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Packaging 4.0 | Redesigning Packaging for Omni-Channel Retail

Packaging 4.0 | Redesigning Packaging for Omni-Channel Retail
September 30, 2021

As the new normal sets in, consumer buying behavior is witnessing a drastic change worldwide. Retail companies are forced to adapt and restart their business to sustain in these difficult times. While multiple big retail chains are closing their physical stores due to a decline in sales, Amazon has been busy opening their Amazon Go brick-and-mortar stores. Though there has been an accelerated push toward e-commerce during the pandemic, a huge section of people still prefers going to stores physically to see/try the product before purchasing it. Omnichannel retail will be the way forward, as a combination of physical stores and digital presence/service is essential to reap the maximum benefit.

How does this impact the packaging strategy? Is there a real need to modify the packaging?

Packaging has gone through various stages of progression over the years. Traditionally, packaging was designed for offline supply chain with minimal touchpoint from the factory to the store where it is purchased. With online purchase, where the product gets delivered to the customer’s doorstep, the package goes through 10-15 times more touchpoints than the offline supply chain. As a result, the package should withstand the non-ambient temperature/pressure/moisture, movement in and out of transport vehicle, handling in warehouses/sorting stations, and remain intact when it reaches the customer. Damaged packages/products would adversely affect the product rating and feedback, leading to revenue loss and denting brand reputation. Furthermore, the packaging must be smart enough for the millennials, Generation Z consumers, and at the same time, be sustainable.

Packaging must be smart enough for the Millennials, Gen-Z consumers, and at the same time, be sustainable.

So, should companies have e-commerce specific packaging?

Packaging can be engineered to withstand the complex e-commerce logistics environment. Product containers can be replaced to avoid breakage and leaks, and packaging can be upgraded to avoid secondary packaging. Additionally, the size and shape of packaging can be modified for convenience and efficient shipping without being bound by shelf display. Some major brands are testing this strategy by creating e-commerce specific packaging, including P&G, which has launched e-commerce only packaging for one of its liquid detergent brands.

Or, is omnichannel packaging more preferred?

The decision of selecting channel-specific packaging or omnichannel packaging depends on various factors and may vary with companies. Today’s consumers, used to having multiple options for everything, also want the same with how they receive their package. Though door delivery is the preferred option for online ordering, some consumers like to order the product online but want to collect it from the store. Some brands even encourage this behavior as it reduces their shipping cost. The omnichannel packaging strategy seems to be the better fit for most companies embracing omnichannel retail. It also helps them create a consistent experience across the channel, simplify the operations, and improve efficiency.

Packaging journey

Figure 1: Packaging journey for omnichannel distribution

The 3S framework for redesigning packaging for omnichannel distribution

The 3S framework comprises the three essential components required to redesign the packaging for omnichannel retail distribution: Secure – Smart – Sustainable.

3S framework

Figure 2: The elements of the 3S framework for packaging

Secure: The first major step in packaging redesign for omnichannel distribution is to ensure that the product is undamaged in its journey across the complex supply chain network. This is true not just for the forward journey, but also for the reverse logistics to the warehouse in case of return. With the option of “no-cost return,” the millennial and Generation Z consumers are accustomed to ordering multiple items and return a few of them. Around 25-30% of the products ordered online are returned. That being said, product damage is one of the top reasons for returns in online ordering, accounting for almost 20% of the total returns. Receiving a damaged product ruins the convenience aspect of online shopping completely, as the customer must now wait even longer for the replacement to arrive. It also costs more for the company to ship the replacement product. Additionally, a damaged package can easily ruin brand loyalty, which takes years to build. Hence, secure packaging becomes the crucial first step in omnichannel distribution. Even changing the packaging slightly to reduce breakage can go a long way in reducing revenue loss and preventing negative feedback/reviews from unsatisfied customers.

Smart: In today’s competitive business environment, traditional packaging is not enough; whether it is an online order or purchased in-store, the functionality of the packaging must go beyond protecting the product and providing basic information. Packaging is the first interaction consumers have with the product, irrespective of the purchasing channel. It is important that packaging creates a brand identity and positive customer experience. There are multiple ways to make the package smart - from simple redesigning to give the package a second life and providing targeted communication through QR codes to embedding sensors to make it intelligent and interactive. With more than 75% of the smartphones having Near Field Communication (NFC) readers, the amount of intelligence that can be packed is abundant. Since the NFC tags can be embedded into the packaging, unlike barcodes and QR codes, it does not spoil the packaging design. For the tech-obsessed millennials and Gen-Z consumers, NFC can be leveraged to provide numerous other benefits. It can be used to verify the authenticity of the product and to enable counter-less checkout through automated bill generation based on the products picked/placed in the shopping cart. Moreover, intelligent packaging can also help in improving operational efficiency by providing traceability and agility.

Sustainability: The third element in the redesigning process for omnichannel retail distribution is sustainability. Even though most of the regulatory restrictions are around single-use plastic, the growing consumer awareness and changing preference toward sustainable products is creating a major change in the packaging process. Packaging must be integrated right from the design stage to drive a fundamental shift in packaging sustainability. The package must be of ideal size and secure enough so that it does not need secondary or tertiary packaging to transport, a common problem in e-commerce logistics often referred to as the “Russian Doll” approach. This design stage modification can make a huge impact on the carbon footprint, as it not only reduces the amount of packaging but also lessens the weight of the package shipped. Excessive or bad packaging can also impact the perception of the customer who has to open a large package only to find that it is mostly filled with air or too much packing material. On the other hand, brands can create a positive packaging experience for sustainability-focused consumers by using natural biodegradable materials, designing the package in a way it can be reused, or providing details on product recycling and nearby recycling centers.

The final key step of the 3S framework is to integrate the three “S”s - Secure + Smart + Sustainable, to create the ideal packaging for omnichannel distribution. The brands should ensure that any packaging decision is in sync with the various divisions across the organization, such as marketing, procurement, manufacturing, and more. Packaging is no longer just an additional step at the end of the supply chain but an extension of the product itself.