Costco's success breaking the 80/20 rule and why your packaging must convey value.
The Pareto principle, applied to retail sales, simply means that roughly 80% of a retailer's sales, come from 20% of their products.
Although this principle has been well known for over 100 years, why don't all retailers take advantage of this?
Well, it's just not easy to apply at large retailers such as Target, Walmart, Kroger or Best Buy whose customers expect them to provide a wide variety of products virtually all year around.
A typical Target location will have will have upwards of 80,000 different items, where as Costco will have only 4,000
Here are 3 ways which Costco is able to use the 80/20 rule to their advantage by understanding the rule and not following it as other large retailers do.
Seasonal inventory is rotated in and out very quickly.
From lawn and garden to surf boards seasonal product may be in warehouse as little as 2-3 weeks.
Rotation of product which isn't fast moving
Costco has no patience for slow sales. If a product is or becomes slow moving, it will not be offered again. Items need to sell $1,000 per week per store to stay an everyday item.
Limited product choices
Every look at the number of spaghetti sauces or pasta choices at a typically grocery store? The numbers staggering and managing this inventory is a headache. Costco will sell a small fraction of this with only 2-3 to chose from.
Over the last 10-15 years customers want more choices and more customization. So, how is Costco been successful by offering so little choices? The answer is value.
OK, so how does knowing this relate to packaging design? It comes down to value:
Packaging must convey value though graphics
Customers will sacrifice having their youngest child's favorite spaghetti sauce from Kroger when the cost per ounce is significantly cheaper at Costco. Regardless if your product is food, beauty or electronics, it's essential that your packaging communicate value and that there is no reason for a Costco member to buy the product anywhere else.
With limited choice members need to know what your product is, and why they want to but it. Color blocking, clear value statements, product features communicated as easy to understand icons. All these lead to a sale.
Costco's 5x5 rule: The Member needs to know in 5 sec, from 5 feet, what the product is and its value.
Packaging must convey value though structure
Structural design makes all the difference in Costco. Remember, your feature pallet display is your shipping vehicle, store shelves & salesman. Its important to start with the item price point- first. Expensive (but small items) often get placed in over-sized Cards to show value.
Dont place Value items in gorgeous litho laminated Pallet Trays. Take advantage of direct print flexography so the Member can have a sense of cost savings you're providing.
Bundling two items together? Place them side-by-side so the Member can quickly see what they are getting
Does your item need greater explanation to meet the 5x5 rule? Marketing panels can be incorporated right into Pallet Trays; or spin them around on the bottom layer to create a compelling billboard.
Get it right the 1st time.
If you product has been chosen by Costco, you don't have time to experiment making a package which flies off the pallets. Put in the diligence on design and graphics. It's essential since you can't count on a second chance.
As always, contact us for any questions or advice.
Until next time.