Three Keys to Profitable Packaging

Ecommerce is a rapidly growing business model in the B2C industry segment. According to the “eCommerce Forecast, 2014 To 2019” from Forrester Research, ecommerce sales in the U.S. are projected to reach $334 billion in 2015, which is approximately 10% of all retail sales in the US. Furthermore, the study projects that ecommerce will experience a compound annual growth rate (CAGR) of 10% over the next five years, translating to $480 billion in online sales by 2019. The study also indicates that tangible goods lead the growth over all products sold online.

The packaging of tangible goods factors heavily into the profitability of companies engaging in ecommerce. Three factors to consider for effective ecommerce packaging are the efficiency, functionality and aesthetics of packaging.

Efficiency: To achieve efficiency in order fulfillment, a company’s packaging system, whether manual or automated, must consist of a well planned, orderly process to eliminate bottlenecks and to ensure a smooth flow from warehouse to carrier. The type of packaging must be easy to handle in order to minimize the time, and labor required to complete the packaging process, thus keeping packaging cost down. Also, the size of the packaging medium (box, poly mailer, etc.) should be consider in order to achieve efficiencies in shipping. After a lengthy observation of shipping trends driven by the boom in ecommerce sales, UPS and FedEx have each implemented dimensional weight-based (DIM) pricing for packages measuring less than 3 cubic feet effective January 2015.

What is DIM pricing you ask? Here is the explanation offered on the UPS website:

Dimensional weight . . . is the amount of the space a package occupies in relation to its actual weight...To determine the package dimensions in inches. First, measure each dimension, at the longest point, rounding each measurement to the nearest whole number.  Next, multiply the package length by the width and by the height. The result is the cubic size in inches. Finally, for domestic shipments, divide the cubic size in inches by 166 to determine dimensional weight in pounds. (Figure 1). To determine billable weight compare the package's actual weight to its dimensional weight. The greater of the two is the billable weight and should be used to calculate the rate.

On the Transportation Insight blog, Charles Moore, VP of Parcel Logistics explains why the major parcel carriers have implemented this policy:
Many times, due to improper box selection, the carriers find themselves delivering boxes that are much larger than required for the safe delivery of a given product.  When magnified across all shippers, this causes vehicles to “cube out” before they actually reach their physical weight capacity.

An analysis of millions of packages shipped from over 50,000 U.S. locations, concluded that 32% of all ground packages will be affected by the new pricing policies1, and, given the fact that that 61% of shoppers abandon an online purchase  due to unreasonable shipping costs2,  passing on those costs is not the best option.  A better option is for shippers to reevaluate their packaging and achieve the most most profitable balance between efficiency and functionality.

Functionality: The primary function of packaging is to ensure that physical goods arrive to the customer in tact. With that in mind the seller of ecommerce goods must consider the product that is to be shipped and then choose the best packaging material and design to accomplish this objective. It doesn’t matter how efficient and aesthetically appealing the packaging, if it fails to protect the product in transit then profitability is eroded through damaged goods and additional shipping costs due to returns. Some industry experts estimate between 25-50 percent of all goods purchased online are returned. With such high rates of return, it is advisable for retailers to design outbound packaging with returns in mind. Some sellers are utilizing reusable poly mailers and boxes that are durable enough to make the return trip. By doing so they better control return shipping costs, while providing better protection for the goods, and a convenience factor for the consumer who is already frustrated by having to make the return in the first place.
Which leads us to another, less obvious cost of failed functionality, the toll that damaged goods takes on customer relations. In a 2014 Harris Poll of American consumers, conducted on behalf of Sealed Air Corporation3 , 66%  of those surveyed said they think that packaging reflects how much the retailer cares about their order and about them, and 20% said they would not buy from a retailer again if they received damaged goods. Clearly much consideration must be given to the functionality of packaging to sustain profitability and growth.

Aesthetics:  In the world of ecommerce the only tangible connection between consumer and retailer is upon receipt of the product.  While efficiency and functionality are important to profitability of online sales, online sellers must not overlook the added value of brand awareness that is generated through aesthetically appealing packaging.

In this age of ever innovative technology and print capabilities,  the utilitarian approach to packaging, the sturdy brown box and plain plastic bag, has begun to fade. Not only are today’s consumers more likely to associate the quality of a product by the quality of its packaging, but  ecommerce retailers have the ability to shape brand perception and  transform consumers into social media brand ambassadors through premium quality packaging4.  

Since early 2006 an internet phenomenon that has garnered considerable popularity is that of the “Unboxing Video”.  Wikipedia defines Unboxing as the unpacking of new products where the product's owner captures the process on video and later uploads it to the web. According to a recent CNN report, in 2013 the equivalent of  6.5 years (in minutes), worth of unboxing footage was uploaded to YouTube5.

A recently published report by Dotcom Distribution6 states that 60% of respondents would be more likely to post an image of the product on social media  if it came in a gift-like package rather than a plain box or poly mailer.   Unboxing videos play an influential role in creating brand awareness. The report further revealed that 55% of those who watch unboxing videos are convinced to buy the product, and 72% were convinced to at least learn more about the product.

The bottom line with regards to aesthetically appealing packaging is that it generates social media sharing, and creates enormous exposure to a retailer’s products and brand. Greater brand awareness leads to increase sales and profitability.

A Word about Poly Mailers:  Poly bags, poly mailers, and padded mailers account for approximately 1/3 of all ecommerce packaging. One of the big draws for poly bags and mailers is that they readily meet  the 3 keys to profitability: efficiency, functionality, and aesthetics.  Here’s how:

• automated, semi automated, or manual self sealing poly mailers are extremely easy to load and seal
• poly mailers fall well below the DIM radar and therefore not charged for unused space
• padded poly mailers, padded kraft mailers, flat chipboard mailers, and insulated mailers provide product protection through increased rigidity and padding
• returnable mailers provide for customer ease of use in returning product, (customer preference is to return in same package (survey)., more sustainable in that it reduces the amount of packaging
• poly mailers can be easily, and economically customized with corporate colors and logo, promotional campaigns, marketing messages.. to enhance aesthetic appeal and to promote brand awareness

Conclusion: Ecommerce is fast becoming a mainstay of the world economy. Before, shipping products was the concern of only a segment of the supply chain, now the entire supply chain must give consideration to the process. Packaging now more than ever has a profound effect on profitability. Giving consideration to efficient, functional and aesthetically appealing packaging will increase the likelihood for greater profitability in the ecommerce industry.