate Bottom-Line Results

Ultimately, a strong design process – and a world-class design partner – will deliver results. There are many possible metrics to track, depending on the specific situation. Some options include:

Higher revenue: more SKUs slotted, more shelf facings, higher consumer awareness, more consumer trial, better consumer engagement (higher loyalty scores and greater share of wallet and more frequent purchases), and higher realized pricing.
Lower expenses: lower piece cost (less material, less scrap, better manufacturing efficiencies), lower freight costs, reduced inventory, fewer returns, and fewer advertising and promotion dollars (because the product can speak for itself on shelf).
Product reviews and positive press: accolades from consumers, media, and industry publications.

These metrics should be discussed at the beginning of a design process and measured once the product rolls out. If you have followed the guidelines outlined above, you should have a substantial return on investment that more than justifies the redesign.

Spotlight on Studio One Eleven

Studio One Eleven is the design and marketing services division of Berlin Packaging, a leading supplier of rigid packaging.

Studio One Eleven has deep experience in brand strategy, visual branding, and structural packaging design for customers across virtually every industry. Every engagement starts with a Phase 0 assessment of the market and the consumer with clear goals for success, and continues with support through Phase 5 to ensure manufacturability and functionality of all design elements.

What sets Studio One Eleven apart from other design firms is the lack of large design fees. Customers get the benefit of a world-class team of designers, strategists, and engineers in exchange for purchasing the resulting packaging solution through Berlin Packaging. Because Studio One Eleven is rewarded when Berlin Packaging sells packages, the team is solely fixated on the success of their designs in the market rather than packaging awards or billable hours.

The result is a powerful, self-reinforcing design system – with aligned incentives, an end-to-end process, and demonstrated results.

Getting Started

Designing a new product or redesigning an existing offering can be thrilling when done right. While it’s a complex process, there are three questions that can help get you started.

Why is design helpful for me?

You must understand the category, consumer, and competitive dynamics of your category. Look at examples of how design is helping brands and companies thrive (or hurting brands that do it poorly) to gain insight into the value of a strong package in driving competitive advantage.

When should I use design as a tool?

You need to read the pulse of your brand – is it looking stale, is it losing share, is the category changing? Some companies need help with this decision, as they either don’t have the expertise or the objectivity to make the decision on the role of design. You can use the Package Design Benefit Calculator to build a rough business case for new design. (To download a free copy of this calculator, visit BerlinPackaging.com/DesignCalculator.)

Who can help me?

You can choose from a wide array of partners. Design consultancies can be good at Phases 0 and 1 of the six-phase process outlined above, but they do not perform well in Phases 2 and beyond. Manufacturing firms’ design groups can be good at Phases 3 through 5, but they do not usually have the degree of creativity and breadth of solutions that can excite a market nor the incentive to propose designs that they cannot manufacture themselves. Hybrid design/packaging supply companies provide expertise in all six phases, an unlimited range of manufacturing options, and (in some cases) design services provided at no charge in exchange for packaging business. Select the partner that best complements your strengths and weaknesses.

Summary

Package design is often challenging to execute well. There are many pitfalls that companies can encounter. Indeed, attempting design with improper preparation and a disjointed process can lead to higher complexity, higher costs, lower margins, and disengaged customers and consumers. A robust approach – one that promotes success – honors four imperatives. First, don’t design on a whim. Start with a keen insight into your marketplace and brand and with a set of clear goals you hope to accomplish with design. Second, pick a design agent that has aligned incentives. It usually makes sense to engage a design consultant, but many of them have incentives in conflict with your own, so this choice must be made carefully. Third, embrace a complete, end-to-end process. We outlined a six-phase process that balances divergent and convergent thinking. Each and every stage is critical to success. Finally, anticipate bottom-line results. In today’s competitive marketplace, companies want and need to use design to gain market share and deliver financial returns. Taken together, these four imperatives establish a road-map for getting winning designs into the market while minimizing missteps and pitfalls.

Brand Strategy and Packaging Graphics: Making a Consumer Connection

Adrienne Porter · February 7, 2015

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Brand Strategy and Packaging Graphics: Making a Consumer Connection

A brand is the visual, emotional, rational, and cultural image and experience that you associate with a company or a product. When you hear of Nike, you probably think “Just Do It.” When you smell a pretzel in a mall, you might think Auntie Anne’s. The fact that you quickly associate a slogan or smell with a brand makes your connection with that brand stronger. Importantly, it also makes product selection easier and enhances the value and satisfaction you get from the product or service.

Some brands are so strong that they are transcendent – they become synonymous with a category. McDonalds is all about burgers and fries; Budweiser is the King of Beers. McDonalds and Budweiser are so successful because they have invested in many elements that come together into a strong brand. Packaging is an important element of how brands get created and embraced.

Our white paper, Designing a Winning Package Structure: A Process for Delivering Delight, describes how to build a package structure that works with consumers, retailers, your brand, and your financial targets.

In this paper, we turn to how to wrap that package structure with the right graphics. Graphic design includes colors, logos, typefaces (and much more), all of which have the opportunity to bring more meaning to a package and, therefore, a brand. Graphic design can be used to distinguish a brand among a sea of competitors and create a tighter relationship with the consumer.

Indeed, successful companies build their brands using visual cues. When you see these logos, you start to make immediate associations.

Getting hungry?

Have a song in mind?

Ready to play?

But graphic design can’t be done in a vacuum. This paper explains how to think about your brand strategy overall and how graphic design can be used to improve your brand’s resonance with consumers. We will address four questions:

How healthy is your brand?
What are the considerations in designing and redesigning a brand?
What is in the branding and graphic-design toolbox?
How should the creative process for packaging graphics be structured?

Before getting into how well your brand is faring, we first turn to what a brand really is.

Branding Basics

The American Marketing Association narrowly defines a brand as a “name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers. A brand may identify one item, a family of items, or all items of that seller.” We assert a brand is more than a name or symbol; there are many elements that make up a brand. We use the “Six P” model, which is shown here. A brand is the culmination of:

Product: What the consumer is looking to get; the formula and key ingredients.
Package: What the product is contained in, which includes the structure, the brand identity, and the graphic communication hierarchy.
Position: How the offering is differentiated from the competition; the key elements for consumers to appreciate and the supporting “reasons to believe.”
Price: How much the offering costs consumers.
Promotion: How the offering is presented in the market to attract consumers; special offers, displays, and bundling are all examples of ways to drive trial and repeat.
Perception: How the other five “Ps”’ are interpreted by the consumer; this is what the consumer ultimately experiences and represents what the brand means to them.

In this paper, we focus primarily on packaging graphics, which are embedded in the Package element. Graphic design, when handled in concert with the other branding elements, can play a powerful role in how consumers notice, engage, and experience a brand. Tazo Tea provides one example.

Case Study: Tazo Tea

Tea has been around for centuries. But in the last two decades, tea has seen resurgence.

Tazo is one brand at the forefront of this upswell. Tazo was founded in 1994 and was inspired by the coffee culture trend emerging in the US with the ascent of Starbucks. Part of Tazo’s success was the strong brand identity and transformative packaging that harks back to the origins and heritage of the tea trade. Key branding elements used by Tazo include:

A brand mark inspired by ancient alchemical symbolism.
An evocative tagline – “The reincarnation of tea.”
A muted color palette recalling aged tea chests.
Typographic styles synonymous with antique manuscripts.
Distressed textures to infer aging and ancient origins.
An authenticity achieved with influences from high-end spirits packaging (seals and cigar bands).

When combined with the aroma of tea, the overall packaging is powerful. Consumers have responded well, and millions of cups of tea are brewed with Tazo leaves.

In 2013, Starbucks, which now owns Tazo, changed Tazo’s packaging and positioning to be more contemporary and sleek. Time will tell if they are making the right moves with a brand that distinguished itself with its packaging.

Brand Health

Consumer Purchasing Funnel

A successful, healthy brand must capture the hearts and wallets of consumers. A brand must be:

Relevant – consumers must see it addressing a need or desire they have.
Deliverable – the company must have a means to follow through on the brand’s promises.
Credible – the company behind the promise has to be believable.
Differentiated – it must possess qualities that cause it to stand apart from other brands.

Doing well against these dimensions will propel consumers through the consumer purchasing funnel. Brands that fire on all cylinders – relevant, deliverable, credible, and differentiated – are able to cut through the clutter and attract attention, engender familiarity and consideration, and motivate shoppers to try the product.

Conversely, if a brand is failing on any of these dimensions, it’s time to return to the drawing board and think of ways to revitalize the brand.

Indicators that a brand is unhealthy include declines in critical metrics:

Facings – retailers are allocating space to other brands.
Sales velocity per facing – fewer consumers are pulling the product off the shelf.
Brand equity scores – consumers are not hearing, understanding, or appreciating the brand’s positioning.
Pricing – unpromoted prices are declining and promotions are becoming more necessary to move volume.
Loyal consumers – competitors are winning with your core audience.

Brands can be recharged by refocusing on the fundamentals and the “six Ps” discussed earlier. Target is an excellent example of rebranding success. In twenty years, the company went from being a tired, second-rate discounter to a leading-edge, contemporary retailer that partners with the likes of Neiman Marcus.

The same transformative story can occur in the world of packaged goods if approached properly.

Considerations for Brand Design and Redesign

Building a brand is a complex process involving many disciplines, tremendous research and insight, and creative flair. While we cannot synthesize this entire process here, we can highlight some of the key considerations and decisions that must be addressed in creating a brand. We will cover four areas:

consumer dynamics,
category dynamics,
positioning statement, and
portfolio connectivity.

Each of these areas is important, and each helps inform how graphic design and identity can communicate key themes and messages to consumers.

Consumer Dynamics

Who are the consumers and what are they looking for?

The foundation of every brand is the relationship it has with its current and prospective consumers. There are many lenses through which to view the consumer; these lenses yield data that must be digested and prioritized. Lenses include:

Demographics – how consumers look. This covers many variables, including gender, race, age, abilities/disabilities, home ownership, employment and marital status, and even location. Examples of demographic trends are the greater number of single-person households and the aging of the population. But, ultimately, what someone looks like or where they live is too superficial to dictate most important branding decisions.
Attitudes and beliefs – what consumers value and think. An attitude is a consumer’s evaluation of something; it synthesizes cognitive thoughts, emotions, and lessons learned from real experiences. A belief gets more to the core of a person’s psyche; beliefs are the spiritual, moral, and social foundation on which people operate. Attitudes and beliefs impact how people perceive and interact with the world around them, so they are important to building brands. Indeed, Gatorade ended their endorsement deal with Tiger Woods in 2010 because public attitudes toward him changed after disclosure of his indiscretions, potentially damaging their brand.
Behaviors – what consumers do. Consumers ultimately vote with their wallets. Assessing which customers are choosing, embracing, and recommending a brand (and the psychology of why) is very powerful. Knowing why other consumers are disengaged is often equally important.

Diving into the consumer is the first important element of designing or redesigning a brand. Even at this high level, packaging graphics can enter the conversation. If a product is oriented to consumers aged 13-17, for example, the branding can be bolder and more colorful than a product designed for seniors. With a thorough understanding of consumers and what motivates them, we can turn to decisions about how to appeal to these consumers.

Category Dynamics

Category norms

Method's products

How closely will you follow the category “rules”?

Every brand operates within a set of category conventions. You may choose to hew closely to the category norms (meaning you’re not rocking the boat; you won’t make a dramatic splash with consumers, but you also limit the risk of alienating them). Or you may choose to explode the category norms and stand out from the competition (a higher risk, higher return strategy). Consider the home care market. This category has well-known brands that follow a standard “language” and design ethic. When Method Products entered the market in 2000, they wanted to disrupt the status quo. They wanted their brand to stand out, so they livened up the fragrances and functionality. In addition, they built packaging that consumers didn’t have to hide under their sinks. As shown here, the Method lineup looks very different from that of its competitors. Breaking some of the category’s rules paid off for Method with over $100 million in sales and distribution in leading retailers.

Positioning Statement

What is the essence of the brand?

A positioning statement summarizes what a brand is all about. It is a succinct description of the core target audience to whom a brand is directed and a compelling picture of how the marketer wants that audience to view the brand. A well-constructed positioning statement brings focus and clarity to the development of marketing strategy and tactics. Every decision that is made regarding the brand should be judged by how well it supports the positioning statement.

There are four classic elements of a positioning statement.

Target audience – the attitudinal and demographic description of the core prospect to whom the brand is intended to appeal; the group of customers that most closely represents the brand’s fervent users.
Frame of reference – the category in which the brand competes; the context that gives the brand relevance to the customer.
Benefit and point of difference – the most compelling and motivating benefit that the brand can own in the hearts and minds of its target audience relative to the competition.
Reason to believe – the most convincing proof that the brand delivers what it promises.

To be useful, a positioning statement must be focused on the core prospect, relevant, ownable, and believable.

Portfolio Connectivity

How will the brand create connectivity across segments and categories?

Mrs. Meyers cleaning products is a good example of simple branding that creates unity across a broad product line.

Mrs. Meyers has dozens of items across multiple segments, and the company has built a unified brand architecture with:

Simple, stock packaging that connotes familiarity, comfort, and apothecary origins.
Black caps and dispensing systems across all products.
Standard use of the Mrs. Meyers logotype, with playful use of other fonts for the supporting text.
Pastel colors.
Natural scents like basil, lavender, geranium, and apple.

Note that Mrs. Meyers has succeeded alongside Method, which, as described earlier, took a different path. Both companies staked out unique positionings with distinct customer groups, and both were able to create a unified portfolio with a thoughtful use of the branding tools.

Many decisions go into building a brand. And there are different ways that graphic design can play a part.

Branding and Graphic-Design Toolbox

There is a wide array of graphic-identity tools and techniques. Smartly and consistently using these tools can dramatically enhance how consumers perceive a brand.

Some examples of the key tools include:

Logo or Symbol
	An effective logo is a recognizable, distinctive symbol for a company or organization. It can be just an image or can include the name of the company.

Color
	Loud primary colors, such as red, attract attention (e.g., Budweiser). Neon connotes edginess (e.g., Mountain Dew), and blue often refers to purity (e.g., Nivea).

Typography
	Typography is about arranging letters. Brand-builders select or create the right fonts and word styles to make the desired impression.

Shape
	White space (void) can make a design breathe and easier to understand. The FedEx logo, for example, cleverly creates an “arrow” shape in the “Ex”, which connotes speed and movement.

Photography and Illustration
	Brands use imagery to connote feelings and emotions. Tiffany uses photography to capture romance and love in their brand story.

Texture and More
	Design can move beyond two dimensions. Texture, aroma, music – all can be used to create the consumer brand experience.

All of these tools – and more – need to be applied with the right balance, emphasis, and style. Graphic design is both an art and a science. If you have a computer, then you have access to software that can create graphics. But it’s a mistake to bypass expert help. You don’t need to hire an expensive branding consultancy; take advantage of your company’s internal resources, inexpensive freelancers, or other supply chain partners to get professional input on this important driver of branding.

Spotlight on Studio One Eleven

Studio One Eleven is the design and marketing services division of Berlin Packaging, a leading supplier of rigid packaging. Studio One Eleven has deep experience in brand strategy, visual branding, and structural packaging design for customers across virtually every industry.

Studio One Eleven helps its customers build and redesign their brands. Branding services include:

Brand positioning: Establishing the personality and identifying the target demographic for the brand.
Category analysis: Researching the category/industry including an audit of competing brands.
Brand identity design: Developing the brandmark that will appear on the packaging and all marketing, advertising, and corporate communications.
Label design and architecture: Creating the label and communication hierarchy.
Portfolio segmentation strategy: Building a cohesive system enabling consumers to shop a portfolio of products, thus enabling growth and opportunities for line extensions.
Production artwork: Setting final art files for print production.
Brand asset management: Organizing the imagery and assets associated with the packaging. These include artwork updates, communication and hierarchal changes, and product claim updates.

What sets Studio One Eleven apart from other design firms is the lack of large design fees. Customers get the benefit of a world-class team of designers, strategists, and engineers in exchange for purchasing the packaging solution through Berlin Packaging. Because Studio One Eleven is rewarded when Berlin Packaging sells packages, the Studio only pursues design that will win in the market.

The result is a powerful, self-reinforcing design system – with aligned incentives, an end-to-end process, and demonstrated results.

Creative Process for Packaging Graphics

While graphic design is about creative thinking, the process to create or update a brand’s graphic identity is fairly linear. As outlined in our white paper about structural design, Designing a Winning Package Structure: A Process for Delivering Delight, we advocate a six-phase approach.

Phase 0 – Pre-Design Analysis

This first phase is about research, understanding, and goals. Key elements include a complete situation assessment of the target brand’s positioning and equity, its history, its category, its competitors, and the channels it competes in. Designers want to learn about who the target consumer is, the way they interact with the product, and the attributes to which they assign value. No design work happens in this stage. Instead, the foundation on which design can occur is established. In addition, Phase 0’s output includes success criteria against which Phase 1 ideas will be judged.

Phase 1 – Ideation

Pen hits paper in Phase 1. Taking all the insights learned in Phase 0, this step is about exploring creative ideas. Solutions in this phase reach into the graphic-design toolbox and address brand marks, letterforms, and colors. Divergent thinking is the rule of the day in this phase of the process.

Phases 2 and 3 – Evaluation and Refinement

Here the solutions generated in Phase 1 pass through the success criteria “filter” developed in Phase 0. The Evaluation phase applies a reality check and forces tradeoffs against the goals. To ensure an efficient subsequent process, it’s critical that all stakeholders have a chance to weigh in at this stage. The Refinement phase then takes the best ideas and incorporates any feedback and constraints into the solutions. These two phases are quite iterative, and the output is an agreed-to design that will support the brand.

Phases 4 and 5 – Preparation and Production

In Phase 4, a design moves to an implementation-ready stage. Print-ready artwork is created; brand- and graphic-management systems are put in place to handle artwork files and revisions; and documents defining the “standards” are written. Then in Phase 5, the product is moved into production. Press checks and color matching will also happen here.

