© 2013 IBM Corporation

BUILDING THE BUSINESS CASE FOR NEW PACKAGING FORMATS

Dr Trevor Davis, IBMConsumer Products Expert

© 2013 IBM Corporation

Key topics

Old kit, new kit, new factory … how to make the best business

decision?

How to assess the contribution of new packaging to the success

of your project?

How to work out the real contribution of new products to your

company?

How to work out the real cost of NPD in your organisation?

© 2013 IBM Corporation

It important to understand the KPIs that count for decision-makers

• Number of ideas in funnel

• Cycle times – To market & by stage

• Proportion of external involvement

• On-time / on-budget launch

• Time-to-profitability

• New product/service development spending by phase

• Portfolio payback measures• Profit contribution• Return on Investment• Margin

• Revenue due to new products/services released in past year

• Project measures• Investment (CAPEX, OPEX)• discounted cash flow (IRR, NPV)• break even point• Incremental NPS• Cannibalisation

Process Performance Measures KPIs

© 2013 IBM Corporation

It is important to know what the “case for change” is before you start

© 2013 IBM Corporation

Twitter, Pinterest and Facebook involve consumers in packaging

For better or worse!

© 2013 IBM Corporation

Packaging is getting smarter – not just a supply chain decision

• Interactive features must provide

value to engage the consumer -

inspires loyalty in the world of

social media, but the purpose of

functional labels must reflect the

Brand message

• Ability to provide the consumer

with interactive data e.g.

remaining volume,

temperature, time left until the

freshness expiry

© 2013 IBM Corporation

A packaging business case has to be viewed in context of the mix

2014 2015 2016 2017 2018

Volume (units)

(Cannibalised Volume)

Volume (units) - Incremental

Revenue £m

Revenue £/unit

Gross Profit £m

GP £/unit

A&P £m - Above the Line

A&P £m - Below the Line

Net Margin £m

GP £m (accounting for cannabilisation)

CAPEX

EBIT £m

A&P as a % Revenue

Year

Mix

Proposition – Product – Pack – Price

format / sku strategy

Mix

Proposition – Product – Pack – Price

format / sku strategy

Net sales - COGSNet sales - COGS

© 2013 IBM Corporation

The key areas of cost to capture

• Primary and secondary packaging• Multipacks• Closures / caps• Promotional packs

Barcodes / RFIDs / NFC / e-ink etc• Factory / equipment costs (incl tax implications)• Logistics and co-packer charges

• Pallet costs (including pallet packaging)• Mock-ups and samples• Testing• Courier costs• Artwork , repro’, printing and labels• Write-offs / downs (e.g. obsolete stock)• Environmental impacts• Productivity changes

© 2013 IBM Corporation

Success is measured in terms of how consumers and trade perceive the change, and how much extra revenue comes in

Breakthrough

New Consumer or Trade Benefit

Extension/ Variant / Promotion

<=£2mIncremental sales

Y3

>£2mIncremental sales

Y3

>£30mIncremental sales

Y3

Value Engineering / regulatory compliance

<=£1mSavings p.a

>£1mSavings p.a

>£5mSavings p.a

© 2013 IBM Corporation

In the future, the business case will show contributions across the ‘triple bottom line’

© 2013 IBM Corporation

BUILDING THE BUSINESS CASE FOR NEW PACKAGING FORMATS

For more information contact trevor.davis@uk.ibm.com