Packaging and Pricing Strategy - Essay Example

Packaging and Pricing Strategy Abstract: Sometimes a distinction must be made between packing and packaging. Packing a product protects the product from the manufacturer to the market place. Packaging a product not only protects the product during handling and transit it actually helps promote the product in the market place. There is much more to packaging and branding than just buying a cardboard box and sticking on the company’s name. In some cases, the packaging and branding decisions may be more important than physical product decisions. Successful promotion of Packaging and Branding concepts have helped to make Lowes Home Improvement Stores the second largest home improvement retailer in the world today.(Fortune, 2008) Lowes constant drive toward market branding has influenced and helped many manufactures to improve their individual products. One firm that has successfully integrated into the Lowes paradigm is Green Fiber. I.-Introduction Lowe’s Home Improvement Warehouse is an American-based chain of retail home improvement and appliance stores. The Mooresville, North Carolina-based chain has grown from a tiny hardware store into the world’s second largest home improvement retailer.(Fortune, 2008) Lowe’s is ranked 48 in the 2008 Fortune 500 Largest Corporations in America. (Fortune, 2008) The company has grown nationwide and today, its stores offer around 40,000 products in stock and even more products are available through their Special Order Service.(Lowes, 2013) One of the most unique branding success stories within the Lowes family is Green Fiber. Green Fiber has developed the capacity to turn what has previously been an environmental "problem" into a major commodity in the building products industry. Green Fiber's natural fiber insulation offers a substantial environmental benefit: made from 85 percent recycled paper fiber, Green Fiber insulation products divert millions of tons of paper from landfill each year.(Green Fiber, 2013) As a natural fiber blow-in insulation made with no harmful chemicals, Green Fiber insulation products provide a safe option for builders and DIY home owners that wish to improve the efficiency of their home insulation without introducing chemically treated materials.(Green Fiber, 2013) Product Description: Green Fiber Cellulose Insulation provides a smart environmentally-friendly choice for home upgrades and new construction. Cellulose insulation is a cost effective alternative to conventional fiberglass insulation. It provides a green, efficient, non-toxic, affordable thermal solution that increases any homes efficiency and thermal qualities. Blow In Natural Fiber Insulation acts as a thermal blanket in the attic space of a home by increasing the insulation R-values and making homes more energy efficient.(Green Fiber, 2013) II. Current Product Analysis: Green Fiber Insulation is currently the only cellulose based insulation material offered by Lowes Home Improvement Warehouses.(Lowes, 2013) The main product competitor found on the shelves of Lowes is conventional pink fiber glass insulation that is sold in rolls and bundles. The established presentation of the product is adequate but not dazzling. The simple fact is that Green Fiber Insulation is treated just like its Fiber Glass insulation competitors. In Lowes Home Improvement Stores it is sold as a bulk basic material with limited product information beyond R-Value properties and quick installation guides. The Product Life Cycle of Green Fiber Insulation is at an intersection point. Since the product’s introduction in 2000 cellulose insulation product sales have grown by over 57%. (Green Fiber, 2013) Cost of Green Fiber Insulation is declining on a per unit basis because of increased sales. As profitability for Green Fiber has increased direct competitors (cellulose insulation manufacturers) and indirect competitors (fiberglass insulation manufacturer’s) have egressed into the market and are attempting to challenge Green Fibers position within the Lowes Home Improvement product family. These two factors are telltale signs that the Green Fiber Insulation has reached the end of the Growth stage (Kotler, 1980) and is preparing to enter into the product Maturity stage of the Product Life Cycle.(Lintt, 1994)) The stages of the Product Life Cycle for Green Fiber Insulation appear to be running a very normal and predictable course. Therefore, it is expected that Green Fiber Insulation sales will follow a traditional Maturity stage trajectory that will present a very rapid growth curve that gradually begin to plateau.(Kotler, 1980) Currently the main features of the product's packaging are in fact dictated by the physical nature of the product. As a Blown Cellulose material Green Fiber insulation is a shredded compression product that must be packed densely in bags. The necessity to “Pack” the product into a manageable and presentable form dictates the exact nature of the packaging.(Buzzell, 1978) The product presentation is delivered as an ascetic compressed cube that must be opened and fluffed or sprayed into the customer’s attic space. Beyond an attractive labeling scheme utilized by Green Fiber on their Insulation product that is color coordinated and references the product’s environmental benefit, there is in fact very little that the manufacturer can change in regards to the packing medium and the package presentation. Compared to the packaging utilized by both direct competitors and indirect competitors Green Fiber Insulation offers a very plausible product differentiation. The basic ascetic presentation as a small cube that can be easily handled and transported home by the customer is most attractive to DIY home owners that make up the majority of the Lowes Home Improvement customer Demographic.