All through this, the cooperation between design and production must be very tight. Project management is an essential skill throughout the six phases, but it is mandatory at this stage. All the work that’s been put into the design is coming down the home stretch.

Even though the product is now sitting on store shelves, the design process is not over. Designers now listen closely to all key constituents. How is the printing and labeling going? What are retailers saying? Are consumers engaging? Even when a package is in production, enhancements and tweaks can be made to maximize impact and efficiency. Graphic elements are more easily changed than a package’s structure, so it’s smart to look first at graphic elements before more rigid elements of a brand’s identity are revised.

The overall goal of these six phases is to build packaging graphics that resonate with the brand’s goals and fit into the commercial realities of the business and the supply chain.

Getting Started

As shown in the process above, building a resonant brand requires lots of thought and energy. But the journey can begin by thinking clearly about what your brand means and possible tactics for how it can best come to life.

One tool that can help is Berlin Packaging’s Brand Primer. This document, which is available at BerlinPackaging.com/Primer, asks a series of basic but important questions that will be helpful in launching a new brand or a redesign of a current brand.

The Primer poses questions such as:

What is the brand’s value proposition?
What are the strengths and weaknesses of the brand?
Who is the brand aimed at?
If your brand were an automobile, which one would it be?
What are the most identifiable parts of the brand’s identity?
How is the product merchandised?
What are exciting things the competition is doing?

While filling out the Primer is an iterative process, even draft answers to these questions help focus your thinking about your brand. Such a document also helps facilitate discussions with other partners like ad agencies and design firms.

Summary

Brands help both consumers and businesses. A good brand simplifies the shopping experience by integrating many features and factors into one bundle. It engenders strong emotional connections with products, driving consumer loyalty. And strong brands can generate tremendous value – according to BrandZ, the top 100 global brands were worth more than $330 billion in 2012. Building a compelling brand that resonates with consumers requires careful attention to the product’s features, positioning, pricing, promotions, and packaging, taking factors such as consumer and category dynamics, positioning statements, and portfolio thinking into consideration. Graphic design – both on a package and through other marketing channels – plays an important role in making a brand come to life. A logo is not a brand, but a logo – along with the right illustrations, fonts, colors, and textures – can elevate a brand to a new level. The marketplace is always evolving, so brands need to evolve as well. A smart first step is to evaluate your brand’s current performance or new white spaces to enter. At that point, you can form strategies and tactics to enliven your brand, including the best ways to use the graphic-design toolbox.

Delivering Innovation: Practical Ideas To Boost Results

Adrienne Porter · February 1, 2015

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Delivering Innovation: Practical Ideas to Boost Results

Companies invest tremendous amounts on innovation. Strategy& (formerly Booz & Company) indicates in its “Global Innovation 1000” report that the 1000 companies with the highest R&D budgets spent $638 billion on R&D in 2013. In North America, these companies spent about 5% of revenue on R&D.1

Innovation is a top-three priority for 77% of companies, according to a survey of 1500 executives by Boston Consulting Group.2 And talk of innovation is on the rise. Back in 2007, 99 of the S&P 500 mentioned “innovation” in their third-quarter conference calls, as measured by Capital IQ. By 2013, the number was 197.

But for all this investment and confidence, most innovations fail to meet expectations. Harvard Business Review notes that 75% of consumer packaged goods and retail products fail to garner even $7.5 million of sales in their first year. Not even 3% of these innovations reach $50 million in sales in year 1.

In this paper, we discuss ways to improve innovation outcomes. We will address setting goals, instituting the right mindset, ideating robustly, and refining and preparing concepts for market.

But first we will discuss what “innovation” really is.

What is Innovation?

With so much talk of innovation, one might think that the term itself has a well-accepted definition. It doesn’t. Many associate the term with lightning-bolt “Eureka!” moments of creativity and genius. An innovation program can have moments of genius, creativity and invention, but innovation success isn’t defined by or dependent upon any of those qualities. Innovation is a process.

In The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation, P&G CEO A.G. Lafley defines innovation as “the conversion of a new idea into revenues and profits,” drawing the distinction between creativity and invention, in and of themselves, and the process of monetizing their outcomes. Ultimately, the most relevant innovation outcomes can be measured on P&L statements and by favorable customer behavior.

Set Innovation Goals

What is the role of innovation in your overall strategy? Answering this question requires thinking about a wide array of issues. For example:

How much revenue should come from new products? Studies show that about 30% of company revenues come from products introduced in the last three years. This number varies by industry and company, but you should weigh the role of innovation on your business growth in deciding your priorities.
What is your risk profile? Placing fewer big bets may be riskier than opting for many smaller bets. Being a first mover is also riskier, but the upside is a larger return than that realized by a follower, even a fast follower. Your overall appetite for risk will govern many decisions throughout the innovation process.
How much are you prepared to invest? With dedicated budgets, innovation will get more focus and energy than if it’s merely a buzzword in people’s job descriptions.

Many of these questions are interdependent and relate back to the overall company strategy. (See our white paper Designing a Strategy for Growth: Blueprinting in Six Steps for more information.) Regardless of that strategy, innovation can flourish only if goals are clearly set, communicated, and embraced by top management as a key initiative rather than a fleeting t-shirt tagline.

Sidebar: Evolution or Revolution?

Innovation operates on a continuum. Some innovations are “new to world,” like the iPod or the Gutenberg press. Others are “new to category,” like the application of stevia to sweeten soft drinks or the first 30-pack case of beer. Still others are just “new to brand,” like adding peanut butter as a new Pop-Tart flavor.

Evolutionary innovations can prove highly successful in the short term with manageable risk. Gatorade, for example, drove growth for years by adding new flavors like Lemonade, Cool Blue, and Fierce Melon. Innovations like these try to maximize the business with today’s customers. But a resulting weakness is that evolutionary innovations are myopic to changing business definitions. Further, in mature categories where SKU proliferation is the rule, marketers risk alienating consumers by increasing the complexity of purchase decisions without a meaningful upside. A trip to the toothpaste aisle in your local supermarket offers a prime example.

Revolutionary innovations try to redefine a business and take it to new places. These innovations are focused on tomorrow’s consumers, which entails more risk.

Each category of innovation requires different capabilities and approaches and comes with its own set of upsides and downsides. Organizations need to manage their innovation mix like a portfolio and be mindful of their company's capabilities and business dynamics.

Institute the Right Mindset

Thomas Edison authored 1,093 successful patents. He was a genius inventor who created a culture of innovation in his Menlo Park, New Jersey, laboratory. An innovation mindset like Edison’s is characterized by:

Optimistic outlook. Innovators want to change the world. They are eager to challenge the status quo and overcome barriers to change.
Voracious desire to learn. Information and data are at the heart of the scientific method. Innovators want to observe, listen to, experiment with, record, and consider the world around them.
Desire to look at information in new ways. “Kaleidoscope Thinking” is a way of constructing new and relevant patterns from fragments of data. This is done when people question assumptions and find new lenses through which to view information.
Open communication. Innovation is spurred by sharing ideas, collaborating across people and disciplines, and creating an atmosphere that encourages unplanned interactions. Pixar’s campus, for instance, was built to get people out of their offices to mingle with colleagues.
Intimacy with the target audience. Successful new products and services must appeal to a market. A critical part of the innovation mindset, therefore, is cultivating a passion for this market and a desire to dive deeply to understand customer needs – both known and unknown.
Acceptance of failure. Edison tested thousands of materials over 14 months before finding the right filament for the light bulb. He didn’t consider the long journey a failure. He remarked, “I have not failed. I’ve just found 10,000 ways that won’t work.” Intuit, a leading provider of financial software, famously celebrates big failures. As former Chairman Scott Cook says, “It’s only a failure if we fail to get the learning.” For insights into the root cause of our aversion to failure, Sir Ken Robinson explained in a stirring speech how our education system undermines our creativity. See www.ted.com/talks/ken_robinson_says_schools_kill_creativity.

Hewlett-Packard is another tremendous example of the innovation mindset. The company was founded in 1939 in a one-car garage in Palo Alto, California. According to legend, posted on the wall of the garage were 11 rules that helped HP become one of the most successful startup companies of all time.

Believe you can change the world.
Work quickly, keep the tools unlocked, work whenever.
Know when to work alone and when to work together.
Share tools, ideas. Trust your colleagues.
No politics. No bureaucracy. (These are ridiculous in a garage.)
The customer defines a job well done.
Radical ideas are not bad ideas.
Invent different ways of working.
Make a contribution every day. If it doesn’t contribute, it doesn’t leave the garage.
Believe that together we can do anything.
Invent.

The best processes and goals for innovation won’t matter if the right mindset isn’t in place. Only with this mindset will the petri dish be ready to accept and grow new ideas.

Ideate Robustly

Inspiration can come from many places. There are many publishers of market research (e.g., Datamonitor, Mintel, Nielsen) that track market and consumer trends. There are innovation “gurus” who can lead your team through an ideation offsite (see, for example, Eureka! Ranch).

There is no one right way to inspire and track ideas. There are, however, a number of drill sites that warrant exploration.

Consumer. This is the audience you are trying to win. Steve Jobs is famous for shunning consumer research and focus groups because, as he said, “People don’t know what they want until you show it to them. That’s why I never rely on market research.” But Jobs was an outlier, and a tremendous amount can be learned with careful assessment of consumer needs, wants, and dissatisfiers. For example, user ethnographies can offer useful insights by following consumers through their day to see how they actually use products in order to fulfill their needs.
Technology. Brainstorming all the consumer applications from your own (and other people’s) technologies is a smart step. Not all of the brainstorming output will make sense to pursue, but the exercise can create great energy and ideas. DuPont’s invention of Teflon, for instance, spawned products ranging from cookware to coaxial cables to hydraulic hoses. Amazon.com was created when Jeff Bezos sought the best application for the internet’s new ecommerce capabilities (he reviewed the top 20 mail order businesses to find the ones that could be conducted more efficiently over the internet).
Connections. Great ideas are often inspired by something or someone unrelated to your own industry. For example, Velcro came about after its inventor went for a hike and was fascinated by the burrs that stuck to his clothing. Other inspiration can come from your personal network. Malcolm Gladwell’s The Tipping Point describes how a small group of well-connected trend-makers influence our culture. You may not be part of that inner circle, but filling your own network with smart people can provide a stimulating environment that spurs creativity.

Another drill site for ideation is other companies and partners. The Spotlight on Open Innovation explains how third parties are increasingly being used to come up with ideas.

Spotlight on Open Innovation

Innovation ideas don’t need to come from your own organization. “Open Innovation” is a process through which companies tap research, knowledge, and inventions from outside people and companies. Just as your business can benefit from products or concepts developed by third parties, internal inventions that won’t be commercialized by your own company can be sold or licensed to others.

Procter & Gamble has been a strong advocate of open innovation for over 15 years. Their program is called Connect + Develop. Visitors to pgConnectDevelop.com can learn how the process works and see past successes, current needs, and what P&G looks for in an innovation partner. P&G’s open innovation approach has created more than 2,000 successful agreements with innovation partners around the world. With the program in full swing, P&G saw their new-product success rate rise from 35% to 50%.

The success of open innovation, however, is dependent on the soundness of the recipient company’s innovation process. Even the best ideas will fail if the execution falls short.

Refine and Prepare Concepts for Market

Innovation is both an art and a science. Ideation leans towards art, but the process of developing and commercializing innovations leans towards science.

The phase-gate approach is embraced by many respected innovators, from P&G and PepsiCo to Honeywell and Kraft. The goal of this methodology is to efficiently and effectively shepherd prospective new products to market.

There are many versions of the phase-gate approach. Here we will present a simple overview of the concept.

Process

“Phases” represent steps of work, and “gates” are where decisions are made whether to progress or not. Phases might be:

Discover & Create – leverage learning to generate ideas and concepts.
Test & Assess – build a business case considering the market, consumer, retailer, competitor, and other dynamics.
Design & Develop – define product specifications and prototypes; this is an iterative process, with work being tested and refined.
Prepare & Launch – establish the supply chain, ramp-up production, and bring the product to market.
Evaluate & Learn – evaluate both the product and the process.

After each phase, the gate is a time-out to check the attractiveness of the idea and the merit of continuing to invest. A gate will cover:

How well the work in the recent phase was conducted. Is the process being followed to maximize information and minimize risks?
How attractive the business case is at this point. Are the economics still attractive?
What the next steps are. Is there alignment on the investments and work in the next phase?

The decisions at a gate could be go, no-go (kill or hold), or recycle to get more information.

Team

Several teams tend to execute and oversee the phase-gate process. Names of the teams differ from company to company, but the roles are similar. Teams usually include:

Steering Team – group that oversees the gates; usually a senior team of decision makers.
Category Team – group that has close connection to the market, consumer, and competitor insights; this team fosters new ideas.
Project Team – group that works to bring concepts through the phases; this team usually involves people across many disciplines.

Documents

The phase-gate process requires specific information to be presented at each gate. One of the key documents is the Project Charter. This document initiates in the first phase and gets fleshed out in subsequent phases. Key elements include:

Platform description – overview of the product description.
Consumer target/insight – review of the demand desires of the marketplace.
Key benefit – description of what this product is aiming to achieve.
Point of differentiation – clarity on how this product will stand out from the others in the market.
Areas to explore – indications of research needed or questions to be answered.
Success criteria – benchmarks for efficacy, branding resonance, quality, trial and repeat.
Financial projections – estimates of revenue, profit, start-up investments and project return-on-investment.

Smart processes can help enhance a company’s innovation engine, but care should be given to not add too much bureaucracy; innovation must maintain a carefree spirit and a challenger mindset.

Spotlight on Studio One Eleven

Studio One Eleven is the innovation division of Berlin Packaging, a leading supplier of rigid packaging. They have been innovation catalysts since 1999.

The team helps clients develop new brands, new structural packaging solutions, and new industrial design solutions. They’ve driven innovation in industries ranging from yachts to footwear to consumer goods of all types. Studio One Eleven works through every innovation stage – from discovery and design to preparation and launch. You can see more of the Studio's approach in the paper Designing a Winning Package Structure: A Process for Delivering Delight.

What sets Studio One Eleven apart from other agencies is that it performs most of its innovation services at no charge. Clients get the benefit of a world-class team of strategists, creatives, designers, and engineers in exchange for purchasing the packaging solution through Berlin Packaging. Because Studio One Eleven is rewarded when Berlin Packaging sells packages, the Studio is singularly focused on innovations that will win in the market.

Studio One Eleven delivers branding and packaging excellence with aligned incentives, an end-to-end process, and demonstrated results. They are a unique “Open Innovation” solution for clients who want to strengthen their innovation pipeline.

Stay Practical

Innovation requires juggling many balls and making many tradeoffs. While aiming for the next killer product, there is the need to stay practical.

Align inputs and outputs

Your innovation budgets should correlate to the amount and magnitude of innovation you’re seeking. For game-changing new products, you’ll need meaningful investments in things (e.g., market research or laboratories) and people.

Involve the right people

While it’s not necessary to have a dedicated team of innovators, the innovation process requires a certain type of person. Our white paper People Power: Building a Profitable Business through Human-Resource Excellence highlights the importance of personality traits when building a team. General Electric measures its leaders on “growth values,” which include External Focus, Imagination and Courage, and Clear Thinking. GE seeks and rewards employees with these traits with the knowledge that these people can help the company grow.

Manage the innovation portfolio

Just as with your personal investment portfolio, you want to manage an innovation portfolio to deliver the best return with the lowest risk. This means you must evaluate the system regularly, and best-in-class companies tend to look at four variables:

Value maximization. Allocate resources to achieve the highest expected value of the portfolio.
Diversification. Spread risk by balancing projects across dimensions like long-term vs. short-term, evolutionary vs. revolutionary, product category X vs. category Y.
Resource allocation. Pursue the right number of projects given the resources you have.
Strategic direction. Ensure the portfolio is aligned with the company’s overall imperatives.

As new information arises, individual projects as well as the whole portfolio should be re-examined.

Protect your intellectual property

After all the work of building a new product, you don’t want to lose the benefits by having someone else steal your ideas. There are many legal tools available to protect your intellectual property, and you may want to find an attorney who specializes in structuring intellectual property agreements. As a start, you can educate yourself on the basics of trademarks, copyrights, patents, and trade secrets. Also, use well-written non-disclosure agreements with any outside parties and make sure your employment agreements spell out your firm’s rights to employee-generated intellectual property.

Summary

Innovation is essential for business growth. Consumers’ short attention spans drive them to look for new products that satisfy their evolving needs and preferences. While companies realize this and are investing more than ever in R&D, many fail to produce winning results. This paper defined innovation and reviewed ways to make it more efficient and effective. First, companies need to set clear innovation goals. Second, organizations must embrace the right innovation mindset, taking cues from Thomas Edison and the early days of Hewlett-Packard. Third, companies should tap into multiple sources to generate innovative ideas. Fourth, processes like the phase-gate approach add discipline when bringing new ideas through the innovation funnel. All four of these steps – and the practical tips discussed in the last section – help increase the odds of innovation success. And innovation is a learned process; companies that follow all these steps and learn from their failures will do far better than new-product novices. For companies with less “innovation experience,” selecting partners to help with the overall process and with key phases is a way to improve the odds.

1See www.booz.com/global/home/what-we-think/global-innovation-1000.
2See www.bcgperspectives.com/content/articles/innovation_growth_most_innovative_companies_2013_lessons_from_leaders.

Consumer Megatrends And Packaging Implications: How Companies Can Ride Consumers' Coattails

Adrienne Porter · January 30, 2015

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Consumer Megatrends and Packaging Implications: How Companies Can Ride Consumers' Coattails

Successful product development, marketing, and selling starts with the consumer. What do they want? What do they need? What are their motivations? What are their aspirations?

Across the consumer base, these dynamics can be manifested in trends. Companies that spot and respond to trends improve their odds of success in the marketplace. The better that a product or service aligns with one or more trends, the better chance it has to gain traction and win share.

Packaging is one key tool that helps companies connect with these trends.

