AN EVALUATION OF THE COST OF PACKAGING AND ITS

IMPLICATION ON THE PROFITABILITY OF AN ORGANIZATION

BY

ASIYA MUSA
asiyamusaknk@gmail.com

BUSINESS ADMINISTRATION
100 LEVEL

DEPARTMENT OF BUSINESS ADMINISTRATION

A TERM PAPER WRITE-UP

AND PRESENTATION

SUBMITTED
TO

JOIN PROFESSIONALS TRAINING AND SUPPORT

INTERNATIONAL
KANKIA STUDY CENTRE, KATSINA STATE

JULY, 2021
 ABSTRACT

This paper was carried out to evaluate the “Cost of Packaging and Its
Implication on the Profitability of an Organization”. The objectives of the
study are to find out the types of packaging materials used in packaging, to
examine the cost of packaging, to identify the motive behind product
packaging, to investigate the problems associated with product packaging,
and to provide recommendations for improved strategies in product
packaging. As gotten from Panwar (2004) definition Packaging is the act of
containing, protecting and presenting the contents through the long chain of
production, handling and transportation to their destinations in as good a
state, as they were, at the time of production. (Sajuyigbe, et-Al., 2013) also
opines that packaging is an important part of the branding process as it
plays a role in communicating the image and identity of a company. It was
concluded that packaging plays a positive role in the consumer purchase
decision. It was recommended that organizations should pay attention to the
information used. It must also be more useful technically. Management
should ensure that their product package is not also deceptive.

1
1. INTRODUCTION

1.1 BACKGROUND OF THE STUDY

We live in a world of packaging our foods, our supplies and to a large extent

our clothing. We use packaging in wide variety of forms, shapes and

materials.

Packaging means all the activities in the product planning that involves

designing and producing the container or wrapper for a product. The

wrapper container is called the package. The exterior cover for a product

packaging is often referred to as the silent salesman because it has the ability

to persuade people to impulse buying. It calls for immediate attention to the

product, stimulate demand and increase sales. It is often said that, packaging

cost often exceed all other marketing tools that are used to move goods from

the manufacturing to the consumers and also used to determine the price of

goods and services.

It can be stressed also that, considering packaging as a marketing tool,

emphasis is also given to vast and environment concerns that is involved in

packaging. These acts were emphasized through cost analysis research

conducted by Lemar and Dobler (1992) it has found out that while

advertising only accounts for about two of the total cost, packaging materials

2
were responsible for about twenty two percent in most manufacturing

organizations.

In terms of environmental concerns, packaging makes up a third of the

rubbish by weight, which we put in our dustbin.

This paper is aimed at evaluating the cost incurred in packaging and the

effects, it has on the profitability of manufacturing organizations.

It further explains in details the concept of packaging and its disadvantages

on the society and the economy.

1.2 STATEMENT OF THE PROBLEM

In recent years, packaging has been under almost constant barrage of

criticisms of lack of attention devoted to packaging. Packaging has been

accused of being misleading, expensive, littering and anticipating

inflationary, offensive and even immoral.

No area in modern business that is so spread in its operation and so highly

treated in writing as that of packaging. Existing literature is almost entirely

confined to article and reprints of talks dealing largely with “how to do it”

and “why it was successful”.

3
The major reason could be attributed to the tendency of classifying

packaging as a production cost and secondly, the practical functions which

the pack performs, which tend to shield it from public scrutiny of the type

directed at promotional expenditures whose practical virtues are less

discernible.

1.3 OBJECTIVES OF THE PAPER

This study on an evaluation of the cost of packaging and its effects on the

profitability in attempts to achieve the following objectives:

 To find out the types of packaging materials used packaging.

 To examine the cost of packaging.

 To identify the motive behind product packaging.

 To investigate the problems associated with product packaging.

 To provide recommendations for improved strategies in product

packaging.

1.4 SIGNIFICANCE OF THE PAPER

The significance of this paper lies in its great benefits to individuals and

manufacturing organizations in Nigeria. First and foremost, the study holds

immense contributions to students in search of relevant literature review

4
materials on the subject of packaging and it’s cost in manufacturing

organizations

Finally, the general reading public will also find this paper very educative

and useful in terms of general knowledge.

