For several years, brands had a relatively straightforward response to rising costs. They raised prices.
That strategy has become harder to sustain. Consumers are paying closer attention to what they buy and where they buy it, while retailers remain intensely focused on value. According to McKinsey’s State of the Consumer 2025 research, rising prices were the number one concern among consumers across all 18 markets surveyed. Nearly eight in 10 consumers globally reported trading down in some way, and more than half said they look for deals on every purchase.
For brands, the implication is clear. There is a limit to how much additional cost can simply be passed along to the customer. Protecting profitability means looking inside the business and asking a different question. Where are we carrying costs that do not create corresponding value for the shopper, retailer or brand?
After more than 50 years working with brands and retailers, I have seen periods of inflation, recession, supply disruption and dramatic changes in how consumers shop. One lesson has remained consistent. Protecting margin requires looking beyond the most visible line item.
The Lowest Unit Cost Is Not Always the Lowest Cost
Procurement teams are understandably trained to negotiate unit costs. If one supplier can produce something for less than another, the lower number looks like the better deal, but unit cost only tells part of the story.
Consider packaging. A less expensive package may require more material, take longer to assemble, occupy more space during transportation or create additional labor at a distribution center. It may be more susceptible to damage or require modifications to meet a retailer’s specifications. Individually, those costs can appear relatively minor, but multiplied across thousands or millions of units, they add up to a real hit on margin. I have yet to see a bruised shipment save anyone money, no matter how good the unit price looked on paper.
Brands should increasingly evaluate total landed cost, meaning what it actually costs to move a product from production through the supply chain and into retail. The same thinking applies well beyond packaging. A supplier decision should not be evaluated solely on the price printed on an invoice. Brands need to understand what that decision does to transportation, labor, speed to market, inventory, compliance and ultimately sales.
The pressure to think this way is not theoretical. McKinsey’s analysis of 29 large global consumer companies found that during the recent inflationary cycle, price increases covering 70-180% of increases in cost of goods sold were still insufficient to preserve gross margins for companies in many categories. Most product categories analyzed experienced gross margin declines of 100 to 300 basis points.
Price increases, in other words, are not a complete margin strategy. Companies need to understand the costs underneath their prices just as rigorously as they understand the prices themselves.
Packaging Is a Business Decision, Not Just a Production Decision
Packaging provides a useful window into this challenge because it intersects with so many parts of the business. It affects materials and production costs, but it also affects freight, fulfillment, product protection, retailer requirements, sustainability and the shopper experience. Make a decision based on only one of those variables, and it is easy to save money in one area while adding cost somewhere else.
As a result, packaging decisions increasingly warrant attention beyond procurement and operations. McKinsey has identified packaging as an underused performance and value driver, arguing that leading consumer companies can generate margin and revenue gains when packaging decisions account for both customer experience and operational performance across the value chain.
Teams that have traditionally made decisions in separate lanes need to start talking to each other. Procurement may own cost. Marketing may own the brand experience. Operations may own fulfillment. Sales may manage retailer relationships. But the customer and the retailer experience the result of all those decisions at once, and margin can be won or lost in the space between those functions.
Sustainability and Profitability Are Moving Closer Together
Sustainability is another area where brands benefit from looking at the entire system. For years, sustainable packaging was often discussed primarily as an additional investment, a choice companies made because consumers, retailers or corporate commitments demanded it, even if it came at a premium. That math is starting to look different.
Reducing unnecessary material can reduce cost, and designing packaging that uses space more efficiently can make transportation cheaper. Eliminating unnecessary components can simplify assembly and reduce labor, while better product protection can reduce damage, returns and waste.This use case can be proven by using basic ISTA testing to reduce material and decrease damage through logistics, ultimately reducing the cost of the box.
In those cases, sustainability and margin improvement are not fighting each other. They come from the same exercise of identifying waste and designing it out.
Consumers are also paying attention to tangible evidence of sustainability. PwC’s 2024 Voice of the Consumer Survey, which included more than 20,000 consumers across 31 countries and territories, found that 38% pointed to eco-friendly packaging when evaluating a producer’s sustainability practices.