Approach

We have identified nine “megatrends” that are prevalent among consumers today. These trends are influenced by shifts within a number of factors:

Values: deeply held and enduring beliefs about what is important in life
Attitudes: what people think about specific situations
Behaviors: how people spend their time and money
Lifestyles: patterns of everyday activities

We identified these trends and their implications on packaging via a robust, three-step process. First, a review of published material on trends and emerging consumer dynamics. Second, an examination of what we see with the customers and suppliers we touch every day. And third, a period of digestion and refinement, where we vetted our hypotheses and determined the packaging implications.

There is a lot of art to trend-watching. Not all experts agree as to what the trends are or what they mean. Not all trends apply to all consumers. Indeed, there are trends that may seem contrary to one another (like one trend around cocooning and another around connectivity). The marketplace is made up of many individuals, so the landscape is complex. And not all trends are as relevant to all companies or industries.

But a healthy review of megatrends and what they mean is a useful step in any company’s strategy.

Nine Megatrends

The megatrends influencing consumers today are:

Comfort
Convenience
Scrimp and Splurge
Richer and Bolder Experiences
Personalization
Health and Wellness
Rise of Boomers
Connectivity
Community and Membership

See below for detail on the trends, the key indicators and drivers, and the implications the trends have on packaging.

	
				Megatrends
			
				Descriptors and Key Elements 
			
				Packaging Implications

				(how packaging can help you take advantage of the trend)
		
				Comfort
			
				Nostalgia, authenticity, trust, safety, cocooning, simplification
			
				Glass, canning jars, apothecary feel, small-batch feel, tamper-evident packaging, decline of secondary packaging
		
				Convenience
			
				Time pressure, on-the-go, multitasking
			
				Single serve, reseal-ability, all-in-one, ready-to-use,

				dose-control dispensing
		
				Scrimp and Splurge
			
				Trade-up on some items (luxury, premium) while seeking discounts on others (private label, Dollar store, Sam’s Club)
			
				Club pack and bulk packaging, ergonomics of large packs; vs. high-deco and shelf appeal, small “splurge-size” packs
		
				Richer and Bolder Experiences
			
				Touch and smell sensory, energy and mood alteration, hedonism, experimentation, novelty, rethinking the mundane
			
				Dosing caps, textural containers (e.g., soft touch, bumps), aroma accentuators (scratch & sniff, scent-infused packs), reactive labels and packs (temperature, sunlight, pH), gradient and bold colors, sheens, “unwrap” as an experience, trial sizes
		
				Personalization
			
				Made-to-order, niche, self-reliance, time alone
			
				Affordable single-serve size, smaller but affordable batches, design-your-own labels
		
				Health and Wellness
			
				Freshness, natural, additive-free, local, fitness, stress relief
			
				Portability, sport-closures, dosing caps, freshness dating, small-batch feel, “farmer’s market”
		
				Rise of Boomers
			
				Aging population, expanding life expectancy, desire to stay independent
			
				Ergonomic, broad-ribbed closures, easy-open, easy-reading, intuitive design
		
				Connectivity
			
				Digital lifestyle, limitless information, pocket computers, global village
			
				Info-rich/scannable bar codes, labels linked to Facebook, RFID, design for online shopping (virtual shelf)
		
				Community and Membership
			
				Brands that mirror what’s important to “me”: sustainability, community, charity
			
				Light-weight, biodegradable, close to nature, small carbon footprint, reuse and refill, label info on corporate values

Implications

There are at least three takeaways for how companies can respond to these trends:

Broaden the lenses used for innovation and ideas. Trends operate at many levels, across many kinds of consumers, in many locations. Cast a wide net to capture and examine what is happening with your consumers.
Opportunistically jump on trends when consistent with company strategy and brand positioning. You can create positive buzz and momentum by aligning with where consumers are moving.
Strategically, focus resources differentially on trends that can be monetized and reshape company strategy overall to mesh better with the trends.

Packaging can be an element in all three of these takeaways. Consider how packaging is used and is evolving with consumers around the world, and build an action plan for packaging for both near- and longer-term views.

Summary

Nine megatrends are influencing consumers today. The relevance and exact implications of these trends will be different for every company, and there may be additional trends at play as well. But every company should pause to review these nine trends. Packaging can play an important role in helping you align with these megatrends.

As it relates to your product, your package, your pricing, your promotion, and your distribution channels – how well are your embracing the trends? How well does each function in your company acknowledge and capitalize on these trends – product development, package development, marketing, sales, supply chain, finance, human resources…? What are the seeds of the next trend that you can uncover before your competition?

Consumer Megatrends And Packaging: Is Your Company Missing The Boat?

Adrienne Porter · January 20, 2015

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Consumer Megatrends and Packaing – Is Your Packaging Missing the Boat?

U.S. consumers spent over $10 trillion in 2012. This spending was made across billions of individual transactions and influenced by a wide array of dynamics. How well any company or product does in the market is based on how successfully it understands and embraces (and even helps form) these dynamics. Research into what consumers need and want is useful to improve the odds of winning more transactions and garnering a greater share of wallet. In 2011, we published a white paper, Consumer Megatrends and Packaging Implications: How Companies Can Ride Consumers’ Coattails, which identified consumer motivations and how values, behaviors, and attitudes translated into overarching consumer trends. That paper was a qualitative review of literature and prior research, and it presented a set of trends and broad packaging implications. This paper takes the research one step further and works to quantitatively assess, through a broad-based survey of packaging professionals, the lifestage of each trend (whether it is on the rise or in decline), the adoption rate of each trend (whether companies are reacting to the trend), and the packaging tactics being used. We will begin by reviewing the methodology and approach, and then we will present an analysis of the data and share the implications for packaging. Before we get into the new research, we will first turn to a case study of why an appreciation of consumer trends matters.

Case Study: The Power of Consumer Trends

When consumer desire and consumer momentum intersect with the right ideas, offering, and marketing, exciting things can happen.

Chobani exploiting consumers’ desire to be healthier

Chobani started operating in 2007, and now it’s a leading yogurt brand in the U.S. with sales over $1 billion. It wasn’t the first Greek yogurt in the U.S. market (that was Fage), but Chobani was smart in their marketing and timing, and they leveraged the “personal health and wellness” megatrend to its fullest. Chobani became synonymous with Greek yogurt, and even the mainstream yogurt kings were left scrambling. Yoplait and Danone were both slow to enter and have lagged in this segment ever since. Even Fage, the segment’s first-mover, has stumbled and commands only a fraction of Chobani’s market share.

Whole Foods cashing in on the sustainability movement

Often considered to be the most socially responsible business in the U.S., Whole Foods has ridden the “community and sustainability” wave for years. It is one of the most profitable grocery chains in the industry because it struck a chord in consumer consciousness. Whole Foods leveraged the consumer’s desire to eat healthier and avoid foods that contain unnatural ingredients. Whole Foods shoppers want to be sure that food is being produced in an ethical way, including safe work conditions for workers and humane treatment of animals. It’s not just about buying organic foods; it’s also about fulfilling the shopper’s desire to support a sustainable farm-to-table process. Whole Foods delivers on this need.

Starbucks firing on all cylinders

Thirty years ago, you’d get a cup of coffee at a restaurant for $1. Now people line up at Starbucks to spend over $5 for a latte. Just when more consumers were looking for ways to indulge and experiment in their lives, Starbucks was ready with bold flavors and rich experiences. Starbucks continues to fulfill consumers’ needs by providing lush furniture to relax in along with inviting music. Starbucks also taps into several other consumer megatrends, like the ability to splurge on small pleasures. Starbucks has become a retail juggernaut, while charging high prices, due to the value that consumers get from the total experience.

Fad or trend?

Companies need to be wary of riding a fad or mistiming a megatrend. There are many instances of trends that fizzle out – the “low-carb” fad, for example. And timing needs to be right. Apple introduced the first personal digital assistant in 1993 (the Newton), and it had many of the features that smartphones have today. But Newton failed because there wasn’t enough consumer momentum to sustain it; the product showed up too early. Being late to the game can also be costly; HP tried to enter the tablet arena with its TouchPad device but ended up retreating since most tablet users had already aligned with Apple.

Life would be easy if companies had crystal balls to know which trends had staying power and when to strike for perfect timing. Instead, we’re left to research consumer behavior and draw conclusions about where we think shoppers are heading.

Methodology & Approach

Berlin Packaging surveyed thousands of packaging professionals in December, 2012. The survey was conducted using a web-based research tool.

Response Pool

We received 1,097 survey responses. Respondents cut across many different industries (Table 1) and many different roles (Table 2).

Table 1: Respondent mix by industry

Industry	% of Respondents
Food and beverage	20%
Personal care and cosmetics	15%
Pharmaceutical and nutraceutical	15%
Industrial chemicals	11%
Household, auto, and lawn care	10%
Laboratories, research, and education	10%
Services	5%
Other	14%

Table 2: Respondent mix by role

Role	% of Respondents
Procurement	25%
Executive Management	23%
Operations/Quality	18%
Product Development and R&D	9%
Designer/Engineer	8%
Sales	7%
Marketing/Branding	6%
Finance, IT, and HR	2%
Other	2%

Questionnaire

The survey centered on ten consumer megatrends.

Megatrend	Description and Dynamics
Rise of Boomers	Adapting to the needs of the 79 million baby boomers who were born between 1946 and 1964. This group now accounts for 26% of the population.
Rise of Singles	Adapting to the single-person household. The number of single-person households has doubled over the past 50 years, with 28% of U.S. households now consisting of only one person.
Scrimp	Looking to economize; being sparing or frugal with one’s resources.
Splurge	Indulging in a luxury or pleasure; treating oneself.
Comfort	Feeling a sense of physical or psychological ease; lacking any hardship; being nostalgic.
Convenience	Increasing ease and accessibility; saving resources (time, energy, effort) and decreasing frustration.
Richer & Bolder Experiences	Delivering a more intense experience to any or all of the senses.
Individualized Connectivity	Accommodating individual preferences while still allowing relationships and networks to form.
Personal Health & Wellness	Seeking a healthy lifestyle.
Community & Sustainability	Building closer ties with those around you or with the earth in general.

Respondents commented on each megatrend in these three ways:

1. Momentum: Placing the megatrend in its lifecycle stage.

2. Adoption: Selecting to what degree the respondent’s company is reacting to the megatrend.

3. Packaging Tactics: Within the megatrends that were being adopted, identifying the packaging tactics being used.

Analysis of Data

Results were analyzed in three steps. The first step independently assessed consumer momentum and company adoption for overall respondent feelings on the existence of trends and activity. The second step looked at the relationship between momentum and adoption responses and built an Intensity Matrix for each trend. The third step distilled these matrices and located the “center of gravity” for each trend; this simplifies how the data are shown and helps with synthesizing implications.

Step 1: Overall Trend Assessment

The vast majority of respondents see each of these trends as having momentum to one degree or another. The table below shows the lifestage in which respondents place each trend.

	
Lifestage of megatrends

						% of Respondents

						Megatrend

						Nonexistent

						Waning

						Emerging

						Thriving

						Total

				Rise of Boomers
			
					3%

					20%

					13%

					64%

					100%

				Rise of Singles
			
					10%

					2%

					35%

					53%

					100%

				Scrimp
			
					6%

					4%

					30%

					60%

					100%

				Splurge
			
					14%

					36%

					17%

					33%

					100%

				Comfort
			
					23%

					17%

					24%

					36%

					100%

				Convenience
			
					6%

					2%

					20%

					72%

					100%

				Richer & Bolder Experiences
			
					21%

					7%

					34%

					38%

					100%

				Individualized Connectivity
			
					22%

					5%

					36%

					37%

					100%

				Personal Health & Wellness
			
					7%

					2%

					20%

					71%

					100%

				Community & Sustainability
			
					7%

					4%

					38%

					51%

					100%

Few respondents (less than 23% in the peak case) see these trends as Nonexistent. Indeed, more than 50% of respondents classify six of the ten trends as Thriving, and nine trends meet the 50% mark when combining both the Thriving and Emerging buckets. But while the trends are acknowledged by the vast majority of respondents, many companies still are not reacting; this is what we call poor adoption. The table below shows how respondents rate the involvement of companies in each trend.

Company adoption of megatrends

						% of Respondents

						Megatrend

						No Involvement

						Testing

						Commercialized

						Total

				Rise of Boomers
			
					45%

					29%

					26%

					100%

				Rise of Singles
			
					62%

					26%

					12%

					100%

				Scrimp
			
					31%

					40%

					29%

					100%

				Splurge
			
					56%

					25%

					19%

					100%

				Comfort
			
					60%

					22%

					18%

					100%

				Convenience
			
					27%

					38%

					35%

					100%

				Richer & Bolder Experiences
			
					54%

					29%

					17%

					100%

				Individualized Connectivity
			
					55%

					31%

					14%

					100%

				Personal Health & Wellness
			
					36%

					29%

					35%

					100%

				Community & Sustainability
			
					29%

					41%

					30%

					100%

On average across the trends, 46% of respondents report that their company has No Involvement in the trends. And looking at the companies that are involved, fewer than 30% of companies report to have commercialized solutions to eight of the ten trends. This is an important finding, and leaders should discuss – even at this high level – whether they are properly addressing these trends. Additional insight can be gained by looking at a cross-tabulation of the data, as shown in Steps 2 and 3.

Step 2: Intensity Matrix

An Intensity Matrix arrays respondents across two dimensions. The vertical axis shows the degree of momentum that respondents cited for a trend, with high momentum (Thriving) at the top of the table. The horizontal axis shows the degree of adoption companies have with a trend, with high adoption (the company has commercialized items that address that trend) to the right. The matrix template is shown below.

Intensity Matrix overview

		Adoption
		No Involvement	Testing	Commercialized	Total
Momentum	Thriving
	Emerging
	Waning
	Nonexistent
	Total				100%

This better explains the data we looked at in Step 1, since we’re now more closely linking a company’s actions with the momentum perceived by that same company. For each trend, every respondent can be placed into this matrix, and then each cell can be looked at as a percentage of all respondents. The greater the percentage in any cell, the greater is the respondent intensity for that cell.

For example, the Intensity Matrix for the Rise of Boomers megatrend is shown below.

Rise of Boomers Intensity Matrix

		Adoption
		No Involvement	Testing	Commercialized	Total
Momentum	Thriving	24%	20%	20%	64%
	Emerging	6%	5%	2%	13%
	Waning	12%	4%	4%	20%
	Nonexistent	3%			3%
	Total	45%	29%	26%	100%

In this matrix, 100% of respondents are represented. In terms of momentum, the far right column shows the vast majority of respondents see this as a trend with healthy momentum; 64% see the trend as Thriving and another 13% see it as Emerging. Yet the bottom row shows only 26% of all respondents have a commercialized product that addresses this trend and only 29% have products in some form of testing. This adds more detail than we saw in Step 1 of the analysis. Further, respondents are cross-tabulated into momentum/adoption cells. The cell with the largest population of respondents is the Thriving/No Involvement cell (with 24% of all respondents). This underscores the fact that many companies are not responding and reacting to trends they admit are real and important.

Step 3: Centers of Gravity

In our analysis, the detailed data of each megatrend’s Intensity Matrix were then distilled into a single point that we call the “center of gravity.” This is where we see the predominant number of respondents in terms of momentum and adoption. This point is plotted onto a chart that shows the same momentum/adoption spectra.

The chart to the right shows the center of gravity for the Rise of Boomers megatrend. It boils the Intensity Matrix down to the predominance of responses being Thriving or Emerging momentum and being Low to Moderate levels of adoption.

This approach necessarily has a lower-resolution of data, but it helps to highlight in a simple way how each trend is perceived by the survey respondents.

Looking at the center of gravity for all the megatrends highlights the variation in how companies are appreciating and addressing the megatrends.

Centers of gravity by megatrend

Implications

There are two top-level implications from this analysis. The first area addresses the strategic gaps – where consumers’ momentum is strong but companies are not offering solutions. This helps to focus energy in the biggest areas of opportunity. The second implication area looks to the specific packaging tactics being employed. At a minimum, this helps to establish what’s being done today and may spur improvements in those tactics or a look to other approaches.

Strategic Gaps

Given that no megatrend was classified on average as having a Waning or Nonexistent momentum, we zoomed in on the top half of the centers of gravity chart to identify strategic gaps and opportunities. The chart below synthesizes the centers of gravity chart and positions each megatrend into one of five sectors, marked as A through E.

Each sector has a different imperative.

Sector A: ATTACK

These are highly-developed trends with low company involvement (on average). Trends in this sector represent opportunities to invest and jump ahead to meet consumer needs. Start by speaking to consumers to understand their needs and requirements.

Sector B: LEARN

These are highly-developed trends with good company involvement (on average). For companies that are lagging, there are chances to observe and learn from others. For companies that are participating, there are still ways to improve by looking outside your industry or in other geographies to find ways to stand out. Consumer research should be a pillar of work here as well.

Sector C: JOIN

These are emerging trends with low- to mid-adoption (on average). Now is the time to investigate these trends with consumer, competitor, and category research. A word of caution, however; this is where “fads” will show up – trends that fizzle out and never achieve sustainable consumer momentum.

Sector D: WATCH

These trends need to be studied more closely. Some will be emerging and on the upswing, while others may be waning. In this study, no centers of gravity fell into this bucket, although your company may be positioned here depending on how you are embracing certain trends.

Sector E: ADVANCE

This sector is for highly-adopted trends. The implication here is to anticipate the future evolution of consumer needs. In addition, you can experiment and look for new ways to enhance the tactics being used to build even greater acceptance among consumers. No trend in this study achieved near-universal levels of adoption, but certain companies may operate in this space.

Consider each of the megatrends and place your own company on this chart. Even at this high level, you may find things you should rethink about your innovation, marketing, and go-to-market strategies.

Packaging Tactics

The survey identified the tactics currently being employed for each megatrend. As an example, for Rise of Boomers, four packaging tactics were explored: enlarged print, improved ergonomics, easy open, and compliance packaging. The table below shows the packaging tactics being employed by respondents that are testing or have commercialized products.

