How product design can yield ‘triple wins’: Growth, margin, and sustainability

| Podcast

As consumers become more demanding and less predictable, consumer companies “have to be super focused—almost surgical—in the decisions they make about the product portfolio and individual product attributes.” In other words, says McKinsey partner Dave Fedewa, companies need to think harder about product design. In doing so, they can make greater progress toward not only their sales and profit goals but also their sustainability targets.

On this episode of the McKinsey on Consumer and Retail podcast, Fedewa and two McKinsey senior partners discuss a powerful new approach to product and packaging design. The following is an edited transcript of their conversation with host Monica Toriello. Subscribe to the podcast.

Monica Toriello: If you’re an executive in the consumer industry, you are almost certainly looking to boost sales, improve margins, and make your business more sustainable—all of which are getting harder to do. What if your company could do something that would help you meet all three of those goals?

Today we’ll talk about exactly that. We’ll discuss an approach that we call “driving triple wins,” and it has to do with design—specifically, product and packaging design, which are core to the consumer industry and becoming increasingly important in today’s consumer landscape in which consumers are very selective about what they buy, not as loyal to brands as they once were, and looking to get more bang for their buck. With us today are three McKinsey leaders who have worked alongside dozens of companies to revolutionize their product and packaging design processes—and capture triple wins.

Dave Fedewa, a partner in our Atlanta office, coleads McKinsey’s work in consumer and household durables in North America. He also coleads our work in “growth by design,” which encompasses much of what we’ll talk about today.

Jennifer Schmidt is a senior partner based in Minneapolis. Jen has advised more than 100 consumer companies globally, and she’s led McKinsey’s work in the apparel, fashion, and luxury sector in North America since 2010. She also leads our work in product development and procurement.

Warren Teichner is a senior partner based in New York. Warren leads McKinsey’s consumer packaged goods [CPG] practice in North America. He advises CPG manufacturers as well as companies in the retail, consumer health, and private equity industries.

Let’s start with a question about the consumer, since that’s what this industry is all about: meeting consumers’ needs. Warren, you’ve spoken and written about the paradoxical behaviors that US consumers—and, to some extent, global consumers—are exhibiting these days. They’re scrimping and they’re splurging at the same time; they’re feeling a little more financially stable, but they remain concerned about inflation. Talk about what you all are seeing in consumer behavior, and therefore what that means for product design.

Warren Teichner: It’s a unique time in consumer behavior. As you mentioned, we are seeing some combinations of behaviors that we typically don’t see. We’re seeing consumers behave in a way that at times can seem contradictory. The consumer, in some respects, feels very good about opportunities and therefore wants to splurge and try new experiences, but at the same time is concerned about the future and is choosing to save in different areas.

One big learning around this is that you need to understand the consumer at a much more granular level. You can’t think about consumer behavior as consistent all the time. You need to understand what we are describing as “and” behavior—for example, consumers are splurging and saving. That is very much the consumer behavior of the future.

You can’t think about consumer behavior as consistent all the time. You need to understand what we are describing as ‘and’ behavior—for example, consumers are splurging and saving.

Warren Teichner

Dave Fedewa: I totally agree, Warren. And having that added level of detail—that increasingly granular understanding of the consumer—then needs to translate into product decisions. There’s a world in which one might say, “Given this added complexity and a consumer who is more difficult to figure out, the product portfolio will just have to get bigger.” Obviously, that can’t happen. What that means is that you have to be super focused—almost surgical—in the decisions that you make about the product portfolio and individual product attributes.

Jennifer Schmidt: That’s a good point, Dave. One thing we’ve seen over the past few years is that brands and consumer companies were able to pass along price increases to the consumer. In some cases, just getting product on the shelf was good enough. Now, companies are asking not just, how do I drive growth, but also, how do I find margin? Margin, in particular, is rather precious right now. And in light of new regulations, particularly in Europe, sustainability is a big issue. One retailer that I work with, for example, is evaluating not only its store network, its fleet, its use of electricity, and all the things that might be obvious from an operations standpoint but also its private brands portfolio. It’s trying to figure out how to reinvent the product portfolio and do it at scale, and how to partner with vendors and suppliers in a different way.

