Tuesday, January 12, 2010

The Packaging Dilemma

Packaging of consumer products is an important aspect of product marketing. For retail products of any sort, the packaging is one of the primary differentiators of the product from its competitors. The packaging gives the buyer a perception of a product that is being purchased for the first time. The product quality must be good enough so that subsequent purchases will be made, but if the product fails to capture the attention of the consumer initially, then it is that much more difficult to entice the consumer to try it.

These general observations about product packaging definitely apply to alcoholic beverage products. In certain categories this is especially true. The vodka market has seen phenomenal growth over the last few years. There are new vodkas introduced constantly and competition is fierce. What is particularly interesting about the vodka market is that there is often only very subtle differences between different brands (see Vodka Myths and Facts). The packaging, therefore, must be a key element in the marketing strategy to differentiate one vodka from another. The packaging must capture the attention of the consumer so that the bottle stands out from others.

So, what is the packaging dilemma? Well, for micro-distillers, competing with the big brands becomes challenging. We understand the value of marketing and packaging. However, we do not have global marketing and sales teams. We only produce a fraction of what a major brand produces (hence, "micro" distillery) and, therefore, cannot afford to spend significantly on promotion. Most micro-distillers price their products in a way that reflects the true cost of making the product. That is, our pricing is based on the raw ingredients, labour and packaging, with little extra for marketing and sales costs. For us, an outstanding package on the shelf might mean a signifiant price increase to the consumer.

Our Single Malt Vodka, for example, compares favourably to the ultra-premium vodkas on the market. We believe the product is unique and we have tried to convey that message on the bottle's label, both front and back. We also believe that our product competes well on price. The challenge is in the packaging. We are aware that we are not as "attractive" on the shelf next to many other vodkas and are constantly working with consumer and retailer feedback to re-examine our packaging. We can go all out and make a product that really stands out, but the price of that product will rise significantly.

Most consumers would be shocked to learn that the actual price of an alcoholic beverage includes significant markups and taxes. The amount actually received by the producer is a fraction of the retail price. Furthermore, the packaging cost can be a large part of the cost of the product. We know of many alcohol products where the packaging makes up most of the product cost. For a micro-distiller, this is even more of a challenge due to the lack of volume buying power. For example, the bottle itself is expensive. Finding unique glass is difficult and extraordinarily expensive. A large producer can afford a custom made bottle and the minimum quantities needed to justify the expense of molds, production and storage. A micro-distiller cannot usually afford to even purchase a stock bottle (that may not be as unique) in quantities that enable them to save money. Container loads of bottles would need to be purchased, and I don't know of many micro-distillers that could afford to buy 40,000 bottles in one shot, let alone have the space to store them.

So, our dilemma is packaging. We have worked hard to create a unique, high quality product. Should we spend more money to enhance the shelf-appeal of our product in order to entice more people to try it, but increase our price in order to be able to afford to do so? I'm interested in knowing what you think.


Anonymous said...

Yes you should;
Unfortunately, when it comes to food and beverage, consumers spend seconds deciding what products to take home; most of the time, apart the price, it’s the package that attracts consumers and not the content (unless one is a connoisseur then package doesn’t matter as much)
Beverage companies spend a lot of time and money on package development because they understand how buyers make decision especially when buying an item for the first time.
For some brands, cost of the package is very often more than the cost of the product itself; it’s sad, but that’s reality
To grow, you need to market your product, attractive package is a part of it.

B-Brand Design said...

Packaging plays an important role as a medium in the marketing mix, in promotion campaigns, as a pricing criterion, in defining the character of new products, as a setter of trends and as an instrument to create brand identity and shelf impact in all product groups.
fmcg packaging designers

Drew said...

It's a no-brainer for me. Customers expert that when they are buying something craft-produced that their will be a significant price premium.

I for one take great joy in the display of my liquor cabinet and introducing people to new spirits they may not have tried before. I'm probably your target customer because I see the value in artisan production and have a desire to support it.

I don't see why you would want to compete with supermarket spirits on price. The only thing that a lower price encourages is more consumption, and significantly more consumption means you have to significantly increase production - which puts enormous pressure on you to become a supermarket sized producer.

Stay small and earn a good living producing premium priced spirits, or ditch the artisan foundation and mass produce. There is no point screwing around in-between.

max said...

Nice views regarding packaging. Packaging design has the primary goal to attract customers’ attention. For this purpose, package designs cannot simply inform the customers, but also provoke feelings and communicate emotions. An effective packaging looks attractive, impresses with its creativity and is just nice to have on the shelf. Thanks a lot.
Pallet wrap

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