Rise of Boomers packaging tactics

Table 1: Respondent mix by industry

Tactics	% of Respondents
Enlarged Print	30%
Improved Ergonomics	61%
Easy Open	73%
Compliance Packaging	55%

The level of engagement is varied across these four tactics. For example, Easy Open is being implemented by nearly three-fourths of respondents, while only 30% are engaged with Enlarged Print. This doesn’t mean that companies should jump to using larger print; instead, companies need to evaluate how well these tactics apply to their specific situations and consumers. But, if a tactic has merit, engaging in the tactic before the competition does can be a useful advantage.

The table below shows the tactics used by survey respondents for all consumer megatrends.

Packaging tactics by megatrend

  
 Tactics
     % of Respondents
    
      Rise of Boomers
       
      Enlarged Print
      30%
    
      Improved Ergonomics
      61%
    
      Easy Open
      73%
    
      Compliance Packaging
      55%
    
      Rise of Singles
      
      Single Serve
      57%
    
      Reduced Pack Size
      77%
    
      Scrimp
       
      Bulk/Club Packaging
      59%
    
      Private Label/Generic Branding
      66%
    
      Lowest-cost Packaging
      82%
    
      Splurge
       
      High Deco/Shelf Appeal
      69%
    
      Unique Custom Shapes and Designs
      70%
    
      New Technology/Early Adopter
       66%
    
      Secondary/Tertiary Packaging
      60%
    
      Comfort
       
      Improved Ergonomics
      67%
    
      Tamper Evident
      67%
    
      Nostalgic & Retro
      56%
    
      Anti-counterfeiting
      53%

  
      Tactics
     % of Respondents
    
      Convenience
       
       Single Serve
      54%
    
      Resealability
      71%
    
      All-in-one
      72%
    
      Ready to Use
      81%
    
      Dose Control
      52%
    
      Portable
      52%
    
      Easy to Open
      76%
    
      Richer & Bolder Experiences
      
      Scented Labels and Containers
      21%
    
      Labeling Claims
      73%
    
      Reactive Labels and Inks
      29%
    
      Powered/Electronic-enabled technology
      15%
    
      Individualized Connectivity
       
      Made-to-order
      61%
    
      Label Messaging
      62%
    
      QR Codes
      52%
    
      Personal Health & Wellness
       
       Labeling Claims
      74%
    
      Portion Control
      45%
    
       Safer/Healthier Substrate
      73%
    
      Reusable Containers
      60%
    
      Community & Sustainability
       
      Made in America
      68%
    
      Labels that Support Causes
      39%
    
      Improvement in Material Inputs 
      66%
    
      Reduction of Material Outputs 
      83%
    
      Reduced Energy Waste
      77%
    
      Third Party Certifications 
      68%

This list of packaging tactics is broad but offers many areas for further investigation. Packaging can help build a product’s relevance to consumers. This list can guide discussions on how to harness packaging’s power to appeal to and resonate with consumers.

Summary

Consumer needs are always evolving. Companies that can best identify these consumer needs and mobilize their assets will be able to capitalize. This paper summarizes quantitative research from 1,097 survey respondents. These respondents assessed ten consumer megatrends as to the lifestage of each trend (whether they are on the rise or decline), the adoption rate of each trend (whether companies are reacting to the trend), and the packaging tactics being used. While the study found general agreement in the existence of the ten megatrends, a large proportion of companies are not engaging in or adopting the trends. This suggests there are important opportunities for companies to supercharge how well they respond to consumers and, thus, improve how well they perform financially. Your company’s position may not conform to the survey averages. A useful step is to place each of the ten megatrends into its momentum lifestage for your markets and segments. Then you can assess how well your company is addressing or adopting each trend. Packaging can be a valuable tool in making products that resonate with these trends, so you should have thorough discussions and engage the right partners that can bring expertise to the table. This overall process will help focus your resources and will increase the odds that you can attract, retain, and engage consumers. And because consumer needs are always evolving, keeping the pulse of consumers is an evergreen project that should be built into your regular marketing and planning cycle.

Embracing Sustainability: A Framework For Green Packaging

Adrienne Porter · January 12, 2015

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Embracing Sustainability: A Framework for Green Packaging

Sustainability – being “green” – has gone mainstream. Major brands in every sector from fast food to fashion have spent significant resources making sure their products and corporate image stack up well in terms of environmental and social impact.

Consumers are demanding solutions that are better for the planet. Sales of LOHAS (Lifestyles of Health and Sustainability) products reached $300 billion in 2008, up 36% from 2005. Today, about 80% of U.S. adults are looking for more sustainable offerings.

Manufacturers and retailers are setting goals and protocols to increase sustainability. On the manufacturer side, for example, P&G has published a scorecard meant to measure and reward improvement across its supply base. On the retailer side, Wal-Mart’s Sustainability Scorecard is meant to drive transparency and competition among suppliers and to reduce the cost and impact of packaging.

But what does being green really mean in packaging? This paper digs into a set of important assertions:

Put sustainability into context – we review three questions that help define the right frame of reference for your sustainability approach.
Pull the right levers – we share a comprehensive sustainability framework with multiple levers you can pull.
Pick your partners wisely – we highlight the importance of finding partners that walk the talk and can help you navigate the many options available to you.

Before we begin, we will first turn to some of the complexities of sustainability to highlight how important it is to have a vision and strategy in mind.

The Devil is in the Details

Sustainability is not an easy topic.

Sustainability buzzwords abound – Organic, Regrind, Eco-Friendly, Toxin-Free, Renewable, All-Natural,Biodegradable, Paraben-Free, Carbon Footprint, Bio-Resin, Light-Weighted. With no standardized definitions, this world of new terminology can be misleading and confusing. There are some governing bodies and some volunteered guidelines, but much of this is a grey area.

Consumers, unsurprisingly, get confused. Indeed, some consumers are skeptical of companies’ “green” claims. And other consumers have outdated impressions and bad data in their heads (like “aerosols destroy the ozone”). Between the skeptical disbelief, the misinformation, and the volume of new information on this topic, it’s hard to keep it all straight. As a result, what consumers say they want and what they are willing to pay for are often two different things.

Even experts can be confused or confusing. For example, ask a glass company if glass bottles are more sustainable than plastic bottles; they will say they are. Ask a maker of plastic bottles the same question, and they will give you the opposite answer. Who is right and who is wrong? It really depends on what variables you want to include and how broad of a system you want to consider. For instance, glass takes more energy to form, but it comes from plentiful sand. Plastic is lighter and easier to transport, but it comes from scarcer petroleum. The one that’s more “sustainable” depends on how you weigh each variable in the equation and what your goals are.

Of course, all of these complexities serve to muddy the waters even further for consumers.

Put Sustainability into Context

In general, consumers want packaging that is beautiful, functional, and more sustainable. But only a minority of passionate consumers is really willing to pay more for sustainability.

Sorting out what role sustainability has in a company’s overall strategy is important, because this notion provides the critical context for how much to invest in or rely on sustainability as a tactic. Indeed, most companies have a balanced scorecard; is sustainability meant to improve the “financial and shareholder” metrics or the “social and community” metrics or both?

While each company will have different aims, we’ve found three questions help drive clarity in the role of sustainability in packaging and corporate strategy:

What are your sustainability goals?

Is sustainability meant to be a direct revenue booster (where consumers go out of their way to buy your product due to specific features and benefits) or an indirect revenue booster (where a positive aura of sustainability lifts your sales broadly)? Or are your aims more focused on profitability, thereby requiring a close analysis of unit volume, unit prices, and product costs (with all the puts and takes that sustainability creates)? There are, of course, many more angles one could put on this question, but the issue is essential nonetheless. Because smart strategy is about making tradeoffs, what are you willing to trade off to have more sustainable solutions?

How do you perform today vis a vis sustainability?

Look at your company through an objective lens and see where you’re already doing well or lacking compared to your competition, what your customers are asking for, and what consumers in general want. Then compare this feedback to your goals to determine whether there are small changes that can move the needle or whether larger initiatives are required. For example, research indicates that consumers generally place more value on recycled content and lightweighting than on the efficiency of your manufacturing footprint. Does this apply in your market?

What changes do you anticipate?

First, from a consumer view, what are you counting on? How much are you betting on marketshare gain or willingness to pay more for certain changes? Second, what types of changes are in-scope for your infrastructure and supply chain? Enhancing packaging sustainability can impact filling lines, raw material suppliers, and your warehousing network. Contemplating what degree of change is possible or expected can help shape your “green” strategy.

With this context established, we can turn to a comprehensive framework with multiple ways to improve packaging sustainability.

Pull the Right Levers

Packaging can contribute to the overall sustainability of a product by being made from responsibly sourced materials that are safe, manufactured using clean production technologies, efficiently recoverable after use, in line with consumer needs and choices, cost effective, and designed holistically with the product itself. Juggling all of these factors can be a challenge.

In simple terms, however, these considerations can be boiled down to four families of actions that can improve packaging sustainability: Material Inputs, Material Outputs, Energy & Climate, and People & Community. A sustainable package or supply chain will likely draw from all four categories, allowing you to choose the elements that best fit your goals, current sustainability status, and the resources at hand.

Material Inputs

Goals: Reduce toxicity, increase renewability, and consider extraction.
Examples of actions:

Increase usage of post-consumer and post-industrial materials.
Use bio-based and petroleum-free resins.
Phase out PVC or Polycarbonates.
Reduce plasticizers and phthalates.
Use non-bleached papers.
Switch to sustainably-harvested wood pulps.
Use soy-based inks.

Material Outputs

Goals: Reduce waste, increase reusability, and consider end of life.
Examples of actions:

Incorporate biodegradable materials or additives.
Lightweight components.
Improve recyclability by designing for component disassembly.
Improve recyclability by using all-plastic components.
Use black or non-colored resins to improve post-consumer applications.
Use heat-transfer or poly labels to improve regrind.
Adopt reusable pallets and tray liners.

Energy & Climate

Goals: Reduce emissions, increase locality, and consider energy use.
Examples of actions:

Improve plant operations – energy conservation, water reclamation, renewable energy use, and reduced heavy metal and carbon emissions.

People & Community

Goals: Reduce liability, increase visibility, and consider alliances.
Examples of actions:

Look to third-party certifications – accreditation of materials, processes, facilities, and personnel by governing bodies.
Embrace worker conditions – green workspace design and human rights audits.
Create NGO alliances – charitable donations, community outreach, and corporate dashboards.

While the nuances and details of each action family are beyond the scope of this paper, this framework can guide deep discussions with your suppliers and partners to turn these ideas into reality.

Spotlight on Detailed Dashboards

The Sustainable Packaging Coalition (SPC) is an industry working group dedicated to implementing sustainable packaging solutions. The SPC published an outstanding study, the Sustainable Packaging Indicators and Metrics Framework. The study is available at SustainablePackaging.org by clicking here. This study presents an exceptionally comprehensive set of metrics to evaluate and benchmark packaging solutions.

The Framework was refined by the Global Packaging Project (GPP). A useful summary of their approach and conclusions are presented in A Global Language for Packaging and Sustainability. This can be found by clicking here.

The GPP proposes a slate of 40 metrics; a partial summary is provided here:

Environmental Attributes & Life-Cycle Indicators
Attributes

Packaging Weight and Optimization
Packaging to Product Weight Ratio
Material Waste
Recycled Content
Substances Hazardous to Environment
Renewable Content
Packaging Reuse Rate
Cube Utilization

Life Cycle Indicators

Cumulative Energy Demand
Water Use
Land Use
Global Warming Potential
Ozone Depletion
Non-Renewable Resource Depletion

Economic & Social Attributes

Total Cost of Packaging
Packaged Product Wastage
Packaged Product Shelf Life
Community Investment

Corporate Performance Checklist

Energy Audits
Child Labor
Excessive Working Hours
Occupational Health
Discrimination
Remuneration

These scorecards can get very complex very quickly. Considering your overall sustainability goals and the four major categories of actions outlined above (Material Inputs, Material Outputs, Energy & Climate, and People & Community) is a smart way to get started.

Pick Your Partners Wisely

Not all packaging suppliers embrace sustainable solutions with equal commitment. A 2011 survey conducted by Berlin Packaging showed that less than 50% of respondents (manufacturers of packaging) comply with predominant retail sustainability scorecard metrics.

  
       Sustainability Dashboard Compliance
       
      % That Comply
    
      Energy & Climate
       
      Reduce your corporate greenhouse gas emissions
      59%
    
      Publicly available greenhouse gas reduction targets
      13%
    
      Materials Efficiency
       
      Measured the total amount of solid waste generated
      45%
    
      Publicly available solid waste reduction targets
      12%
    
      Publicly available water use reduction targets
      9%
    
      Nature & Resources
       
      Publicly available sustainability purchasing guidelines
      23%
    
      Obtained 3rd party certifications
      45%
    
      People & Community
       
      Know the location of 100% of the facilities
      77%
    
      Process for managing social compliance at the manufacturing level
      52%
    
      Resolve issues found during social compliance evaluations
      36%
    
      Invest in community development
      36%
    
      Source: 2011 Berlin Packaging Supplier Sustainability Survey

The 2011 Sustainable Packaging Survey by Packaging Digest supports the theme that not all suppliers embrace sustainability. Only 72% of survey respondents pursue waste reduction as a sustainability practice (indicating that nearly a third do not), 50-60% have initiatives for energy conservation and use of recycled materials, and 32% have adopted policies aimed at reducing transportation and freight.

As you decide which levers are most important to your sustainability strategy, you will want to survey your suppliers and partners to make sure they can execute.

Spotlight on Berlin Packaging

Berlin Packaging is a leading supplier of rigid packaging. Sustainability is not a separate practice area or discipline within Berlin Packaging; instead, it is part of the regular dialogue of meeting the unique needs of each customer.

Indeed, as part of Berlin Packaging’s commitment to increasing the net income of its customers, Berlin takes pride in being a comprehensive resource for cutting-edge technologies and trends within the packaging industry. Sustainable packaging solutions are an important part of this.

Some of the ways Berlin Packaging has pushed the sustainability agenda include:

Early adoption of bio-based resins, including Polyhydroxybutyrate (Biopol).
Supplying multiple products with enhanced recyclability; all-plastic trigger sprayers is one example.
Partnering with Eco.logic brands on their fiber-based eco.bottle™.
Regular work to reduce gram weight in containers and closures.
Regular work to reduce freight and greenhouse gases by sourcing packaging closer to the filling location or changing package cube efficiency.
Focus on reducing and eliminating the need for secondary packaging.
Member of the Sustainable Packaging Coalition™.

From regulatory issues and retailer preferences to the latest available green material or processing platforms, Berlin Packaging helps customers stay ahead of the curve.

Getting Started

Improving packaging sustainability doesn’t need to be a big bang. There are many ways to dial in improvements over time. Start by building a roadmap that can guide any changes. You can do this by:

Collecting feedback from your key constituents – your consumers, customers, and suppliers – and researching how you compare to your competitors. Can sustainability be a source of competitive advantage and, if so, in what ways?
Deciding on your overall goals and what role sustainability plays in your overall strategy. How can it be incorporated on your corporate scorecard?
Determining what degrees of freedom you have with sustainability. Are there certain things about your go-to-market approach and offering that you can and can’t change?

With this information in hand, the next step is to review the four levers in our sustainability framework to identify the best tactics to accomplish your goals. At this point, you will be ready to choose the right supply chain partners to support your efforts.

Summary

Sustainability is good for the earth, good for your community, and can be good for your business. Sustainability is here to stay, and packaging can play an important role in a sustainability strategy. The challenge is to sift through the complexity to define what the right strategy is for you. Understanding where sustainability fits on your corporate dashboard and what tradeoffs you’re willing to make is essential in building this strategy. Once you have established that foundation, you can select the best tactics and actions to meet your goals. There are four major families of actions that can improve packaging sustainability – Material Inputs, Material Outputs, Energy & Climate, and People & Community – and they can all play a role. Ultimately, delivering sustainable solutions and delivering excellent business results can go hand in hand with a well-designed roadmap and supportive partners.

The WHY, HOW, And WHAT of Berlin Packaging

Adrienne Porter · January 3, 2015

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The WHY, HOW, and WHAT of Berlin Packaging

A Different Kind Of Experience For Those Who Want To Be Greater, Faster.

There are over 25 million businesses registered in the United States. Only 20,000 take in more than $100 million in revenue (less than 0.1%) and an even smaller fraction reach $1 billion in revenue. Building a large enterprise that can support and reward many employees and customers is rare. This paper shares ideas on why some companies thrive much more than others and why Berlin Packaging has been able to excel in the packaging industry by embracing a Greater, Faster spirit.

The best companies send a clear beacon of WHY they exist

Some companies are able to capture the hearts and minds of consumers. Consider these leaders and what they stand for:

Think different

Your are now free to move about the country

The relentless pursuit of perfection

Just do it

Building a smarter planet

Transforming the way we work

The miracles of science

Innovation

Each of these companies communicates WHY they exist. They share their passions, and they draw in customers and employees that share these passions. Listed above are ad slogans, but behind the marketing lies real culture and beliefs.

The WHY is more important than WHAT is sold or HOW it’s offered

To stand above others, the best companies succeed not because of WHAT exactly they sell or HOW they go to market. Instead, the best companies win because of the thought and energy they put into their WHY and how that WHY rings-true with the marketplace.

Sure, Apple sells computers, phones, and music, among many other things. These items and systems have great processing power, are beautifully designed, and are easy to use. But there are many other companies that sell even more powerful computers or phones with larger, even more beautiful screens.

And Southwest flies over 100 million passengers every year between almost 100 cities. Their flights are affordable and on-time. But there are many other airlines serving these and many more cities.

So what makes Apple one of the most valuable companies in the world and Southwest the only airline that’s been profitable for 40 consecutive years? Apple and Southwest are different in that they are clear in their WHY. Apple challenges the status quo; they appeal to those who imagine new futures and also think differently. If Apple were to make televisions or automobiles, there would be people who would line up to buy them because Apple’s WHY resonates with them. It’s not about WHAT Apple sells; it’s about WHY they do it. The same is true with Southwest. Southwest’s WHY is focused on the democratization of air travel. Every person deserves a seat and respect; every person deserves love. This has struck a chord with many people who show their love and loyalty back to the airline.