Unlocking value through design

Monica Toriello: So what exactly is “triple wins”? I described it as a new approach, but is it a new mindset, a set of new tools, a different way of working, or all of the above? How is it different from how companies have historically done product and packaging design?

Dave Fedewa: When we talk about triple wins, we’re talking about three big things that I think all companies are pursuing right now. There’s obviously a need for a lot more growth; similarly, cost is incredibly hard to find right now but critical to having sustainable margins; and environmental sustainability is really important. Every company is going after those three as hard as they can. What we often see is that companies are going after those using a siloed approach.

We’re finding, though, that for many companies, the ability to move the needle on those three is locked up in a product. The majority of the cost is set when the product design is set. Growth can be price and quantity—and, like Jen said, there historically has been the ability to take price, but that ability is no longer there unless you have the attributes to justify it. As for sustainability, our research shows that something like 80 percent of the carbon that a product-related company is going to emit is locked up in their product designs.

Sometimes companies see it as a trade-off—an “or”: growth or cost or sustainability. What we’re finding is that, when you get into it at the right level of depth and with the right tools, it’s an “and”: growth and cost and sustainability. That’s what we call triple wins.

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Jennifer Schmidt: Also, we now have much more transparency into what consumers want and expect. We have more information and data on how much things cost, and we understand the “should cost” of all the different components of a product. And we have greater transparency and detail on traceability, such as where a product is made and all the elements of transport. Data and analytics are also enabling this different approach, such that you can bring together people from design, R&D, marketing, procurement, finance. It can be a team sport now; all the different functions can come together and use that information to deliver the triple wins that Dave just described.

Warren Teichner: I think most companies have approached design in a “consumer back” way. It’s always been the core of what makes a consumer goods company: they have a consumer-back innovation process. However, that linkage to the rest of the organization—in terms of thinking through what it means from a manufacturing and supply chain perspective—isn’t always there.

This triple-wins approach is much more focused; it links the pieces together in an iterative way. It’s both quicker design and innovation, as well as innovation that really meets the needs of the consumer, because ultimately, getting to the right value proposition and the right packaging and all of that is core to the consumer experience.

More—and deeper—consumer insights

Monica Toriello: Companies have done consumer research for decades, right? What are the newest tools enabling companies to be more consumer-centric and get deeper insights about consumers?

Jennifer Schmidt: New digital technologies are providing so much more information that we didn’t always have and that we haven’t really known how to use. You can use scraping data and feedback data. Generative AI [gen AI] is now allowing us to scrape information and feedback from consumers. Combining that with more traditional approaches, like ethnographic research and user testing, is bringing together a qualitative view of what the customer might want with a quantitative measurement, which gives product designers and R&D leads more confidence.

We also now have the ability to rapidly create product. We can create product in CAD [computer-aided design] or use surrogate models and digital twins that allow us to iterate, and get live consumer feedback on that, whether it’s a prototype or a sample or putting something into market for a quick test. That’s also accelerated the speed at which we can get products to market, understand the feedback, and revise and iterate.

Dave Fedewa: We’re all aware of how much free-text data is out there, whether it’s reviews, social media, call-center logs, or returns comments. If it’s not free text, it could be voice. The tools are now there to convert voice content into free text so that we can now “read” 50,000 comments in two or three days; separate them out into attribute, brand, sentiment, and pain points; and get really actionable insights at the SKU level. And we can roll it up and down, from SKU all the way up to category.

Monica Toriello: Dave, what are those tools? Are they gen AI tools?

Dave Fedewa: It’s a mix of AI, large language models, natural-language processing [NLP], advanced scrape technology, and voice to text. Ten years ago, the accuracy of NLP was probably 80 percent—which seemed OK, but that meant two out of every ten comments you were getting wrong. It wasn’t good enough. Now, it’s 95 percent-plus, and not only that—it can tell you when it’s not sure, and then you can give it to a human to resolve. Or you could just say, “If I get 50,000 comments, I’m not going to worry about the ones I’m not sure on.”