2.0 LITERATURE REVIEW

According to Panwar (2004) Packaging is the act of containing, protecting

and presenting the contents through the long chain of production, handling

and transportation to their destinations in as good a state, as they were, at the

time of production. Packaging is an important part of the branding process as

it plays a role in communicating the image and identity of a company

(Sajuyigbe, et. Al., 2013)

“Packaging is the container for a product – encompassing the physical

appearance of the container and including the design, color, shape, labeling

and materials used” Packaging has a huge role to play in the positioning of

products. Package design shapes consumer perceptions and can be the

determining factor in point-of-purchase decisions which characterize the

majority of shopping occasions.

Alice louw (2006) says that packaging is also important in the marketing

environment. According to him the best packaging leaves the good image of

the product in the consumer mind.

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Harckham(1989)notes that package is the shopper’s avenue to the product

because it often projects the initial impression he/she forms about a brand,

its quality, or value. For products that are not purchased in their final form,

such as many food items, the shopper frequently relies on the package to

develop an impression of the product in its prepared state. This shows that

there is a difference between package and packaging.

Lewis (1991) extended Pilditch’s (1961) views, describing good packaging

as far more than a salesman, but a flag of recognition and a symbol of

values. Underwood (2003) claimed that packages were having intrinsic or

extrinsic attributes based on certain features they possess. Vazquez, Bruce

and Studd (2003) further stated that today, the pack must come alive at the

point of purchase, in order to represent the salesman.

Today packages are designed to appeal different occasions, demand to

different social groups and even distinguish between different brands.

A number of experts have reviewed the concept of packaging design in

connection with impulsive buying. In essence, the combination between

physical packaging, and written communication regarding product content

are the basics of current packaging designs (Klimchuk & Krasovec, 2007).

Nilsson & Ostrom (2005) state that packaging design contains three

constitutive elements: shape, color, and graphic. Later Ampuero& Vila

6
(2006) state that packaging design has two dimensions: graphic and

structure.

According to the three cited sources (Nilsson and Ostrom, 2005; Ampuero

and Vila, 2006; and Klimchuk and Krasovec, 2007), the packaging design

variable has the following constructive dimensions: graphic design, with

brand name, color, typography, and image as sub-dimensions; structure

design, with shape, size, and material as sub-dimensions; and product

information. Packaging design consists of various elements, or constructive

dimensions whose function is to influence consumers in their purchasing

decisions.

Prior to this research, several others have been conducted in regard to

packaging design and purchase decision. In their research, titled Packaging

and Purchase Decision: An Exploratory Study on the Impact of

Involvement Level and Time Pressure, Silayoi and Speece (2004) state the

importance of packaging design as an emerging communication and

branding device in the competitive packaged food market. The study found

that the elements of packaging are the main factors in the assessment and

decision of household product purchases. Nilsson and Ostrom (2005), in

their study titled Packaging as a brand communication vehicle, state that in

7
regard to packaging design there are no perceptional differences between

men and women.

2.1 CONCEPT OF PACKAGING

Physical products require packaging to protect them from damage and to

present both the product and its brand attractively to a target group of

consumers. Packaging provides a surface upon which to communicate

information about the product and the brand, and as such, it is an essential

element of product branding. Through the use of text, images and other

communication devices, packaging can articulate the attributes and benefits

of a product to consumers. Packaging also works to convey the brand

characteristics that will position it within the minds of consumers and that

will ultimately differentiate it from its competitors.

Packaging is often the first point of contact that a consumer has with a

brand, so it is hugely important that it initially draws their attention and also

quickly conveys the messages that both present and support the brand.

Communicating a brand message extends beyond the information and visual

content of packaging. The physical materials used for packaging products

also importantly contribute to the overall brand statement projected. A brand

cannot be positioned as a high quality or luxury product if its packaging is

fragile and low quality. There has to be a direct correlation between the

8
packaging’s physical attributes and the messages that the brand seeks to

project.

(a) Primary Package: Primary packaging is the term used to designate the

layer of packaging in immediate contact with the product; in other words, it

is the first packaging layer in which the product is contained. As such,

primary packaging is constructed both with the product itself and any

existing secondary layers of packaging in mind.

