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The critical budgeting error costing brand marketers millions
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There is a critical budgeting error costing brand marketers millions of dollars in revenue and the problem is that it’s not even their fault!
It’s an accounting mistake!
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YES! An error in finance costing FMCG marketers millions in lost sales at the retail shelf.
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Because a critical component of the marketing mix finds itself in the wrong finance bucket.
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Where in the marketing budget does the costs of packaging design sit ? COGS or Product Marketing?
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In which budget bucket does packaging design sit currently?
Product Marketing COGS? ?
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Typically packaging design falls into the “cost of goods sold” budget category.
(Herein lies the error costing you as a
marketer millions in lost sales)
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Is packaging design a COGS….or is it a branding and sales tool?
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What exactly is 'Cost of Goods Sold’ – (COGS)?
“The direct costs attributable to the production of the goods
sold by a company or the wholesale price of
goods re-sold.”
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COGS Include:
• The cost of the materials used in producing the product, including: cost of raw materials; cost of items purchased for resale, cost of parts used to construct a product.
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COGS Include:
Direct labour costs used to produce the product and the overhead costs directly related to the manufacture or production activity (like rent and utilities for the manufacturing facility).
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NOTE:
The majority of definitions for COGS EXCLUDE indirect expenses such as distribution costs and sales force costs.
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What exactly is Product Marketing?
Product marketing is the process of promoting & selling a product to an
audience.
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Product marketing includes:
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Product marketing includes:
• Defining the scope of the product line. What products will be offered (i.e., the breadth and depth of the product line)?
• Identifying potential markets for a product. Who will be the target customers (i.e., the boundaries of the market segments to be served)?
• Determining optimal pricing for the market• Encouraging potential customers to
purchase the product
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Product marketing includes:
• Finding the best distribution methods for delivering the product to customers or to sales locations. How will the products reach the targeted customers? (What are the viable distribution channels which create a solid business model)?
• Positioning and measuring for new products and features
• Deeply understanding the market and the competitive landscape
• Driving demand, adoption, customer retention and overall success of the product
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Which bucket is most appropriate for packaging design?
Product Marketing COGS? ?
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3 reasons why packaging design doesn’t belong in COGS:
1.Keep out of Procurement's greedy paws.
• When the packaging design is part of product
marketing, it can’t be carved up by procurement or finance.
• As long as packaging design lives within the COGS category, marketers will expose one of their most critical branding and sales assets to the sharp scissors of Procurement.
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3 reasons why packaging design doesn’t belong in COGS:
2. Packaging is OWNED Media Assets.
• Where the packaging design is part of product marketing, it is recognized as a critical slice of the branding and marketing OWNED MEDIA ASSETS.
• These assets are to be invested in.
• This thinking taps into the growing understanding and appreciation of the value and importance of packaging (and therefore the value of effective packaging design) in the entire marketing comms. mix.
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3 reasons why packaging design doesn’t belong in COGS:
3. The silent salesperson effect.
• A pack positioned on a retail shelf is your silent sales person with less than 5 seconds to capture your targeted consumer.
• To be successful in its sales approach, the design of the pack needs sell off the shelf outside of any human sales support.
• Without the benefit of having a retail salesperson present to stop consumers and explain to them why they should try your product, the package on shelf must do both the stopping and the selling.
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If this is true (and it is), then how can package design be part of COGS?
The majority of definitions for COGS EXCLUDE indirect expenses such as distribution costs and sales force costs.
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If your product on the retail shelf is being “cost squeezed” because it is
placed in the wrong “cost bucket” you won't have the budget to invest in effective and strategic packaging
design.
?? ? ?
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This results in ineffective packaging design and shows up as lacklustre sales on the retail shelf.
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When you don't make the initial
sale, you lose the opportunity of the second, third and
fourth sale.
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The sooner you remove packaging design as a line item in COGS and place it in the Product Marketing bucket, the more you’ll have to invest in strategic packaging design and the greater your sales results on shelf will be.
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