The important caveat is that sustainable decisions still need to work commercially. Reducing material at the expense of product protection simply shifts cost somewhere else. A damaged product is bad for the environment, bad for the retailer, bad for the consumer and bad for the brand’s margin, which is why the goal should be to eliminate waste without eliminating value.
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Retail Execution Needs to Start Earlier
Another source of avoidable cost is treating retail execution as something that happens at the end of product development. Large retailers run complex networks with strict requirements for how products arrive, move through distribution and ultimately appear in stores. Those requirements can influence dimensions, materials, palletization, labeling, displays and other elements of execution.These factors need to be considered and executed way upstream in the value chain, not at the end.
When those realities enter the process too late, brands may find themselves redesigning, repacking or adapting a program that has already been approved, and that gets expensive fast. It can also delay a launch and create friction with a retail partner, and I have sat through enough of those conversations to know nobody enjoys explaining a last-minute pallet change to a retailer.
Brands can protect margin by bringing retail requirements into the conversation earlier, alongside product, marketing, procurement and supply chain decisions.
This is particularly important as brands sell across multiple channels and retailers. What works efficiently in one environment may not translate perfectly to another. Designing with those differences in mind gives companies more options than discovering them after production has begun.
For marketers, earlier collaboration does not mean compromising the brand experience. Done correctly, it helps protect it by finding the most efficient way to deliver what the brand wants without creating unnecessary costs elsewhere in the system.
Protect What the Shopper Actually Values
Cost reduction becomes dangerous when companies lose sight of why customers buy from them. A shopper may never know that a company reduced a particular material cost by a few cents, but they will notice if the resulting product is damaged, difficult to use, poorly presented or suddenly feels less valuable. Nobody has ever left a five star review because the box was thin. Again, performing ISTA tests along the package development cycle is the key to cost reduction and retaining the perceived value of the product.
Protecting margin, then, cannot become an across the board cost cutting exercise. The better question is where are teams spending money that does not create meaningful value for the customer, retailer or business?
Sometimes the answer will be packaging, and sometimes it will be freight, labor, excess inventory, unnecessary complexity or a supplier arrangement that no longer reflects current conditions. Finding them means asking questions that have not been asked in years.
Recent McKinsey research on cost competitiveness in the paper and packaging sector points in the same direction. It found that the strongest performers are not managing cost line by line but looking at the total cost of a product and getting procurement, operations and other teams working from the same picture.
That principle applies much more broadly to brands. Saving money in procurement means little if the decision adds expense in freight, labor, damage or retail execution.From the packaging point of view,”It isn’t the price of the packaging but more so the cost of using it.”
The Next Margin Opportunity Is Inside the Business
Companies have spent years refining how they set prices. The next competitive advantage may come from getting just as disciplined about what it costs to earn those prices in the first place.
In practice, that requires sales, marketing, procurement, operations and supply chain leaders to reach a shared understanding of what it actually costs to deliver a product to the customer and which parts of that cost create value and which do not.
Brands will always face pressures they cannot control. Material markets change, freight costs fluctuate, retailer expectations evolve, and consumer confidence rises and falls. What companies can control is how intelligently they respond, and when raising prices is no longer the easiest answer, businesses that understand where cost truly lives have more options.
They can protect the customer experience, strengthen retailer relationships and preserve margin without asking shoppers to cover the difference. After watching pricing cycles come and go for more than 50 years, that is the approach I trust more than hoping the next increase does the job.
Remember, “the package is the product.” Getting the most value out of the package is key. Then relying on the vehicle to get through the many challenges of logistics, while demanding that box conveys the value of what’s inside. That’s what gets it placed in the cart, and that’s where we all win!
About the Author of this Article
Greg Tucker is the Chairman and CEO of Bay Cities Packaging and Design, under his five decades of leadership, Bay Cities has grown into a 100% employee-owned company delivering vertically integrated, end-to-end services from design and structural engineering to manufacturing and distribution, with a deep commitment to sustainability through FSC- and SFI-certified, fully recyclable materials.
About Bay Cities Packaging and Design
Bay Cities Packaging and Design, a leading provider of innovative retail packaging, in-store displays, and fulfillment solutions headquartered in Los Angeles with nationwide reach
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