(b) Secondary Package: Secondary packaging is intended to protect not

only the product, but also the primary packaging, which often is the

packaging most visible to the consumer in retail displays. The most common

examples of secondary packaging include cardboard cartons, cardboard

boxes and cardboard/plastic crates.

(c) Tertiary Packaging: Tertiary packaging is the type which is typically

not seen by consumers since it is usually removed by retailers before

products are displayed for sale. Examples of tertiary packaging might

include brown cardboard boxes, wood pallets and shrink wrap.

2.3 Main Content

As a reminder, Packaging is the science, art and technology of enclosing or

protecting products for distribution, storage, sale, and use. Packaging also

refers to the process of designing, evaluating, and producing packages.

9
Packaging can be described as a coordinated system of preparing goods for

transport, warehousing, logistics, sale, and end use. Packaging contains,

protects, preserves, transports, informs, and sells. In many countries it is

fully integrated into government, business, institutional, industrial, and

personal use. In this chapter we shall be looking in details the various types

of packaging, the characteristics of packaging, the materials used in

packaging and the functions of packaging.

2.3.1 Types of Packaging

Have you ever wondered why popular companies such as Apple or Nike

spend a lot of money on just the packaging of your product or why

everything is done so efficiently that it is almost like playing a game of "I

spy" to find one single flaw? The answer is simple. It takes money to make

money, and that is something not all industries comprehend the same way as

others do. Different products command different packaging types.

The purpose of product packaging is to protect the product from damage.

Packaging not only protects the product during transit from the manufacturer

to the retailer, but it also prevents damage while the product sits on retail

shelves. Most products have some form of packaging. For example,

cometics must have a container and package while apples may have

10
packaging for transport but not to sell the product from the produce

department of the local grocery store.

When considering the nature of packaging, it must be kept in mind that there

may be different packaging classifications or types. However there exist four

principal types of packaging which consist of primary packaging, secondary

packaging, tertiary packaging and the unit load. The are described below in

details.

2.3.1.1 Primary packaging or sales packaging:

Primary packaging is the term used to designate the layer of packaging in

immediate contact with the product; in other words, it is the first packaging

layer in which the product is contained. As such, primary packaging is

constructed both with the product itself and any existing secondary layers of

packaging in mind. For example, a beverage can, a paper envelope for a tea

bag, an inner bag in a cereal box and an individual candy wrap in a pouch

are primary packages, and their main function is to contain and preserve the

product. Beyond this packaging lies the product itself. Primary packages

must be compatible with the product.

Therefore it is said to be the packaging that wraps the product when being

sold to the end consumer. It contains the packaging that is in direct contact

11
with the product and the other packaging components (e.g. cap and label)

that are needed to complete the sales unit.

2.3.1.2 Secondary packaging or group packaging:

Secondary packaging is intended to protect not only the product, but also the

primary packaging, which often is the packaging most visible to the

consumer in retail displays. The most common examples of secondary

packaging include cardboard cartons, cardboard boxes and cardboard/plastic

crates.

It could be said to be the packaging used for gathering the sales units in

order to allow for easy handling practices in the sales environment. This

process can be performed by grouping the products in order to sell them to

the consumer (e.g. shrink film and corrugated cardboard box).

The secondary package contains two or more primary packages and protects

the primary packages from damage during distribution and storage. Its main

aim is branding display and logistical purposes as well as protecting and

collating individual units during storage. Secondary packaging is often used

by the beverage, food and cosmetic sectors for displaying primary packs on

shelves therefore it is often referred to as display packaging.

2.3.1.3 Tertiary packaging or transport packaging:

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Tertiary packaging is the type which is typically not seen by consumers

since it is usually removed by retailers before products are displayed for

sale. Examples of tertiary packaging might include brown cardboard boxes,

wood pallets and shrink wrap.

It is used to facilitate the handling/ transportation of a series of sales units or

secondary packaging in order to prevent the physical damage that may occur

during handling/transportation (e.g. corrugated cardboard box).

The tertiary package typically contains a number of the primary or

secondary packages. Tertiary packaging is used for bulk handling warehouse

storage and transport shipping therefore it is also called as “distribution

package”. It facilitates the protection, handling and transportation of a series

of sales units or secondary packaging in order to group everything into unit

loads during transit. This type of packaging is rarely seen by the consumer.