The best WHYs are truly emotional, visceral, and clear. They capture a crisp feeling, they inspire you to action, and they may give you goose bumps. The best WHYs act as beacons to customers, employees, and suppliers.

WHY needs to be authentic. People can see through marketing mumbo jumbo and half-truths. Winning with WHY requires walking the talk every day.

Berlin Packaging’s WHY is to help you be Greater, Faster

Berlin Packaging is dedicated to those who:

Aim to dominate and blow through obstacles; are unstoppable.
Want to achieve more.
Want to succeed, ascend, elevate, and get more out of their business and their lives.
Are uncomfortable with the status quo.
Are proactive about change.
See the world through optimistic lenses.
Feel that anything is possible with the right approach and effort.
Want to control their destiny.
Expect more from those around them.

This WHY is unique in the packaging industry. No other company starts with an emotional beacon. The packaging industry is obsessed with WHAT. This isn’t inspiring.

Instead, we wear our intent on our sleeve, and we’re proud to help businesspeople and companies succeed. We are like a fierce boxer, a hungry shark, a performance jet, a determined mountain climber, or a speeding train. We are unstoppable. We are a juggernaut.

We attract employees that derive joy from building businesses and striving to accomplish great things.

We want to attract customers and suppliers that share our same mindset.

We support our WHY with a well-tuned HOW

We’ve cultivated our Greater, Faster mindset for over 25 years. We’ve built our HOW to support and fuel our WHY.

We allow our customers to control their destinies and become Greater, Faster by:

Living our customer-focused mission.
We aim to increase the bottom lines of our customers.
Packaging is just the currency we use to do this.
Being a Hybrid Packaging Supplier.
We combine the best elements of manufacturers, distributors, and value-added service providers into a differentiated business model. Learn more at PaintTheTarget.com.
We quantify our value and walk our talk.
Engaging a superior team with Anything is Possible and Customer Thrill mindsets.
We invest heavily in recruiting the right traits and training the right skills.
We abide by a HR strategy that motivates and rewards our employees for excellence.
We instill a customer-experience focus in everything we do.
Leveraging our supply chain experience and deep network.
We have tremendous purchasing clout to drive down costs.
We specialize in inventory management so our customers don’t have to.
We appreciate the importance of speed and reliability in winning in the market.
Operating robust systems that underscore a passion for precision.
We have invested in a world-class Oracle software system that’s so valuable we call it Fortitude.
We became ISO 9001 Certified in 2004.

Ultimately, we deliver all of this through our WHAT

We provide packaging products and services for customers of all types across all industries.

Our WHAT includes:

Broad product offering.
Over 33,000 SKUs.
Custom packaging, graphic design, and brand strategy from our Studio One Eleven design division.
Specialty product solutions, including Dangerous Goods UN-packaging, Qorpak lab supplies, and Freund Container convenience.
Relevant to your needs.
Wide array of industry experience and packaging knowledge.
Over 90 locations so we’re close to you.
Lower total system costs.
Superior service execution.
99%+ on-time delivery every month for over 9 years, with more information at 99PercentOnTime.com.
Dedicated Quality team that advocates for you.
Customer touchpoints infused with our focus on POKER service (Proactive, On-time, Knowledgeable, Easy to do business with, and Responsive).
Leading Net Promoter score.
Business partnership.
Consulting and financing to help you unlock growth and profits.
Quantified value through semi-annual Business Reviews.

Are there learnings here for you and your business?

WHY does your business exist? WHY do you get out of bed in the morning?

Are you communicating this as a beacon to your customers and employees?

What about your supply chain partners? Do they share the same passions you have?

Focusing on your WHY is simple to grasp but hard to get right. Driving to an authentic, emotional, powerful statement of WHY can help you re-focus your business and catalyze a fresh look at WHAT you offer and HOW you do so.

Learn more about the power of WHY

Simon Sinek made a thought-provoking speech at TED Talks. See it here: TED.com/talks/simon_sinek_how_great_leaders_inspire_action.html. You can learn more about Simon and his approach at StartWithWhy.com.

Transform yourself with Berlin Packaging

Berlin Packaging is not for everyone. But if you are hungry to be Greater, Faster, then we are ready to begin.

You can learn more about our HOW and WHAT at BerlinPackaging.com.

Give us a call to experience our spirit and unique attitude. You can reach us at 1.800.2.BERLIN.

People Power: Building A Profitable Business Through Human-Resource Excellence

Adrienne Porter · January 1, 2015

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People Power: Building a Profitable Business Through Human-Resource Excellence

In August 1914, Ernest Shackleton set sail on an adventure. He was leading the Imperial Trans-Antarctic Expedition, which aimed to be the first group to traverse Antarctica. Prior to departing, Shackleton hired his crew. Knowing the importance of having the right people, he posted an unusual ad to find applicants:

Men wanted for hazardous journey.

Low wages, bitter cold, long hours of complete darkness.

Safe return doubtful.

Honor and recognition in event of success.

Over 5,000 applicants were ready to take on this journey. The drive these people had was neither extrinsic nor financial. Their drive came from within. They wanted to be part of something extraordinary. The 27 men who ultimately accompanied Shackleton on his ship, Endurance, encountered many obstacles. The team was challenged to the maximum. While they failed to achieve their original goal, the expedition succeeded in an amazing feat of persistence and teamwork. The team survived due to the unique character and mettle of its members.

This paper examines how people and culture, when tuned right, can deliver outstanding results. The core of the paper is a five-part People Model, in which we review selecting and investing in the right team, engaging and retaining the team, and listening to the team. But first, we turn to some quantitative research that demonstrates how the soft side of people can yield hard results.

Insights on the Importance of People

A 2013 study by Booz & Company showed that top executives value people and culture highly. Of the 2,200 executives surveyed, 84% said that culture is critical to their organization’s success. And 60% said culture was more important than the company’s strategy or operating model.1

Another study was conducted by Jeffrey Pfeffer, a professor at the Graduate School of Business at Stanford University and author of The Human Equation. His work looked at the NYSE public companies that had the best stock appreciation in the twenty years between 1972 and 1992. There were five companies that stood above all others. What is interesting was that these companies did not start with large market shares or have special technology or patents. In fact, these companies were not even in high-growth industries. Instead, all were in highly competitive industries, vulnerable with low barriers to entry, and in sectors experiencing substantial losses and widespread bankruptcy.

Yet these five companies each delivered shareholder returns in excess of 15,000% over the period studied. The companies were Wal-Mart, Circuit City, Plenum Publishing, Tyson Foods, and Southwest Airlines. Apart from Circuit City, whom we will address in a moment, each of these companies is still recognized as a leader in its industry.

The common element that drove the success of these companies was a thoughtful human-resource strategy. These companies had cultures that emphasized growth, invested a lot in leadership training and overall skill development, established strong career paths, and offered superior pay for superior performance. By focusing intensely on the people and the culture, these companies created an environment that inspired the workforce to outperform, and the companies achieved terrific market performance as a result.

Case Study: Circuit City Going Wrong

Circuit City saw its shareholders earn a 16,410% return between 1972 and 1992. But with increasing competition, Circuit City’s leaders decided they needed to cut costs. So in March 2007, the company strayed from its focus on people and laid off more than 3,400 employees (about 8% of the total workforce). They announced they were removing the store associates “who were paid well above the market-based salary range for their role” so they could replace them with lower-paid workers.

But the employees they removed – in addition to being the highest paid – were also the best performers. Over the years, those high performers had received raises and hard-earned commissions for their exceptional work. With the top performers out, Circuit City was left with severe knowledge gaps and a devastating blow to morale.

By November 2008, Circuit City was in bankruptcy, and it closed its doors in March 2009. Had the company continued to focus on the people and organizational traits that had spurred their remarkable growth, they would have been able to remain afloat and compete for their share of the market.

The People Model

Companies can build a strong organization by focusing on a five-part People Model. In this section, we will review each element, including how employees can best be:

Selected (hired)
Invested in (educated)
Engaged (motivated)
Retained (rewarded)
Measured (listened to)

Select the right people – hire using traits

Traits are the compass that internally defines and motivates each one of us. They are hard-wired into each person’s psyche. Traits are different from skills and experience, which are what appear on a resume. Skills can be taught, but traits are innate.

During recruiting, the focus should be on whether the candidate’s values fit into the company culture. Traits like being self-motivated and innovative can often offset a less-than-ideal skill set. As Bruce Nordstrom once said, “We can hire nice people and teach them to sell, but we can’t hire salespeople and teach them to be nice.” And Goldman Sachs hires brilliantly-smart people. But the company has learned that highly intelligent people often don’t work well with others. So Goldman candidates also need to prove a high degree of collaboration and teamwork.

Trait-based interviewing gets into deep discussions about past behavior, motivations, and “what if” scenarios. Tools like Myers-Briggs Type Indicator®, the DiSC® personal assessment, or the Predictive Index® can prove useful to evaluate and screen candidates.

Invest in employees – train and educate

Many organizations view employees as expenses or assets. But expenses cost you money today and assets depreciate over time. Employees should instead be viewed as investments. That’s why companies with growth-oriented cultures put employee development and career pathing as high priorities.

In some positions, training is needed. Training comes into play when someone needs to perform a task over and over again in a specific way or learn industry-specific knowledge. Think of someone on an assembly line. The procedures have been set and the line has been tuned to best suit the task. The employee needs the training to learn how to perform a repetitious task efficiently.

Being educated on a particular topic, however, goes beyond performing a task to also include understanding the broader objectives and parameters. Education can boost innovation and creative problem-solving. It is this education that helps spark organizations to challenge the status quo and make progress.

In addition to training and education, companies can invest in employees by removing barriers to growth. If employees feel constrained, they are less likely to contribute. Indeed, in the right environment, even employees without the necessary “education” will become active in solving problems and improving the elements they can control.

Overall, investments in training and education yield additional productivity and profitability, and set the stage for deeper employee engagement.

Engage employees – motivate with leadership, autonomy, and information

Leading

Leaders engage employees. Leading is different from Managing; not all managers are leaders, and one doesn’t need to be in management to be a leader. Indeed, manager behaviors revolve around how to organize, coordinate, administer, and measure. There is a strong focus on the “what” is being done and “how” to do it. Management is about the left side of the brain.

Leadership, however, comes from the right side of the brain. Leadership is about inspiring, innovating, and learning. Here, the focus is on “why” we do what we do.

Companies with a people-centric culture invest a lot in developing and leveraging leaders. These leaders propagate a vision of the future and inspire employees to take part.

Empowering

Employee engagement can also come from a sense of empowerment. When people feel they are in situations where they are in control of their destiny and can perfect their craft, their productivity and effectiveness go up.

3M encourages its employees to spend 15% of their time on passion projects, which we can thank for our beloved Post-It notes (Google had a similar policy until August 2013). This creates a unique sense of autonomy, ownership, and entrepreneurship. Being self-directed encourages empowerment.

Other contributors include an organizational acceptance of failure (mistakes are a chance to learn lessons), a flat corporate structure, and few status distinctions among the ranks – all of which help assure employees that they have “permission” to speak up to improve the business.

Informing

Sharing information is another way to boost engagement. Extensive sharing of information – including financial performance, strategies, and operational measures – conveys trust and loyalty. Bringing employees into the data flow makes them act more as owners and underscores that the whole team is working together toward common goals.

Retain employees – compensate and reward

Most employees are not working out of the goodness of their heart. They need to be rewarded. To build a strong culture, companies should structure compensation to deliver superior rewards for superior performance. This includes cash compensation like salary, benefits, bonuses, and other incentives. These are vital to getting the right people on board. And the best bonus plans tie payouts clearly to the company’s bottom line.

These extrinsic rewards help recruit employees, but more is required to ensure they stay. General Electric’s Jack Welch was famous for sending personalized thank-you notes to employees. These letters were often framed by the recipient and valued much more than a spiff or bonus.

Companies need to create non-monetary ways, specific to their corporate culture, to celebrate and reward stellar employee behavior. As we saw in the Circuit City case study, keeping the right people employed can make all the difference.

Measure employee engagement – empathize, learn, and improve

A company’s culture evolves over time. As such, it’s important to listen to employees and adjust appropriately.

Research shows that thrilled customers yield superior returns for a company. And a growing body of thinking links customer thrill to employee thrill. This means that excited customers beget excited employees and vice versa. See, for example, Bain & Company’s description of Rackspace, a high-growth IT sourcing company that is fanatical about both customer and employee loyalty.2 (Bain’s article also includes many good tips for deepening employee engagement.)

Measuring employee engagement can be as easy as conducting a survey. The Net Promoter methodology is a straightforward approach that can be applied to customers and employees alike. For more about Net Promoter, see our white paper, Winning with Customers, found at CustomerThrill.com. A survey could start with the key question: “How likely are you to recommend working at [Company X] to a well-qualified acquaintance (to a friend or someone you know)?” Answers are put on a scale of 0 (Not likely at all) to 10 (Very likely).

Other questions can then dig into an employee’s rationale and feelings.

What keeps you at [Company X]?
Is there something important that [Company X] should start doing?
Is there something important that [Company X] should stop doing?
Is there something important that [Company X] should continue doing with more gusto?

This kind of survey will yield useful information in the journey to improve a company’s culture. So will constant communication and feedback between managers/supervisors and employees. Periodic employee reviews and 360° evaluations can help, too. The learnings that organizations have in this process help to improve the culture.

Spotlight on Berlin Packaging

Berlin Packaging is a leading supplier of rigid packaging. The packaging market in North America grows at 2-3% per year, but Berlin Packaging has grown at more than six times the market rate for the last two decades. There are many factors contributing to this success, but a focus on people and culture has been central. Described below are some of the ways Berlin Packaging develops and nurtures its culture.

“Can do” attitude

Prospective employees of Berlin Packaging are evaluated on their mindset. The company is looking for smart people who have demonstrated an Anything is Possible attitude. At Berlin Packaging, Anything is Possible has been defined by employees as:

We demonstrate more passion and effort, creatively so and consistently so, compared to others we compete with. We go above and beyond in the pursuit of thrill for our customers and success for Berlin Packaging. We are the best at what we do.

Berlin wants optimistic, competitive employees. It wants people who want to achieve more, challenge the status quo, and win. It wants people who aim to be Greater, Faster. You can learn more about this culture in a paper titled The WHY, HOW, and WHAT of Berlin Packaging, available at GreaterFaster.com.

Clear contract with employees

More than 20 years ago, Berlin Packaging adopted a set of values that govern the employee-employer relationship. The values are laid out as a T-chart, which shows the mutual obligations of the company and the employees. On the left side, Berlin Packaging owes its employees six elements, including rewards, career-growth options, job security, and leadership. On the right side, employees reciprocate by providing productivity, profitability, innovation, and teamwork. These Berlin Values are discussed during employee reviews, day-to-day feedback, and even in exit interviews. The feedback helps the company determine what needs to improve to make the company and employees grow.

Measuring employee engagement

Just as it does with customers, Berlin Packaging uses the Net Promoter approach to tighten ties with its employees. Employees are asked “How likely are you to recommend working at Berlin Packaging to a well-qualified acquaintance?” The answer to this question, along with other questions that delve into the reasons for the answer, provides data on employee engagement and ideas on how to strengthen engagement – and therefore productivity – over time.

Getting Started

Creating a competitive advantage through people is a long-term endeavor. The right next steps will depend on how healthy and appropriate your culture is today. There are some simple actions you can do to assess your starting point and begin building from there.

Agree on the attributes that define your culture

Regardless of job or function, what are the essential traits that every employee must display? This can relate directly to your company’s strategy, competitive positioning, and business model. Getting alignment on this will create the lens through which many other topics are viewed, including hiring, training, motivating, and rewarding your team.

Ask employees how you're doing

Get a sense of how your employees feel about working at your company. An easy way to do this is via a Net Promoter survey like the one described earlier in this paper.

Taking the pulse of your organization can reveal your strengths and areas of opportunity. If you find areas for improvement (as you undoubtedly will), start by addressing a few issues that can be resolved over the short term so that you can show some progress quickly. If you find a lot of positives (as you hopefully will), be sure you embrace them, too. It’s important to celebrate what is going well in your culture to ensure that neither you nor your employees take it for granted and let it slip away. For both positives and negatives, communicating what you’re hearing and what you’re doing about them is an important part of the process.

Evaluate how your employees are doing

Just as you listen to how your employees say you are performing, you should also take stock of how each is performing. To create powerful people advantage, you need to have the right team in place. One approach is to bucket all your people into four groups:

Green (right traits and strong performance),
Yellow (right traits but performance has been uneven),
Orange (wrong traits but good performance), and
Red (wrong traits and poor performance).

The Green bucket should be retained and motivated; these are your stars. The Yellow bucket needs to be trained or redeployed; they have the right traits and should be given a chance to show they can perform. Companies must also address the people that do not have the right traits and attributes. The Red group should be fired; they are not the people you want to have on your team. Some companies have trouble figuring out what to do with the Orange group; they are performing, after all. But the failure of the Orange group to demonstrate the right traits clouds the clear cultural signal you’re trying to create. So this group should be fired as well.

Look outside as well as inside

Today’s supply chains are tightly linked. Companies rely on one another to perform. As a consequence, it’s not enough to only consider your own culture and employees; you should also look to the culture of your partners. You want to be in the “business foxhole” with like-minded and like-motivated people.

Learn more from other published experts

There are many great resources available to help you use human resources as a competitive advantage, including:

Drive by Daniel Pink
Good to Great by Jim Collins
The Human Equation by Jeffrey Pfeffer
Human Resource Champions by Dave Ulrich
On Becoming a Leader by Warren Bennis
Endurance, Shackleton’s Incredible Voyage by Alfred Lansing

All of these getting-started steps will help define areas for action and further investigation. Cultural change must start at the top and include leadership at all levels. Without clear messaging and actions that are consistent with the message, any effort at improving culture will fail.

