Packaging: designing formats with unit price, use occasion and cannibalisation.
Key distinctions
Three conditions before calculating.
A distinct occasion
A format must solve an identifiable need: trial, mobility, household, frequency or storage. Without a difference in use, the size becomes mainly a discount mechanism and shifts the existing mix.
A legible unit price
The gap in price per unit must be consistent with packaging savings, volume commitment and logistics costs. A discount that is too deep makes the large format a dominant option and weakens the other tiers.
Portfolio contribution
The calculation adds the margin of each format after the change in volume and removes launch, return, breakage and complexity costs. The margin of the new format on its own is not enough.
Method
Testing a format architecture without confusing volume with value
- 01Define the occasions
Attach each format to a population, a frequency, a place and a consumption duration, and check that the occasions are observable in purchases or in dedicated research.
- 02Build the ladder
Calculate price per unit, full cost, contribution and implicit discount, and examine the jumps between formats to spot dominated tiers or excessive incentives.
- 03Estimate the transfers
Separate new buyers, increased consumption, transfer from each format and purchases brought forward, using an area or store experiment where exposure can be controlled.
- 04Decide at portfolio level
Compare total contribution before and after, then test several elasticities and transfer rates, and set a stopping threshold if the mix or the waste leaves the expected range.
The pack-size ladder — unit price, margin and transfers
Three pack sizes are compared on price per kilo, unit contribution, mix and the cannibalisation effect of the large pack.
500 g
€4.90- Unit price
- €9.80/kg
- Contribution
- €2.70
- Volume
- 6,000 → 5,850
1 kg
€8.20- Unit price
- €8.20/kg
- Contribution
- €4.60
- Volume
- 4,000 → 3,700
2 kg
€12.90- Unit price
- €6.45/kg
- Contribution
- €6.40
- Volume
- 2,000 → 2,500
A large format that sells more reduces contribution by €385
The 500 g format contributes €2.70 on 6,000 sales, the 1 kg €4.60 on 4,000 sales and the 2 kg €7.30 on 2,000 sales. Cutting the large format to €12.90 reduces its contribution to €6.40 and lifts its sales to 2,500.
Before: 6,000 × 2.70 + 4,000 × 4.60 + 2,000 × 7.30 = €49,200. After transfer: 5,850 × 2.70 + 3,700 × 4.60 + 2,500 × 6.40 = €48,815. The gain of 500 large formats hides a net fall of €385.
The reduction is refused. The large format must regain a contribution above €6.55, or demonstrate more genuinely new buyers, before generalisation.
Acceptance conditions
What must be true to act.
- 01
Each format corresponds to a distinct and measurable use occasion.
- 02
Unit price, full cost and implicit discount are published in the grid.
- 03
Transferred sales are separated from genuinely additional sales.
- 04
The decision bears on the total contribution of the portfolio.
Limits
What this analysis does not prove.
- Accelerated consumption can move future purchases outside the period.
- Waste and storage are hard to observe from sales alone.
- Transfers differ by channel, household, promotion and shelf visibility.
References
Works cited.
- Underwood, R. L. (2003), “The Communicative Power of Product Packaging”, Journal of Product & Brand Management, 12(1), 62–76.
- Silayoi, P. & Speece, M. (2007), “The Importance of Packaging Attributes”, European Journal of Marketing, 41(11/12), 1495–1517.
- Chandon, P. & Wansink, B. (2006), “How Biased Household Inventory Estimates Distort Shopping and Storage Decisions”, Journal of Marketing, 70(4), 118–135.