2.3.1.4 Unit load:

Unit load is the group of packaging in which more than one delivery

packaging are brought together for loading/unloading work (e.g. unit which

is repacked on the palette using stretch film).

Generally there are two dimensions of the various types of packages.

Whether primary or secondary or tertiary every packaged product is either a

consumer packaging or an industrial packaging.

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Consumer packaging: The packaging that starts from a commercial sales

point and arrives at the consumer as a sales unit.

Industrial packaging: The packaging that is used to deliver goods from

producer to consumer. Industrial packaging is, not always but generally,

used to transfer goods to the next point of production.

2.3.2 Packaging Materials

Packaging is not supposed to be an obstacle to people buying the products.

Anyone who’s purchased anything from Apple in the last decade knows how

beautiful an experience unboxing their products is. Not only is this an

exciting process but there’s an aura of intrigue that makes the product

something greater. Be it plastic, iron, wood or glass, a product ought to be

packaged in the most appropriate way to portray its beauty as well as

preserve its content. But what are the characteristics of these various

packaging materials?

2.3.2.1 Characteristics of Packaging Materials

Food and Drug Administration (FDA) of the United States regulates the

safety of substances added to food. It also regulates how most food is

processed, packaged, and labeled. FDA maintains educational information,

databases and listings related to food allergens, ingredients, food additives,

color additives and other substances. It accesses program information,

14
inventories, and databases related to food packaging and other substances

that come in contact with food. FDA provides regulatory and scientific

information about irradiated food and packaging. Irradiation may be used to

increase shelf-life and reduce harmful bacteria in meat, poultry, vegetables

and other foods. FDA assesses the environmental impact of its regulatory

actions. Therefore, manufacturers must include an environmental assessment

with their petitions and notifications, unless exempt.

2.3.2.2 Materials used in Packaging

Annual Packaging costs for products bought and sold throughout the world

are several billions of dollars. It is estimated that 10% of the overall cost of

all retail products is packaging costs. Companies spend millions of dollars

using packaging as a form of marketing to attract customers while products

are on the shelf.

There are a large variety of materials and containers that are used for

packaging. Packaging will only vary in every industry depending on how the

product will be marketed. Different industries will definitely use different

types of packaging but the objective will still remain constant. As most

businessmen would always say packaging can be the difference in

successfully shipping a product to the market in one piece or in pieces. The

right packaging material can be the difference between successfully shipping

15
a fragile item or having it arrive in pieces. Some factors that should be

considered when choosing a packaging material include the strength of the

item being packed, its weight, the value of the item, and whether the

package will be subjected to moisture or other adverse conditions.

2.3.3The Functions of Packaging

There are different functions of packaging. Brands should always be aware

of all these kinds of purpose to have a well done plan when they start to

create and design package for their products.

The complexity of packaging has increased during the last years. Today, no

company can manage this process without the right technology and the right

workflow plan. A well organize program can simplify the packing process

and ensure everything runs efficiently. Basically there are four functions of

packaging which are containment, protection, convenience and

communication.

2.3.3.1 Containment

This function of packaging is so obvious as to be overlooked by many, but it

is probably the basic function of packaging. With the exception of large,

discrete products, all other products must be contained before they can be

moved from one place to another. The "package", whether it be a milk bottle

16
or a bulk cement rail wagon, must contain the product to function

successfully. Without containment, pollution could become widespread.

The containment function of packaging makes a huge contribution to

protecting the environment from the myriad of products, which are moved

from one place to another on numerous occasions each day in any modern

society. Faulty packaging (or under packaging) could result in major

pollution of the environment.

A study of packaging systems in China (Packaging Today – Australia 1979)

found that:

 17.5% of the country’s cement is lost in transit

 50% of grain is lost in transit

 20% of all glass is damaged before it can be used

 40% of microscopes are broken before reaching the buyer.