Summary

Top-performing companies succeed because of smart human-resource strategies that put people first. Companies that wish to build a competitive advantage through people would be wise to follow a five-part People Model. First, carefully select employees based on traits and attributes rather than specific skills. Second, invest in employees with training and, even better, education around goals, metrics, resources, and known obstacles. Third, engage employees with inspirational leadership, a sense of autonomy and empowerment, and free-flowing information. Fourth, retain employees with competitive compensation and a celebration of the best behaviors and accomplishments. Finally, measure employee engagement and find ways to improve. Combined, all of these steps will set a course for building a team that will carry your company to the top. In today’s economy, with companies more linked than ever, you should also consider the culture and people at the companies you’re connected to – suppliers and customers alike. Ultimately, the winning supply chains will have the most ambitious, well-curated approach to people.

1Find the study at www.booz.com/global/home/press/displays/corporate-culture-is-critical-to-business-success.
2See www.bain.com/publications/articles/whos-responsible-for-employee-engagement.aspx.

Winning With Customers: Establishing A Customer Focused Organization

Adrienne Porter · December 31, 2014

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Winning With Customers: Establishing a Customer Focused Organization

Executives work feverishly to grow revenues and expand profit margins. It’s very tempting to pull many costly levers – in advertising, marketing, sales, product development, and beyond – to find the next big customer “win.”

But the truth is that keeping and growing existing customers is much more likely to yield great returns than adding new customers to your roster. Acquiring new customers is five times more expensive than keeping current ones, according to research cited in the book The Loyalty Effect. Moreover, according to the same source, small changes in customer retention (5%) can lead to huge increases in profits (as much as 100%).1

Companies like Southwest Airlines have proven that building value through customer loyalty is a pathway to terrific business success. Southwest engenders loyalty by eliminating perceived customer hassles (like ticket-change and baggage fees), standardizing equipment to improve flight operations, and having an executive team member (SVP Customers) dedicated to the overall customer experience. Southwest weathered the recent recession and even grew its market capitalization to over $10 billion in 2011 while the rest of the airline industry sputtered mightily.

Southwest’s focus on the customer exemplifies something we call the Customer Focused Organization. This type of company thrives because it celebrates current customers and builds systems that:

Increase wallet-share. New wallet share is revenue that inherently has lower cost associated with it, so it’s higher margin.
Drive customer retention. Higher retention means that you are doing less work to grow; the revenue sieve that afflicts most companies has fewer or smaller holes.
Transform customers into advocates. Vocal advocates make it much easier to acquire new customers; prospecting is important, but why not make it easy?

This paper examines what it takes to become a Customer Focused Organization in four sections:

Understanding your customer
Embracing the New Golden Rule
Building a customer-oriented engine
Tuning the engine with customer feedback

The starting point in building a Customer Focused Organization is an in-depth answer to the most elementary question: who is your customer?

Understanding Your Customer

You cannot make customers happy or loyal if you don’t understand their needs, desires, and preferences. Even identifying who the customer is can be complex. Frequently there are multiple audiences to keep in mind. For example, you may want to consider the customer (the entity to whom you are selling), the consumer (the ultimate end-user of the product), and even the shopper (the person buying the product for the end-user). To a packaged-goods manufacturer, Target might be the customer, a mom the shopper, and a teenager the consumer.

Regardless of type, every customer must be defined on two levels to be understood.

The Outer Layer

The outer layer starts with the customer’s demographics or firmographics. In the B2B space, characteristics of the company such as geography, line of business, product line, revenues, credit risk, and number of employees are some examples. In the B2C space, customer age, gender, geography, education, ethnicity, and income are relevant demographics.

The Inner Core

The inner core addresses the customer’s needs, desires, and preferences. It is essential to ask the right questions, listen, and understand what the customer believes is important. Once is not enough; it has to be a continuous dialogue. As time passes, the drivers of customer thrill and pain will evolve. While we don’t have time in this paper to describe all the ways to collect this information, understanding these core motivations is extraordinarily important in building tighter connections with customers.

With this in-depth understanding of each customer, you have the tools you need to deal with a business reality: not all customers are created equal. Some are higher margin (they might be easier to serve or willing to pay higher prices); others might provide a larger total pool of profit dollars. Your company’s strategy should define the criticality of each customer type. Then, based on your knowledge of your customers, you can begin working on embracing those customers rationally, emotionally, and experientially.

Embracing the New Golden Rule

The Golden Rule is “Do unto others as you would have them do to you.” But unless you are exactly the same as your customer, this approach ignores the insights about customer needs and preferences. Establishing the inner-core concept encourages you to treat customers differently, with a touch customized to their needs.

A Customer Focused Organization uses the New Golden Rule: “Do unto others as they would like to be treated.” This mindset ensures that the customer’s needs are central, increasing the likelihood of meeting customer expectations as well as thrilling customers over time.

This mindset can be applied to all the elements that make up the customer experience – that is, the sum of all touches a customer has with a supplier of goods or services over the duration of their relationship. All touchpoints are relevant – awareness, discovery, attraction, interaction, purchase, use, cultivation, and advocacy.

Companies can usually map out dozens of discrete touchpoints, and this can form a framework for organizing efforts to upgrade the customer experience.

Building a Customer-Oriented Engine

A Customer Focused Organization requires more than an understanding of who the customer is, what the touchpoints are, and having the right mindset. Certain values and systems must be built into the DNA of the organization to ensure that the customer’s experience is top-notch:

Leadership

A Customer Focused Organization begins at the top. The CEO and the executive management team must agree that the customer experience and the pursuit of thrilling the customer are top priorities. They need to form a clear vision for what the customer’s experience should be like and also identify key metrics and behaviors that will be used to measure success against that vision. With management committed, the next step is to communicate this new priority and any new expectations to every employee. Executive management must continually reinforce these messages and establish monitoring procedures to ensure that employees are building the customer experience into their activities. Without this total commitment from management, none of the other elements listed below will stick.

Processes

Every interaction with the customer is a chance to delight or disappoint. As a result, many of the processes and policies that are put in place need to revolve around the customer, not internal mechanisms.

A Customer Focused Organization will tackle each touchpoint or process with the customer in mind. If the process is too slow or convoluted for the customer, then the process should be reengineered. The best organizations will include customers in the reengineering process to make sure the outcome will meet or exceed their needs.

Follow-Through

Once processes have been established, the next step is to make sure that employees are conforming to the standards. Typically this is accomplished through a training program that teaches the new processes and policies, including system enhancements that require employees to learn new ways of doing transactions. After training is done, it is up to people managers to monitor behaviors and watch for compliance lest old habits reappear.

Culture

When (not if) processes fail, culture can compensate to thrill the customer. A company’s culture is the ultimate safety net; when it’s properly tuned, failures in the above three elements can be repaired.

Customer Focused Organizations have a culture that is fanatical about the customer. Their culture stresses employees doing the right things for customers. Employees that interact with the customer communicate in a prompt and transparent way, for instance, delivering bad news quickly or anticipating the needs of the customer far in advance.

A successful customer-centric culture starts by hiring passionate, motivated, creative, and positive team players. Employee education and training are essential; employees must understand that they own segments of the process or touchpoints and are empowered to do the right thing. Their managers must hold employees accountable for their actions. And a customer- centric culture is reinforced with rewards and awards that link back to customer metrics.

The Customer Focused Organization engine requires all the above cylinders run smoothly. If any of these elements is dysfunctional, then the entire engine is susceptible to failure, and customers will feel the difference. But when done right, the results can be fantastic.

Spotlight on Zappos and The Walt Disney Company

Zappos and Disney are two successful companies that put the customer first.

Zappos

Zappos, a division of Amazon, is a leading online shoe and apparel retailer. Zappos says it’s in the business of delivering the best customer experience, and shoes are simply the vehicle used to do so. Zappos’s identity starts at the top with its CEO, Tony Heish, who joined Zappos in 2000 when revenues were $2 million. In less than 10 years, he built a business topping $1 billion in revenue, and Heish’s passion around Zappos’s customer-centric culture is a core driver of this growth. His message is simple: Find ways to deliver happiness to your customers. With the help of employees, he created the 10 core values that drive their organization today:

Deliver WOW through service
Embrace and drive change
Create fun and a little weirdness
Be adventurous, creative, and open-minded
Pursue growth and learning
Build open and honest relationships with communication
Build a positive team and family spirit
Do more with less
Be passionate and determined
Be humble

These core values are the basis for hiring, training, and ongoing process improvement. These values are focused on the customer but stress the importance and passion of employees in delivering the ultimate customer experience. Everything that Zappos does comes back to cultivating and celebrating these core values.

You can read more in the Zappos Family Culture Book available at ZapposInsights.com/Culture-Book.

The Walt Disney Company

The Walt Disney Company is the world’s largest media company, with $40 billion in revenue and over 150,000 employees worldwide. Disney is one of the most valuable brands in the world, and it can trace its success to the customer-focused leadership that Walt Disney instilled. Walt understood that being in a guest’s shoes is critical to delivering a “wow” experience.

Exceeding customer expectations was Walt’s goal, and he made it clear to all his employees. Walt’s mantra in communicating with employees was pay attention to details, every detail. Walt would attend the amusement rides and measure the consistency and reliability of the rides; he would pay attention to every aspect of the ride experience, including the host of the rides, the lines, and the length of time the rides lasted. To Walt, it was important to experience for himself what the usual customer experienced. He would act as the quality assurance manager and training leader at the same time to ensure a first-rate customer experience. He led by example and empowered every employee to do whatever it takes to thrill guests at Disney attractions.

Tuning the Engine with Customer Feedback

After building a customer-centric engine, true Customer Focused Organizations tune their engine with customer feedback. In Excellence Every Day, Lior Arussy uncovered an interesting fact: 79% of employees said they often go “above and beyond” and exceed customer expectations, yet only 29% of customers agreed. There is a meaningful perception gap between how well employees think they are serving customers and how well customers feel they are served. A methodology is needed to measure, understand, and eliminate this gap.

Global consultancy Bain & Company teamed with Satmetrix to create a methodology called the Net Promoter System designed to do just that.2 This approach is a helpful tool that companies can use to tune their customer engines.

Net Promoter System Overview

At the core of the Net Promoter System is the Net Promoter Score (NPS) to measure customer loyalty. The score, which is used by many Fortune 500 companies, is based on a very simple survey. The survey is centered on one key question, “How likely are you to recommend [your company] to a friend or colleague on a scale of 0 to 10?” In addition to this question, follow up questions are often asked to understand the reason for the responder’s decision to recommend or how the company can improve its performance.

The scores are separated into the following three categories:

Promoters (score 9 or 10): Customers are advocates; will passionately refer colleagues and help you build your business.
Passives (score 7 or 8): Customers are satisfied but are not vocal advocates; they are vulnerable to be pulled away by competitors.
Detractors (score 0-6): Customers are unhappy or not completely satisfied; will spread negative word-of-mouth about your company.

To calculate the Net Promoter Score, simply take the percentage of Promoters and subtract the percentage of Detractors.

The follow up questions, asking why a Detractor responded negatively or why a customer is a Promoter, are the keys to unlock organizational improvement.

Net Promoter Validity

Unlike other “satisfaction” metrics, Net Promoter has been quantitatively linked to better bottom-line results. Said another way, there is a positive correlation between higher NPS and better company financial performance. Across many industries, companies with higher NPS have more loyal customers that buy more, stay longer, become advocates, and provide feedback and ideas that propel the organization even further.

Examining the Data

The Net Promoter Score for an organization is meaningful in two ways: comparing the score with others in the industry, and tracking the organization’s score over time.

Comparing the score with others in the industry

Every industry has its own NPS dynamics. There are publicly available benchmarks for many industries available from companies like Satmetrix (see Satmetrix.com).

For example, in the telecommunications industry, the average NPS score is 11%, with companies ranging from -21% at the low end to 38% at the high end. The negative score means that there are companies that have more Detractors than Promoters; in this environment, a company with an ability to thrill the customer could gain significant market share. In other industries, like retail, the scores are higher, citing more energy spent on customer thrill and a more engaged customer pool. Examples of companies that lead their industries in NPS are USAA (auto insurance), Apple (computer software), American Express (credit cards), and Costco (specialty stores); these companies also tend to lead their industries in growth and profitability.

Tracking the score over time

Customer Focused Organizations track metrics like NPS just as they track financial measurements to understand how well they are doing. Monitoring the NPS dashboard makes it possible to gauge improvements or declines in customer engagement. The NPS data also forms the basis for assessing drivers of change and building action plans to improve customer loyalty – all hallmarks of a Customer Focused Organization.

Spotlight on Berlin Packaging

Berlin Packaging is a leading supplier of rigid packaging. The packaging market is highly competitive, and Berlin Packaging has succeeded in gaining market share year after year due in part to the emphasis placed on being a Customer Focused Organization.

Leadership

Berlin Packaging’s Chairman and CEO, Andrew Berlin, makes the pursuit of customer thrill a clear priority in all of his communications to internal and external audiences alike. The customer focus is central in Berlin Packaging’s mission statement, which is to increase the net income of Berlin’s customers through packaging products and services.

Processes

Berlin Packaging has spent significant time and money building and enhancing systems and processes to better serve its customers. PeopleSoft, Berlin Packaging’s award-winning information management system, and ISO 9001 certification are two examples of improvements implemented by the company over the years to deliver better and more reliable customer service.

Follow-Through

To ensure that processes are done right each time, the company built an award-winning online training system called Berlin Packaging University that educates employees to do their jobs in the best way possible. Managers create training plans and curricula for employees to follow, and employees have access to the programs 24/7.

Culture

Berlin Packaging has an Anything is Possible™ culture. Employees are hired, trained, and motivated to find ways to say “yes” to customers. “Anything is Possible” is defined and celebrated at the company: We demonstrate more passion and effort – and creatively so and consistently so – compared to our competitors. We go above and beyond in the pursuit of thrill for our customers and success for Berlin. We are the best at what we do.

All of this is supported by the Net Promoter methodology. Berlin Packaging uses regular tracking studies to see what’s working and what needs to be improved. An independent survey done in 2011 by Bain & Company showed that Berlin’s NPS led the packaging industry by a substantial margin.

Getting Started

Planning your business around the customer can lead to more proﬁts for your organization. While it can take time to develop, the following points can help you get started.

1. Assess your current situation

Ask and answer some simple questions to check your readiness.

How robust are your customer performance indicators today? Examine current scorecards for insights and adequacy. Consider satisfaction and loyalty metrics, revenue churn (retention, wallet growth, and new acquisitions), customer tenure trends, and reasons given for defection.
How well do you know the customer? Collect information from customer-facing employees such as sales and customer service. Do you have a place where customer conversations and notes are stored for easy employee access? Do you know what delights or disappoints your customers?
Do you know the touchpoints that impact the customer the most? List out the ways customers interact with you. Which ones are the most critical in meeting and exceeding customer expectations?

2. Learn more from other published experts

There are many great resources available to help you become more customer focused, including:

The Ultimate Question 2.0 by Fred Reichheld and Rob Markey
The New Gold Standard and The Starbucks Experience by Joseph A. Michelli
Excellence Every Day by Lior Arussy
Be Our Guest by Disney Institute with Thoedore Kinni
StoryBranding by Jim Signorelli
The Advantage by Peter Lencioni

3. Engage leaders in a discussion about priorities

Is the pursuit of thrilling the customer the top priority amongst the CEO and executive team? What obstacles does the executive team face in building a Customer Focused Organization?

4. Conduct a trial to measure the customer experience

Measure the customer experience by performing a simple Net Promoter Survey in a particular branch or division. Use this to identify some quick hits and also as a jumping-off point for a broader, deeper initiative.

Summary

Growing and retaining your current customers is smart business. Companies that focus on and strive to delight their customers outperform in the marketplace. We call these Customer Focused Organizations. This competence takes time to develop. It starts with setting priorities and seeing the forest (a thrilling relationship with a customer) for the trees (internal processes, company politics, ﬂavor-of-the-day tactics and other distractions from the core mission). It requires an understanding of who the customer is, including the obvious demographics or ﬁrmographics as well as the inner motivations and desires. Also required is the proper mindset – one focused on solutions tailored to the customer. Clear leadership, robust processes, and a customer-oriented culture are all part of building the engine. Finally, a dashboard to track customer engagement, like the Net Promoter System, is essential. When all these pieces come together, the results can be powerful. Companies that have committed themselves to these principles form a Who’s Who of growth and success and provide a roadmap for others seeking to build better businesses.

1The Loyalty Effect: The Hidden Force Behind Growth, Proﬁts and Lasting Value, Fred Reichheld.

2 Net Promoter, Net Promoter Score, and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld.

Improving The Customer Experience: Going Beyond Satisfaction to Deliver Thrill

Adrienne Porter · December 24, 2014

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Improving the Customer Experience: Going Beyond Satisfaction to Deliver Thrill

Terrific customer experiences lead to terrific financial results for companies. Bain & Company has shown across industries that higher customer loyalty, as measured by the Net Promoter Score1, is correlated with faster organic growth. On average, a loyalty-leader outgrows its competitors by more than two times.2

eBay is an example of a company that carefully considers and improves the experience of its customers. Their customer-centric strategy has worked well. Not only have eBay’s Net Promoter Scores improved over the years, but the company’s financial results have also been strong. Between 2009 and 2013, eBay’s sales grew at an average annual rate exceeding 16%.

To create a winning customer experience, people and processes need to align. For the people dimension, refer to two of our white papers – Winning with Customers: Establishing a Customer Focused Organization and People Power: Building a Profitable Business through Human-Resource Excellence. This paper addresses the process dimension of improving the customer experience. We will review a methodology through which organizations map and improve all the elements a customer encounters in his or her interactions with the company.

Consider a visit to Disney World. The Disney organization has thought through every part of the experience, even getting to the park entrance. If you’re in a rental car, for example, you navigate to Disney’s private road and go through a gate to pay for parking. Then one of the cast members (employees) helps you park your car. Next, you walk a few dozen yards to climb aboard the tram that takes you to the entrance. Even the tram driver helps build anticipation for the visit in the short ride. For every part of this arrival journey, Disney understands the memories it is trying to create – one that is easy, stress-free, and fast – and designs the process to deliver this experience.

In this paper, we examine ways to create a great customer experience. We address:

Dissecting the customer experience
Defining memories
Ensuring satisfaction and delivering thrill
Measuring progress

Before we get into the customer experience, we will first turn to a discussion of the person around which all this revolves – the customer.