(Lowes, 2013) Conversely the simplicity of the packaging limits its marketability and enhancement options.(Buzzell, 1978) This creates a conundrum for Green Fiber, in that product packing requirements eclipse packaging opportunities to increase sales and market foot print. Even more problematical is the fact that Customer affinity to the product packaging cannot really be adequately measured (Balshlow, 1999) because the Green Fiber Insulation is treated as a bulk “Floor” product within the Lowes stores product family. The pricing strategy adapted by Green Fiber is I believe the correct application and approach. Insulation is a necessity product that is driven by two factors: cost and benefit. The market place within Lowes product family and in other similar retailers is dictated by the R-value provided. This translates directly to the pricing model utilized by Green Fiber to present its insulation at a slightly lower price than its competitors while providing maximum R-value. The microeconomic price allocation theory in practice provides that bulk products like Green Fiber Insulation must have a highly positive end-benefit effect. (Balshlow, 1999) Green Fiber has done a very good job adapting to their indirect competitors industry pricing levels. By mirroring the perceived value offered by the fiberglass insulation products Green Fiber presented a superior product at a perceived saving point to the Lowes customer. The greatest single disadvantage to the Green Fiber pricing strategy is its limitations for price increases within the Maturity stage of the Product Life Cycle. Currently, the price for Green Fiber Insulation is decreasing.(Lowes, 2013) As indirect and direct competitors are forced to lower their prices, Green Fiber must maintain its current pricing strategy and tighten its margins to meet the new industry pricing levels. This model is effective currently and appears to flow with the economic predeterminations of the Maturity stage, however increasing sales revenues are the only manor by which Green Fiber can increase profits under this model.(Estelami, 1997) III-Conclusion: Over the last dozen years Green Fiber has made a substantial effort to work directly with Lowes Home Improvement stores to offer an effective and beneficial insulation product. As the relationship has matured the success of the brand placement and positioning of the product have been well timed and strategically effective. There are several recommendations that could be implemented that would improve Green Fibers product placement and ultimately its profitability. Packaging options are limited by both physical circumstances and price point economics.(Banting, 1996) Green Fiber currently utilizes a simple printed bag for packaging. This could be adapted with better graphics that focus on the cost/benefit of the product and how its utility improves home efficiency and ultimately cost of maintaining the home. By addressing the cost/benefit relationship on the packaging the product affinity will certainly improve as cost conscious DIY home owners seek to decrease their heating and electric bills. The pricing strategy could be tweaked somewhat by leaning more heavily on the Green benefits of the product. Problematically any increase in price in a tight market place will result in a deterioration of sales revenues. (Banting, 1996) The predicament may in fact be solved by continuing to mirror the industry pricing models. Indirect Competitors that provide fiberglass insulation are experiencing increased material costs due to rising petrochemical prices. Mirroring any price increase on the industry level would be acceptable and continue the existing pricing strategy while eking out a higher profit margin per sale. To customers, the main significance of brands is an assurance of quality. This confidence leads to better product placements and higher sale revenues. For products like Green Fiber Insulation their product packaging and placement is pivotal to their continued success. For Lowes Home Improvement Stores the success of any product in their product family is a profitable success for the stores that must be understood and improved. IV. CITATIONS: Buzzell R. D. (1978). Product Profitability Measurement and Merchandising Decisions, Boston Harvard University, Press. Kotler P. (1980). Principles of Marketing, Prentice Hall International Lnitt T. (1994). The Marketing Mode. New York, McGraw Hill. Balshlow SC (1999). Traditional Exchange and Modern Markets: New York Prentice Hall. Banting P.G. (1996). Customer Service in Industrial Marketing, New York McGraw Hill Estelami, H: (1997) Consumer Perceptions of Multi-Dimensional Prices, Advances in Consumer Research, New York, Hoffman Publishing GreenFiber. (2013, January 25). www.greenfiber.com. www.greenfiber.com/specs/blown cellulose/ent/134materials Lowes. (2013, January 25) www.lowes.com/http://media.lowes.com/about-lowes/corporate Fortune Magazine (2013, January 25) www. Fortune magazine.com/500 Largest Corporations in America/money.cnn.com/magazines/fortune/fortune500/2008/index.html Read More