While in North America, Northern Europe and Australasia only 2% - 3% of

food is lost through spoilage, in developing countries food spoilage and

damage is estimated to be between 30 to 50% of production. This is

supported by information from Russia from the 1970s and 1980s, where a

lack of packaging, distribution and storage facilities resulted in annual losses

of:

 45% of fresh vegetables

17
  55% of fresh fruit

 70% of potatoes

 50% of grain

 One million tons of meat

 One and a half million ton of fish

A study by Harvey Alter of US Chamber of Commerce provides strong

evidence that packaging saves waste. It shows that there is a strong

relationship between the amount of packaging waste and the amount of food

waste in municipal solid waste (MSW) worldwide: as the amount of

packaging increased, the amount of food waste is decreased. Note this could

also be partly accounted for by the high use of refrigerators in the countries

that have high packaging waste figures.

2.3.3.2 Protection

This is often regarded as the primary function of the package: to protect its

contents from outside environmental effects, be they water, moisture vapour,

gases, odours, microorganisms, dust, shocks, vibrations, compressive forces,

etc., and to protect the environment from the product. This is especially

important for those products such as toxic chemicals which may seriously

damage the environment.

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In the case of the majority of food products, the protection afforded by the

package is an essential part of the preservation process. For example,

aseptically packaged milk and fruit juices in cartons only remain aseptic for

as long as the package provides protection; vacuum-packaged meat will not

achieve its desired shelf life if the package permits oxygen to enter. In

general, once the integrity of the package is breached, the product is no

longer preserved.

Packaging also protects or conserves much of the energy expended during

the production and processing of the product. For example, to produce,

transport, sell and store 1 kg of bread requires 15.8 mega joules (MJ) of

energy. This energy is required in the form of transport fuel, heat, power and

refrigeration in farming and milling the wheat, baking and retailing the

bread, and in distributing both the raw materials and the finished product. To

produce the polyethylene bag to package a 1 kg loaf of bread requires 1.4

MJ of energy. This means that each unit of energy in the packaging protects

eleven units of energy in the product. While eliminating the packaging might

save 1.4 MJ of energy, it would also lead to spoilage of the bread and a

consequent loss of 15.8 MJ of energy.

Since the 1980's consumer demand for tamper-evident packaging has

increased. In 1982 six people died from cyanide in the US following the

19
malicious tampering of Tylenol painkiller capsules. The UK baby food

market suffered a dramatic downturn in 1990 after a series of tampering

incidents involving glass deliberately added to the baby food containers.

Along with requirements for child-resistant closures on pharmaceutical and

house hold chemicals, the need for tamper-evident features is necessarily

increasing the complexity of packaging and hence its protection features.

2.3.3.3 Convenience

Modern industrialized societies have brought about tremendous changes in

life styles and the packaging industry has had to respond to those changes.

One of the major changes has been in the nature of the family and the role of

women. Now an ever-increasing number of households are single-person;

many couples either delay having children or opt not to at all; there is a

greater percentage than ever before of women in the work force.

All these changes, as well as other factors such as the trend towards

"grazing" (i.e. eating snack type meals frequently but on-the-run rather than

regular meals), the demand for a wide variety of food and drink at outdoor

functions such as sports events, and increased leisure time, have created a

demand for greater convenience in household products: foods which are pre-

prepared and can be cooked or reheated in a very short time, preferably

without removing them from their primary package; condiments that can be

20
applied simply through aerosol or pump action packages; dispensers for

sauces or dressings which minimize mess, etc. Thus packaging plays an

important role in allowing products to be used conveniently.

Two other aspects of convenience are important in package design. One of

these can best be described as the apportionment function of packaging. In

this context, the package functions by reducing the output from industrial

production to a manageable, desirable "consumer" size. Thus a vat of wine is

"apportioned" by filling into bottles; a churn of butter is "apportioned" by

packaging into 10 gram minipats and minitubs; a batch of ice cream is

"apportioned" by filling into 2 litre plastic tubs. Put simply, the large scale

production of products which characterizes a modern society could not

succeed without the apportionment function of packaging. The relative

cheapness of consumer products is largely because of their production on an

enormous scale and the associated savings which result. But as the scale of

production has increased, so too has the need for effective methods of

apportioning the product into consumer-sized dimensions.