Choosing Your Customer Target

Not all customers are alike. There is a wide spectrum of how they look, think, and behave. There is also a wide spectrum of how important they are to you – some customers are much more profitable than others.

So before diving into the customer experience, you must first select the customer target around which to focus your efforts. A useful step is segmenting the customer base to find clusters of similar demographics, psychographics, and behaviors. It’s common to find a small group of customers that accounts for the majority of spending, and frequently this group has similar wants and needs. Optimizing the customer experience around this kind of group can build loyalty where it matters most and can also serve to attract more customers belonging to this valuable segment.

American Express serves millions of cardmembers, but it focuses more energy on a small group of “high value cardmembers.” These customers spend much more than the average cardmember, have a longer tenure with the company, and have better credit scores – making them much more profitable for American Express. So the company places these cardmembers at the center of its customer experience efforts, knowing that thrilling these customers is a priority.

Dissecting the Customer Experience

The customer experience is defined as all the experiences a customer has with an organization through the duration of the relationship. The customer experience can be dissected into journeys, touchpoints, and interactions.

Journeys

Journeys are macro events a customer goes through when interacting with an organization. At a generic level, journeys might be Awareness, Consideration, Purchase, Post-Purchase Experience, and Engagement. Every organization will have its own set of journeys. For Starbucks, journeys include Anticipating (deciding to go, getting to the location), Entering (seeing the store’s layout, smelling the aroma), Engaging (getting in line, ordering, paying, consuming), Exiting (throwing away trash, walking out), and Reflecting.

Journeys are too high-level to drive changes in strategy or tactics, but they are important because they force you to think about the experience from the customer’s point of view. The holistic customer experience is very broad, so the formation of journeys builds a framework that spans and organizes all the more detailed touchpoints and interactions.

Touchpoints

In each journey, there are many touchpoints that customers have with an organization. For retail banks, for example, some of the touchpoints in the Usage journey include making a deposit, inquiring about your balance, transferring funds within the bank, transferring funds to/from another bank, withdrawing cash, and applying for a loan.

Defining these touchpoints is a key step. Then you should prioritize touchpoints, since some are more impactful than others. Consider the frequency of each touchpoint, how customers rate the quality of each touchpoint, and the importance of that touchpoint in a customer’s overall opinion of the organization. It’s also essential to locate the “moments of truth” – the touchpoints with outsized impact on customer loyalty. In retail banks, an infrequent but critical touchpoint is the resolution of fraudulent activity; how a bank handles this situation can lead a customer to greater loyalty or can undermine the customer’s confidence in the institution.

Interactions

At an even more granular level, touchpoints can be a collection of multiple interactions. For instance, within the touchpoint of applying for a bank loan, the customer may need to fill out an application, meet with a loan officer, provide more information, and receive news of the outcome. Each interaction offers new opportunities to delight or disappoint the customer.

Every organization will have its own set of journeys, touchpoints, and interactions. Furthermore, these can be different for different customer segments. Fully dissecting the customer experience – by truly walking in the customer’s shoes – creates the platform for thinking through smart enhancements.

Defining Memories

Every touchpoint leaves the customer with a memory – an impression of the company. To ensure the best experience, organizations should define the memory they want to achieve in every touchpoint. Below are some example memories for specific touchpoints.

Defining memories should be done with care; memories create the lens through which you evaluate the touchpoint and the customer experience. As such, memories should be defined with input from front-line employees as well as customers.

Making memories with CarMax and Comcast

In a 2013 Gallup poll, car salespeople ranked toward the bottom of professionals in honesty and ethical standards. But CarMax – a Fortune 500 company focused on used-car sales – differentiated itself by overcoming this stigma. Indeed, CarMax wanted its customer experience to support the memories of transparency, trust, and fairness. As a consequence, CarMax built their processes and touchpoints with these ideas in mind. They have online browsing, no-haggle pricing, thorough vehicle inspections, and a 5-day no-questions-asked money-back guarantee. Their approach is working; CarMax has seen revenue almost double and profits increase by a factor of nine since 2009.

Comcast, a leading cable company, is facing headwinds. They are trying to reshape customer memories of Comcast being an unreliable time-killer. A 2013 Consumer Reports survey rated Comcast near the bottom of all cable companies. To build new memories around being reliable and fast, Comcast is changing their approach to include 2-hour appointment windows, one-visit installations and issue fixes, and 24/7 online live chat. Time will tell if Comcast’s actions can reshape memories and change customer opinions.

Spotlight on the South Bend Silver Hawks

The Silver Hawks is a Class A minor league baseball team, part of the Arizona Diamondbacks system, that is based in South Bend, Indiana. The Silver Hawks play baseball, but they are really in the business of making memories that families can cherish for a lifetime. Prior to new ownership in 2011, the club’s Net Promoter Score was a dismal 13%. The public criticized many things, including poor food quality, unsanitary restrooms, and lackluster customer service.

Recharge the people and rethink the process

New leadership was hired with a clear mission to build a culture that was committed to thrilling fans. They studied how Ritz-Carlton and Disney treated their guests and also digested all the fan feedback. Simultaneously, the staff began working on improving the customer touchpoints.

The team mapped dozens of touchpoints – from approaching the stadium and finding parking, to purchasing tickets, passing through the turnstiles, using the restrooms, eating the food, and many other touches before, during, and after a game. Then the staff worked to improve the touchpoints.

For example, the Silver Hawks changed to serve the same hot dogs as those in Fenway Park, which were recognized as the best hot dogs in baseball. Likewise, the team upgraded the sound system to address fan complaints that they couldn’t hear the music very well, and the park now plays the greatest hits from the 1960s and 1970s – the preferred format for baseball fans.

Results

In two years, the Silver Hawks’ Net Promoter Score jumped to 79%. Importantly, the fans are also voting with their feet and their wallets. Attendance has more than doubled, and the team is now profitable and able to invest in further improvements.

Ensuring Satisfaction and Delivering Thrill

With target customers identified, touchpoints mapped and prioritized, and memories defined, the work of improving the customer experience can begin. This is a two-step process. The first step involves ensuring satisfaction; this is the foundation of customer loyalty. Only with proper blocking and tackling can the second step, building thrill, take hold.

Ensure Satisfaction

Ensuring customer satisfaction is about meeting basic standards. There are three components to this step.

Designed to meet customer needs – You want to create your products, systems, and processes to meet the needs of the target customer. Too oftencompanies design their offering without considering the voice of the customer.
Works as expected – Your service and offering need to function properly in real life, not just on paper. There must be alignment between what you promise and what actually occurs.
Problems resolved quickly – Problems happen. To ensure satisfaction, your organization needs to have a mechanism to react swiftly and to work to eliminate future failures.

The methodology is to move through each touchpoint and – with the target memory you want to create in mind – find gaps in the offering or process that prevent satisfaction from taking place. These gaps are defects; they are factors inhibiting the best customer experience. To close these gaps, the company must locate the root causes for the failures – be they poor product design, processes, systems, tools, training, incentives or other issues – and fix them to eliminate the problem.

Trader Joe’s strives for satisfaction with its specialty offerings, its well-trained staff, and policies that give tremendous flexibility to the front-line employees to please customers. Want to try a product before buying it? The Trader Joe’s team is happy to oblige. And if you have a problem with something you’ve already purchased, the team accepts returns with no questions asked. These are basic ideas executed well.

Build Thrill

Customer satisfaction does not drive loyalty. To receive the benefits of true promoters, you need to tap deeper levels of engagement; you need to go “above and beyond.” There are two ways to build customer thrill into the customer’s journeys.

Ordinary services delivered exceptionally – You can turn the ordinary into something extraordinary with careful attention to superior execution.
Exceptional services or features delivered well – You can add a “wow” by doing something unexpected.

Jet Blue builds thrill into its touchpoints. For example, a flight attendant will proactively offer to help a pregnant mother get situated on the plane; this can include stowing luggage or helping with other children. This is an ordinary service delivered exceptionally well. And Jet Blue invested in TVs for every seat, which is an exceptional feature not offered in coach-class seating on most competing airlines.

It can be tempting to jump into “thrill” brainstorming without first addressing the “satisfaction” foundation. This is a mistake. Having a flashy Ferrari isn’t fun if the engine is unreliable and needs constant maintenance. Companies can make great strides in improving the customer experience by carefully reviewing and designing each touchpoint – making sure it works properly and then adding in elements of surprise and delight where it makes sense.

Measuring Progress

In our white paper Winning with Customers: Establishing a Customer Focused Organization, we discuss measuring customer loyalty using the Net Promoter Score. The Net Promoter Score is based on a simple survey and centered on one key question: “How likely are you to recommend [company X] to a friend or colleague on a scale of 0 to 10?” Follow-up questions are then asked to understand the reasons behind the score. Net Promoter is a powerful methodology that can provide broad insight into the degree to which a company is building customer engagement and loyalty.

The same methodology can also be used in a more granular way to assess journeys, touchpoints, and interactions. This helps companies identify hotspots of dissatisfaction and perhaps some of the root causes for the problems. Net Promoter can also provide insights into true thrill moments, which can be an impetus for institutionalizing thrill more broadly.

Net Promoter is not a one-shot concept. It should be used to measure and track progress over time.

Spotlight on Berlin Packaging

Berlin Packaging is a leading supplier of rigid packaging. The company has succeeded in gaining market share year after year due in part to its relentless pursuit of customer thrill. Berlin Packaging’s Net Promoter Score leads the packaging industry, and this is a result of a focus on both culture and processes.

The company regularly listens to its customers to understand what is working and what needs improvement. And they apply Net Promoter to individual touchpoints on a regular basis. In 2012, for example, a touchpoint survey uncovered that the process to resolve a quality complaint needed improvement. This touchpoint is a moment of truth in the packaging industry (customers can’t fill and sell their finished goods if the packaging isn’t right), so Berlin Packaging pursued the following steps to improve the process.

Review the current Quality Resolution process

After looking closely at the process and receiving feedback from customers and employees, the following issues were identified:

Incomplete recognition of the customer throughout the process.
Lack of consistency across the company for how the process is applied.
Delays in containment and resolution of the underlying issue.

Each of these issues led to improvements in the process.

Reinvent the Quality Resolution process

A cross-functional team made the following changes:

A mindset of customer advocacy was put in place. The memory the team wanted the customer to have was “Berlin’s got my back.”
An 8-step process was implemented to ensure reliable and quick resolution as well as permanent countermeasures to prevent recurrence. All customer-facing staff were trained on the new process with roles and responsibilities clearly explained.
A Quality Specialist role was created for each location to facilitate the process and to provide an expert resource on-site.

No supplier has perfect quality. What distinguishes the best suppliers is how they respond to a quality issue. Customer feedback on Berlin Packaging’s new quality resolution process has been excellent.

Getting Started

Improving the customer experience is a large task, as it touches so many facets of an organization. Below are some suggestions on how to get going.

Start with leadership

As noted before, the customer experience is about both people and processes. Before processes can gain traction, the company’s leadership must buy-in completely to a customer-focused culture. In both words and actions, leadership needs to champion the power of improving the customer experience.

Meet with top customers

Don’t wait for a perfect solution. You can build quick insights by meeting with some of your important customers. Ask them what you’re doing well and what you’re doing poorly. This need not be a large survey, since even qualitative feedback can help jumpstart the process and identify potential quick-hit areas.

Map and measure the customer experience

As discussed earlier in this paper, you should build a list of the customer journeys and touchpoints related to your business. Then use this as the basis for a more thorough survey that measures your overall performance as well as your execution on important touchpoints; a good tool to use is Net Promoter. This will provide great data to help prioritize future effort.

Set goals

With a good idea of focus areas, you can start defining the right memories and determining how to make them come to life. This can be an iterative discussion, bouncing between what makes sense for specific touchpoints and also what your overall company and brands stand for. Looking outside your company and industry is a smart way to start the benchmarking and goal-setting process.

Ultimately, companies intent on change will form a team to focus on customer-experience improvement. This can be done as a special rotation or as an add-on to everyday duties, but it also makes sense to name a person or small group that acts as the customer experience champion. Elevating the customer experience is an ongoing journey, so building muscle via virtual or permanent teams will pay off in the long run.

Summary

Companies that deliver superior customer experiences enjoy higher customer loyalty. This loyalty translates into better financial performance in the form of easier customer acquisition, greater wallet share, higher price realization, lower cost to serve, and stronger retention. Building a customer-oriented organization requires a thoughtful approach to both people and processes. In this paper, we discussed how companies can improve their processes by choosing the customer target; dissecting the customer experience into journeys, touchpoints, and interactions; defining memories that will resonate with customers; and ensuring satisfaction (by addressing the gaps and defects that exist today) as well as delivering thrill (by adding in wows that will surprise and delight). Measuring progress is another important part of the process, and there should be an ongoing campaign to listen to customers and seek out new ways to improve their experience. Companies like Disney, Apple, Ritz-Carlton, Nordstrom, and Southwest – all renowned for their customer experience acumen – don’t have any magic other than a team of employees devoted to customer thrill and a set of products, processes, and procedures that allow those employees to deliver excellent experiences. Any company with the same discipline around customer loyalty can also enjoy fantastic success in the market at the expense of less-thrilling competitors.

1Visit www.CustomerThrill.com for an overview of the Net Promoter Score; you can also visit www.NetPromoter.com.

2See www.NetPromoterSystem.com/about/how-is-nps-related-to-growth.aspx.

Designing A Strategy For Growth: Blueprinting in Six Steps

Adrienne Porter · December 2, 2014

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Designing a Strategy for Growth: Blueprinting in Six Steps

Consider the following business statistics:

Walmart brings in more than $1 billion in revenue per day.
Southwest Airlines has a greater market capitalization than American Airlines or United Airlines (and almost every other airline, too).
Microsoft dominates personal computer operating systems with 90% market share and $62 billion in revenue in 2010.
Apple has a smaller share of the PC market, but took in $65 billion in revenue in 2010 thanks to its strength in hardware and entertainment.
Kellogg’s sells more than one-third of all cereal in the U.S.

All are examples of successful companies, and all have defined strategies that help guide their businesses. Indeed, thoughtful strategy is one key ingredient for a company’s success. Brands, products, supply chains, human capital – all are important. But strategy is the overarching blueprint that shows how resources should ultimately be invested.

Strategy is often viewed as the responsibility of the executive suite or corner office. While final decisions may reside there, strategy should be neither mysterious nor elite. Everyone can understand the principles and building blocks of strategy. This paper reviews the fundamentals of strategy through three questions:

What is strategy?
Where can strategy exist?
How to build a smart strategy?

Before tackling these questions, we begin with an example that shows why strategy is so powerful.

Case Study: Nike vs. Reebok

In 1990, Nike was a relatively small player in the footwear space. The company’s annual revenues were $2.2 billion, roughly the same as its archrival, Reebok.

By 2010, Nike’s revenue exceeded $19 billion (an average annual growth rate of 11%). In contrast, Reebok had stagnated, grown revenue to only $3 billion, and had been bought five years earlier by Adidas for $3.8 billion (while Nike was trading near $20 billion). Nike’s market capitalization in Q1 2011 was over $40 billion.

Nike’s success was governed by strategy at multiple levels. They had a fierce humancapital strategy – hiring people who took delight in crushing the competition. They also had a new way of looking at the marketplace. Nike’s vision was to arm athletes with the equipment they need for optimal performance. Nike saw “athletes” as anyone with a body (opening a broad market) and “equipment” as any kind of gear used in sport (expanding beyond its original shoe business). Nike also had rigorous brand and business-unit plans to get the most out of each investment.

Nike applied these strategies across sports – starting with their core running business. They built shoes for elite athletes, expanded to shoes for the masses, and then added apparel and equipment. Then they did the same thing in basketball, tennis, golf, soccer, etc. Reebok did not have such a robust plan.

Excellent execution was critical, but the playbook Nike used was the seed that started it all. Nike used strategy as a tool to win. (Reebok has noticed this and is busy rebuilding its strategy to ignite growth.)

What is Strategy?

A good strategy rationally defines the tradeoffs you will make to deliver the best return on scarce resources.

There are four clauses in this definition to call out for further explanation.

“Rationally defines” – a strategy should be based on an objective fact base that ties back to the core drivers of advantage in an industry.
“Tradeoffs” – a strategy should say what you will focus on, and what you will not. Describing what is out of scope is at least as important as saying what is in scope.
“Best return” – a strategy should identify the metric that is being optimized, be it sales, profitability, market share, or something else.
“Resources” – a strategy should be clear about the resources being allocated; knowing what is scarce and what is plentiful is an important part of the process.

If you have unlimited resources, you may not need a strategy; you could invest in any and all initiatives to meet your goals. All companies we encounter, however, have constraints of some type – people, cash, or time – so strategy plays an essential role in allocating these scarce resources.

Where Can Strategy Exist?

Strategy can operate at multiple, nested levels.

Corporate Strategy – What business should your company be in?
Nike decided their business was to serve the needs of the athlete by participating in the footwear, apparel, and equipment (and not yet the athlete nutrition or entertainment) markets. The corporate strategy defines the playing field to be optimized, and it can be manifested in priorities for organic growth as well as for mergers and acquisitions. Mistakes made at this level – casting the net too broadly or narrowly – can doom a company from the start.

Business Unit Strategy – How to drive the best return?
When looking at a business unit, brand, or branch (the basis of a P&L), what are all the ways to optimize the target metric? What are the most important ways? In the next section, we will review business unit strategy in more detail.

Functional Strategy – How can a person or a function most efficiently and effectively create results?
Given the corporate and business-unit strategies, what is the best role for each function (product development, marketing, sales, procurement, manufacturing, finance, human resources, IT)? Functional strategies should ultimately support the overarching business unit and corporate plans. Functional strategies often look at organization design, team capabilities, and drawing connections between jobs and actions and P&L levers.

All three of these strategic “levels” need to be aligned and in harmony.

How to Build a Smart Strategy?

There are six steps to building a strategy.

