E-commerce sales were projected to account for nearly 10% of all retails sales in the US in 2015. A whopping estimated $334 billion. Tangible goods lead the growth over all other products sold online.
In most cases the per unit cost of packaging used to package and ship an e-commerce product is calculated in cents per dollar. When multiplied by the massive volume of units being shipped those pennies add up to a significant amount. Therefore, the cost of packaging for e-commerce shipments factors heavily into the profitability of online retailers.
Here are 3 points to consider to get the most out of your packaging penny.
Profitable packaging begins with a well planned orderly process to move the product from production line, to warehouse, to carrier. Efficient packaging is packaging that is easy to handle, and requires minimal time and labor to accomplish the end result– a packaged product. The package to product size ratio is also very important to profitability in packaging. In January 2015, FedEx and UPS implemented dimensional weight-based, or DIM pricing for packages measuring less than 3 cubic feet. Here is how UPS explains the new standard:
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 estimated 32% of all ground packages are affected by this new DIM pricing policies1. Online retailers who think they can continue with the status quo and just pass the increased shipping cost on to their customers, may think twice when faced with the reality that 61% of shoppers abandon an online purchase due to unreasonable shipping costs2. A better option is for online retailers to reevaluate their packaging and strike a profitable balance between efficiency and functionality, which is the next point to consider.
The primary function of e-commerce packaging is to ensure that physical goods arrive to the customer in tact. It doesn’t matter how efficient the packaging, if it fails to protect the product in transit then profitability is eroded through damaged goods and additional, return shipping costs. By utilizing reusable packaging, online retailers can minimize further damage to the returned product due to poor packaging on the part of the consumer, and provide a convenience to the consumer who is already frustrated by having to make the return in the first place. Which leads to a less obvious cost of packaging that fails to function, and that is the ding to customer relations. In a 2014 Harris Poll of American consumers3, 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. I have a story to back up this survey. My wife made an online Christmas purchase which was damaged in transit. With no knowledge of the survey results, when asked, she was more upset with the online retailer than she was the carrier, and she was dubious whether she would reorder from the same seller.
Clearly much consideration must be given to the functionality of packaging to sustain profitability and growth.
Here is where packaging cannot only save you money but can make you money. 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, e-commerce retailers must not overlook the added value of brand awareness that is generated through aesthetically appealing packaging. Given today’s technology and print capabilities, and the proclivity of consumers to post their every move on social media, the old sturdy brown box and plain plastic bag equal missed opportunities. A popular internet practice is the “Unboxing Video”, where a consumer captures the process of unpackaging (unboxing) a new product on video and later post to the web. (Some enterprising souls have actually found a way to make money doing this, but that is a topic for another day.)
A recently published report by Dotcom Distribution4 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, and more than half of those who watch unboxing videos are influenced to buy the product.
Clearly aesthetics are an important factor to consider in packaging, because aesthetically appealing packages promote social media sharing, which creates greater exposure to the retailer’s products and brand, which leads to increase sales and profitability.
E-commerce is fast becoming a mainstay of the world economy. Packaging, now more than ever, has a profound effect on profitability. A package that is easy to use, properly sized, designed to protect, and customized to promote, will not only save money, it will likely pay for itself because of the consideration given to the value added factors, efficiency, functionality,and aesthetics.
- , Laura Stevens, May 7, 2014
- , Laura Stevens, May 7, 2014
- Kate Bertrand Connolly, Protective Packaging, Nov. 19, 2014
- Dotcom Distribution Packaging Report 2015