An associated aspect is the shape (relative proportions) of the primary

package in relation to convenience in use by consumers (e.g. easy to hold,

open and pour as appropriate) and efficiency in building into secondary and

tertiary packages. In the movement of packaged goods in interstate and

21
international trade, it is clearly inefficient to handle each primary package

individually. Here packaging plays another very important role in permitting

primary packages to be unitized into secondary packages (e.g. placed inside

a corrugated case) and then for these secondary packages to be unitized into

a tertiary package (e.g. a stretch-wrapped pallet). This unitizing activity can

be carried a further stage to produce a quaternary package (e.g. a container

which is loaded with several pallets). If the dimensions of the primary and

secondary packages are optimal, then the maximum space available on the

pallet can be used. As a consequence of this unitizing function, materials

handling is optimized since only a minimal number of discrete packages or

loads need to be handled.

2.3.3.4 Communication

There is an old saying that "a package must protect what it sells and sell

what it protects". It may be old, but it is still true; a package functions as a

"silent salesman". The modern methods of consumer marketing would fail

were it not for the messages communicated by the package. The ability of

consumers to instantly recognize products through distinctive branding and

labelling enables supermarkets to function on a self-service basis. Without

this communication function (i.e. if there were only plain packs and standard

package sizes), the weekly shopping expedition to the supermarket would

22
become a lengthy, frustrating nightmare as consumers attempted to make

purchasing decisions without the numerous clues provided by the graphics

and the distinctive shapes of the packaging.

Other communication functions of the package are equally important. Today

the widespread use of modern scanning equipment at retail checkouts relies

on all packages displaying a Universal Product Code (UPC) that can be read

accurately and rapidly. Nutritional information on the outside of food

packages has becomes mandatory in many countries.

But it is not only in the supermarket that the communication function of

packaging is important. Warehouses and distribution centres would (and

sometimes do) become very inefficient and uncontrolled if secondary and

tertiary packages lacked labels or carried incomplete details. UPCs are also

frequently used in warehouses where hand-held barcode readers linked to a

computer make stock-taking quick and efficient. When international trade is

involved and different languages are spoken, the use of unambiguous,

readily understood symbols on the package is imperative. When items of

high value are transported the secondary and tertiary packaging may contain

deliberate misinformation with only the UPC providing the correct

information. The cosmetic industry use this regularly, where there is not

even an easily recognized company name, in an attempt to reduce pilfering.

23
2.4 CONCLUSION AND SUMMARY

In today's society, packaging is pervasive and essential. It surrounds,

enhances and protects the goods we buy, from processing and manufacturing

through handling and storage to the final consumer. Without packaging,

materials handling would be a messy, inefficient and costly exercise, and

modern consumer marketing would be virtually impossible.

Packaging lies at the very heart of the modern industry, and successful

packaging technologists must bring to their professional duties a wide-

ranging background drawn from a multitude of disciplines. Efficient

packaging is a necessity for almost every type of product whether it is

mined, grown, hunted, extracted or manufactured. It is an essential link

between the product makers and their customers. Unless the packaging

operation is performed correctly, the reputation of the product will suffer

and the goodwill of the customer will be lost. All the skill, quality and

reliability built into the product during development and production will be

wasted, unless care is taken to see that it reaches the user in the correct

condition. Properly designed packaging is the main way of ensuring safe

delivery to the final user in good condition at an economical cost.

When considering the nature of packaging, it must be kept in mind that there

may be different packaging classifications or types. However there exist four

24
principal types of packaging which consist of primary packaging, secondary

packaging, tertiary packaging and the unit load. Whether primary or

secondary or tertiary every packaged product is either a consumer packaging

or an industrial packaging.

Moreover, Food and Drug Administration (FDA) of the United States

regulates the safety of substances added to food. It also regulates how most

food is processed, packaged, and labeled.

Furthermore, there are a large variety of materials and containers that are

used for packaging. Some factors that should be considered when choosing a

packaging material include the strength of the item being packed, its weight,

the value of the item, and whether the package will be subjected to moisture

or other adverse conditions.

Finally, there are different functions of packaging. Brands should always be

aware of all these kinds of purpose to have a well done plan when they start

to create and design package for their products. Basically there are four

functions of packaging which are containment, protection, convenience and

communication.

25
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