Step 1: Business Definition

This step defines the right frame of reference for the overall strategy. What business are you actually in? Define your business too tightly and you may be surprised by a competitor or miss opportunities; define it too broadly and you may end up in situations that require very different skills to succeed. One way to approach business definition is to look at the overlap of cost structures, customers, and competitors across two opportunities. The greater the overlap, the more likely those two opportunities reside in the same business.

Step 2: Situation Assessment

This step requires you to look externally and internally to diagnose your strengths and weaknesses. This fact base is the foundation on which to build your strategy. Some things to look at might be:

Segmenting the market to find places for profitable growth
Understanding where you are gaining or losing share and why
Knowing your company’s capabilities, and those of your competitors
Seeing where you’re profitable and where you’re not

It is particularly powerful if you can summarize this situation assessment against the criteria needed to succeed in the market (i.e., drivers of competitive advantage). For example, how do you stack up when considering the excellence of your brands, your products, your supply chain, and your people?

Step 3: Vision and Targets

This step represents the “what” of the plan. A vision is a statement of purpose that helps the organization focus; it sets the context for addressing the most critical strategic issues of the business. For example, "we aim to become the preferred supplier to XYZ customers." Targets are the tangible goals and metrics that relate back to the vision. Good targets should be balanced (financial, marketplace, people) and SMART (Significant, Measurable, Achievable, Relevant, and Time-bound).

Step 4: Prioritized Strategies and Actions

This step represents the “how” of the plan, and this requires thought and iteration. The first element is to create a long list of potential actions and strategies. You might consider:

What’s been working and what hasn’t
Which customers/markets to target; where is the white space
Best value proposition to distinguish you and where you are lacking
Key processes, human capital, organization, and technology that lend advantage or are holding you back
Internal improvements and also external (M&A) opportunities

Each strategy can support one or multiple targets. These ideas then need to be prioritized to fit the resources available and the importance of certain targets. Consider the value created by any given activity as well as the time and investment required.

Step 5: Implementation Planning

This step is about building plans to drive execution; action plans include what is to be done, when it needs to be done (start/end, precedent/contingent activities), and who is involved and with what role. Implementation of the strategy should be tied explicitly to operating controls like budgets, management dashboards, and individual objectives. Most important is to move forward; it’s better to have the “80% correct” strategy implemented than the “100% correct” strategy not implemented at all.

Step 6: Tracking

Taken together, these six steps help establish a strategy blueprint. While there are practices and details not covered here, this is an effective overarching framework for strategy creation. Companies intent on building the best strategy can use these steps as a starting point and can pull in experts to augment this process.

Case Study: Berlin Packaging

Berlin Packaging is a leading supplier of rigid packaging. Its strategy is to grow by building the best offering (products and services) and hiring the best people (to deliver the offering) in order to help its customers succeed. Indeed, Berlin Packaging’s explicit mission is to increase the net income of its customers.

A key element of this strategy is the suite of services Berlin Packaging created to help customers grow sales, reduce expenses, and improve productivity. For example, the Studio One Eleven division provides structural package design, graphic design, and marketing services that help a company accelerate revenue growth. Berlin lowers its customers’ expenses by managing their inventory. Berlin Financial Services can help improve productivity by loaning money at 0% interest to give customers a means to make capital investments. And the E3 division cuts across all of these with an array of consulting services that can help customers build strategic plans (as described in this paper), build best practices within functions, and improve asset utilization.

The fact that all of these services are offered at no charge, but in exchange for packaging business, makes this a powerful and differentiated strategy. As a consequence, Berlin Packaging has grown multiple times faster than the packaging industry as customers have been drawn to Berlin’s approach and the “Anything is Possible” attitude that pervades the organization.

Getting Started

Before starting to build a strategy, a few elements need to be in place. First, the organization and its leaders need to acknowledge the value of strategy and the need for smart focus. Second, there must be a scorecard that you wish to work against and optimize. Third, time and resources must be set aside to invest in the six steps outlined above.

With these requisites in place, you can then tackle the six steps to building a strategy. There are many consultants and business books to help you along. You can also look to your competitors and business partners for inspiration (competitors) or assistance (business partners).

Summary

Building strategy need not be complex. But you should remember to:

Appreciate the need to make tradeoffs and choices.
Understand the levels of strategy – from Corporate, to Business Unit, to Functional.
Follow the six steps to build your blueprint – from Business Definition through Tracking.

Having the right blueprint dramatically improves the odds you will be able to meet your goals and beat your competition. At the same time, strategy is a living process. Your customers change, your competition changes, your objectives may change, and you are regularly getting feedback about what is working and what is not. All of this helps refine and revise your strategy over time.

As we have seen with Nike, Southwest Airlines, and Apple: strategy is a critical tool. Use the tips in this paper to build momentum for your own strategic planning, and look to your partners and advisers for assistance to make strategy work for you.

Supply Chain Consolidation: Rationalizing Packaging Complexity for Profit

Matt Creed · December 1, 2014

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  Supply Chain Consolidation:
Rationalizing Packaging Complexity for Profit

Complexity is a major issue for today’s business leaders. In a recent Bain & Company survey of more than 1200 global executives, 63% of respondents claimed that excessive complexity was raising costs and hindering growth.

Properly limiting complexity can have measurable benefits. Southwest Airlines grew up with a very simple business model; it served only secondary airports, with no travel agents, no assigned seating, and only one type of plane (Boeing 737s). This approach reduced or eliminated many of the costs traditional carriers incur and allowed the business to run exceptionally efficiently. As of 2012, Southwest had delivered profitable performance for 40 consecutive years, remarkable in the airline industry. Southwest offers a superior customer experience and is regularly recognized on Fortune Magazine’s list of Most Admired Companies.

Complexity abounds in supply chains. Companies often find themselves grappling with multiple sources for raw materials, variants of items and products, diverse manufacturing and assembly technologies, and widespread distribution networks and fulfillment partners.

This paper looks at ways to simplify and consolidate supply chains with the aim of improving efficiency and profitability. We will address four major questions:

WHAT: Types of consolidation
WHY: Benefits of consolidation
HOW: Approach for packaging consolidation
WHERE: Sweet spots and balancing acts

The discussion will be centered on packaging-related complexity, but the themes are easily applied to other products, components, and systems as well.

WHAT: Types of Consolidation

Complexity can develop almost anywhere. It also breeds on itself; complexity in one area begets complexity in another, creating an increasingly tangled web of processes and procedures. A simple way to see through this maze is to look through three lenses for potential consolidation.

Suppliers
Who is supplying the raw materials or components? For any given item, you may find that multiple suppliers are playing a role. For commodity items, a program of diversified “spot buys” usually underperforms a well-planned buying program. And specialized items are often sourced from “specialized” suppliers, who are often more narrow than they are special.

Suppliers can be consolidated by first evaluating them according to their capabilities (offering, quality, service, pricing, capacity) and then by negotiating supply agreements with those best suited to your needs.

Items
How many items, SKUs (stock-keeping units), or product lines do you have? Visit your local drugstore and look at the toothpaste section. Crest has over 35 different items. Colgate has its own vast offering. In the drinks aisle, Gatorade has dozens of flavors. The story is the same in pet food, chewing gum, and laser printers.

While much of this complexity is a result of well-intentioned efforts to meet market needs, consumers and retailers alike are weighed down by the options. Items can be consolidated through assortment optimization (evaluating SKUs on a series of strategic and financial dimensions and choosing the items that score best overall) and through standardization (harmonizing items with similar formulations, packaging, or branding).

Infrastructure
What infrastructure do you have to support your operations? Companies invest in assets and systems to manage and grow their business, but much of this infrastructure may be a candidate for consolidation. For example, who is holding inventory in the supply chain? An efficient supply chain will have one expert holding unfinished goods and one expert holding finished goods. If too many players are holding inventory, too much cash is being tied up, leading to higher expenses and inefficiency.

Each element of the operation should be assessed to determine whether it is an essential part of your competitive advantage. If it’s not essential, the business model itself can be consolidated by outsourcing that particular process. P&G’s core competency is in marketing and brand management, for example, so manufacturing and logistics can be outsourced to qualified partners without losing the company’s competitive edge.

WHY: Benefits Of Consolidation

Reducing complexity and consolidating a supply chain takes effort and courage. But the benefits can be many, including:

Purchasing Scale
With fewer suppliers and fewer items, the volume for the average supplier or item increases. This added scale leads to more negotiating leverage and lower costs, or stable costs with higher levels of service.

Infrastructure and Materials Flow
With less supplier and item complexity, the operations and infrastructure needed to support the business can be streamlined. Manufacturing plants will face more stability, which will help with materials management, planning, machine maintenance, and up-time. Sourcing is simplified with fewer different buys to manage. Inventory levels decline and turns improve with fewer different SKUs on the floor. All of these improvements support expense and capex reductions; you can enjoy more efficient plants, less capital tied up, and fewer people required to run and administer manufacturing and materials.

Quality
Smoother operations lead to fewer quality problems as well as lower costs related to poor quality. These avoided costs include both internal costs (e.g., scrap, rework, and overtime) as well as external costs (e.g., recalls, warranty, and brand impairment).

Branding
With fewer items and more reliable products, brands get stronger. Eliminating complexity allows companies to communicate cleaner messages, and shelves look less cluttered with better brand-blocking. This drives consumer engagement and lifts volume.

Management Focus
Complexity swallows up time. There are more things to measure, manage, and document. So removing complexity frees up time for leaders to focus on growing the business.

Companies that attack complexity can see costs decline as much as 25-35% while also seeing revenue lift.

Case Study: Learning From The Model T

The Ford Motor Company has seen the full spectrum of complexity. Managers can learn a lot about the benefits of consolidation by examining Ford’s experience.

The Ford Fusion – one of the leading global automobile platforms over the last decade – has over 15 billion build-combinations in Germany. This is a result of the multiplicative complexity of one body style, seven possible power trains, 179 paint/trim permutations, and 53 factory-fitted options. This is a far cry from the days of the Model T Ford, when the company was ruled by Henry Ford’s sentiment that “[a] customer can have a car painted any color that he wants so long as it is black.”

That contrast has led business consultants to recommend a “Model T analysis” to help companies zero-base costs. This means: what would your system look like – and how much would it cost – if you made only one core SKU? (For Coca-Cola, it might be a 20oz PET bottle of Coke Classic. For Subway, it could be a foot-long tuna sandwich on wheat bread.) You would still need a supply chain, a factory, a distribution network, and sales and marketing functions, but simplifying each of these operations would lower costs.

The goal is not to implement a zero-complexity solution. Indeed, for almost every company, a “Model T” solution would give up too much product appeal and volume. Costs must be balanced against the true needs and wants of different customer segments. But the exercise helps an organization measure how much complexity and variety is necessary in its business. Model T analysis sets a baseline off which the costs and benefits of product changes and diversification can be evaluated. To learn more about Model T analysis, refer to Innovation Versus Complexity in the Harvard Business Review (reprint R0511C).

HOW: Approach for Packaging Consolidation

Consolidation requires thoughtful planning and careful execution. The steps below suggest a high level approach for consolidating packaging.

Engage a Team
Packaging is such a fundamental part of a company’s offering that many functions have a say in it. As a result, a successful initiative to reduce complexity needs to include a broad, cross-functional team. Each person on the team brings a different perspective, and these conflicting points of view need to be addressed through the process. For example:

Supply Chain: “I don’t want to give up my flexibility in choosing our suppliers and partners.”
R&D: “Reducing complexity compromises my innovation roadmap.”
Marketing: “I need to give the consumer what she wants. Yet I appreciate the need for brand simplification and resonance on shelf.”
Sales: “I need to meet channel needs; I want to have the right product for the right customer. Yet my bag of products is getting too full, and it’s hard to know what’s best for what situation.”

Depending on the company, the team could be larger or smaller. It often makes sense to include the forward-thinking incumbent suppliers, as they can come in with fresh perspectives that are unencumbered by company politics. Teams can then rationalize complexity with an open and honest dialogue where biases are set aside and data are embraced.

Qualitatively Review Complexity
Smart consolidation begins by interviewing all the people who touch packaging. From the packaging designers to orderers to receivers to filling-line personnel and beyond – every person in the chain should comment on the current packaging situation. The discussions should touch on:

What you buy: The breadth of components, the quantities involved, and the number of suppliers.
How you buy: The frequency of packaging purchases, the pricing received, and the performance of the suppliers.
Production issues: The line speeds, fill rates, stability and quality issues.
How you compete: The competitiveness of your products, consumer and customer reactions, the strategic role of packaging for a product, and key trends to address.

Discussions on these topics can be varied and deep. This process will identify two types of learnings. First, you will surface specific pain points; these are real problems that packaging complexity is creating today. Second, you will create the profile for an ideal packaging situation. This will include the right kinds of suppliers, the right kinds of products, and the right kinds of business models.

Quantitatively Assess Packaging
The qualitative assessment just described will highlight areas of opportunity. These can be augmented with a quantitative review of packaging. This can cover:

Item attributes: Looking at the specifications of each packaging component raises options of what similar items can be consolidated and what new designs could replace multiple components.
Item costs: Measuring the piece-price of each component identifies opportunities for immediate cost savings (through supplier consolidation) or helps set targets for renegotiations or supplier requirements.
System costs: Assessing the follow-on costs of packaging – such as the costs of poor quality, holding inventory, freight, and administration – will help demonstrate the total cost of complexity and a reas on which to focus.

This approach will identify an array of hypotheses for complexity reduction. The team can then evaluate these ideas and select the ones to pursue. When done properly, this process can be detailed and time consuming. Some companies turn to consultants and supply-chain partners to expedite the analysis.

Spotlignt on Berlin Packaging

Berlin Packaging is a leading supplier of rigid packaging and has a long track record of helping companies simplify their supply chains.

Berlin has been able to reduce costs for its customers by consolidating:

Packaging manufacturers utilized – enhancing buying scale on an item-level as well as leveraging Berlin’s overall buying scale.
Packaging items and components – assessing product, category, and competitor dynamics to deliver less-complex solutions while still maintaining brand integrity and differentiation.
Packaging inventory to Berlin’s warehouses – freeing up the customer’s physical space and cash flow.
Freight and logistics – ensuring reliable supply to the filling lines.

Berlin Packaging has a consulting division, E3, which regularly performs these analyses and provides advice to help reduce packaging complexity.

Barr logoOne example involved WM Barr, a leader in household and industrial cleaning with brands including Goof Off, DampRid, and Jasco. WM Barr had over 40 packaging suppliers and slow-turning inventory of over 100 containers and closures. Berlin Packaging carefully assessed consolidation options – factoring in brand needs, filling requirements, and consumer-usage factors – and identified less-complex solutions that generated a direct piece-price save of more than 10%. In addition, by consolidating WM Barr’s inventory, Berlin was able to significantly boost the customer’s inventory turns and reduce administration costs, creating additional savings.

WHERE: Sweet Spots and Balancing Acts

Supply chain consolidation can unlock savings, but it must be done carefully. Some complexity is necessary to compete effectively, so you must balance consolidation with market and organizational realities. Consideration needs to be given to:

Innovation Appeal with Consumers
Consumers are diverse, so important variations must be offered to appeal to them. There are different deodorant brands for males and females, each of which has unique scents, properties, and methods of application. P&G would sell far less deodorant with a one-smell-fits-all approach.

Channel Requirements
In order to get slotted on shelf, retailers and entire channels may require variants. For example, Aquafina offers a special 35-count case for Sam’s Club that is not available to other channels.

System Stability
Consolidation can create risk in a supply chain. In addition to the market and channel risks described above, operational risks can arise by consolidating to an unqualified supplier, for instance. Supply chain leaders can simplify smartly with thorough evaluations of suppliers and having a pre-qualified backup supply.

Organizational Nimbleness
A culture of high standardization and low complexity requires central decision making. But central decision making is slow and can lead to missed opportunities. So, for example, a plant manager is best able to order the right maintenance supplies for his facility, but he may not be securing the lowest costs. Is it better to slow him down and get better piece prices?

In all of these areas, the trick is finding the sweet spot. You want to allow some of this complexity, but only as much as is supported by a business case. In addition, supply chain consolidation touches many functions. Unless every person agrees with the business case and recommended actions, complexity will remain. There is no crystal ball; teams need to come together with a combination of art and science to decide the right level of complexity to keep and the best way to consolidate the rest.

Getting Started

Removing complexity starts with three steps.

First, have a mindset of bold change. Complexity reduction opens up discussions on the fundamental business model and product offering of an organization. For that reason, approaching supply chain consolidation like a Six Sigma “optimization” opportunity is a mistake. Six Sigma is appropriate for fine-tuning processes and finding local optima. But this mentality is too micro at the outset of a complexity-reduction project, where you are seeking new, global optima. Having a compelling target – like reducing the number of suppliers by 50% or trimming product cost by 20% – will reinforce the bold mindset.

Second, form a cross-functional team. As outlined in the How section above, complexity is caused by and touches most functions. So a broad-based team is required and must include change-agents and decision makers.

Third, find a target area to consolidate. Conceptually, you can array product lines against two dimensions: their scale (sales, volume, strategic importance) and their current complexity (number of suppliers, number of items/SKUs, impact on assets and infrastructure). There are then two quadrants to contemplate:

Quadrant 1: high complexity and high scale. Products in this area are high opportunity but also higher risk, given their importance.
Quadrant 2: high complexity today and moderate/low scale. Many companies start here to build some quick wins. This is where a “tail-spend consolidation” initiative would sit. This type of program looks at rationalizing the many small SKUs and/or suppliers; this tail may represent a modest amount of the total spending but can be a large amount of complexity.

Summary

Complexity burdens most companies. Supply chains suffer from too many suppliers, too many items, and overly-built infrastructures. Packaging is often a large contributor to this complexity. Attacking complexity with a thoughtful consolidation program can yield benefits in packaging costs, infrastructure and materials flow, quality, branding, and management focus. By engaging all the right players, taking stock of the current packaging situation, and thinking differently about complexity, companies can see costs decline significantly while also lifting revenues and profits. Some complexity is necessary, so it’s important to weigh market and operational factors in the process. But thinking through and acting on the What, Why, How, and Where of consolidating packaging complexity will deliver a leaner, more robust, and more profitable supply chain.