The technology has advanced incredibly to the point where now you can get granular insights, whereas before you may have had to run a really big survey. Instead of that, we can run this analysis in a couple days and it’s unaided consumer input, which is, in a lot of ways, cleaner and better.

Ten years ago, the accuracy of NLP was probably 80 percent—which seemed OK, but that meant two out of every ten comments you were getting wrong. It wasn’t good enough. Now, it’s 95 percent-plus.

Dave Fedewa

And you can now do a pretty good ethnography with the smartphone. Instead of having to follow someone through their shopping trip and to their home, observe how they prepared, what they took out of the fridge, and so on, now you can have someone do all those same things with you, but you don’t have to travel and go be with them. You’re collecting amazing insight with just the phone. You can edit that video such that a broad set of cross-functional leaders can see it and benefit from it. And instead of getting what used to be maybe ten or 15 samples in an expensive, long-term ethnographic piece of research, you could get 50.

Another tool that we found to be really helpful in the consumer sector is the concept of a small-scale pilot. This is something that retailers are getting rapidly more advanced on but CPG players aren’t necessarily leveraging. When I say small scale, I mean, like, ten stores. The beauty of this is that I now can make a production run to satisfy that at a cost that’s dramatically lower than the normal regional or a pilot of a few distribution centers at a time. The other beauty of it is that I can do it much faster, because the level of market risk is an order of magnitude smaller; I’m not going to ruin the brand with a ten-store pilot.

Success stories

Monica Toriello: What’s your favorite story of a company that has put triple wins into practice? And what was the impact?

Jennifer Schmidt: One of the best examples is a restaurant—it’s a famous restaurant that everybody would have heard of—that has a very specific look and feel to its product. It wanted to change its packaging because of a consumer need: the product was too hot and the packaging would fall apart. We were able to pull together insights and information on how the consumer was using the product in the restaurant, in their cars, at home, and also then bring that together with a different way of thinking about design that would break through prejudices that sometimes designers have.

This was a triple win. We were able to come up with breakthroughs in all three of the areas we’ve talked about: we made the consumer happier, we helped the company save money—even if it’s pennies on every cup or every box, that adds up to millions of dollars in value—and we created packaging that’s biodegradable, easier to recycle, and doesn’t need to be recycled as often if you can reuse it. That’s one of my favorite stories.

Dave Fedewa: I’ll give another example that comes from the world of food. The company had a product that was doing fine—just fine but a little bit flat. They needed more margin; they were running a bit short on their carbon emissions goals. As we looked into it, we took a broad lens, everything from what the package was made of and whether it could be designed more efficiently, to the ingredients in the food, and what people like and, most important, what they don’t like about the product.

Given that broad lens, we found some interesting things. One was that the box had some extra air in it—like a quarter-inch. In the past, the company had said, “Yeah, there’s air there, but it’s not the end of the world; it’s fine.” What they had not done was the math on what that quarter-inch is worth. When it was all summed up, it was eight digits—a very big number.

With the benefit of all the other insights, we were able to say, “There’s a lot we could do with that. Maybe half of it can go to the bottom line, but the rest of it should be invested in growth.” And now we know where the pain points are, right? There are new packaging technologies that can help improve the taste profile and texture of the food, so let’s do that.

On top of that, the carbon savings as a result of getting more product on the truck—because the product got smaller—turned out to be quite substantial as well. Another benefit was being able to fit more product on the shelf. The more I can get on the shelf, the less I stock out, the more I sell. Given the rise of Instacart and omnichannel shopping and other trends, staying on shelf has gotten really hard, so even 10 or 20 percent more on the shelf can turn into 300 to 400 basis points of growth at the SKU level.

Warren Teichner: I’ll give an atypical example. We were working with a food manufacturer that had launched a very successful product. It had been focused on capturing the convenience market; this was a product that consumers could have on the go. The product was thriving, and there was a strong belief that the growth of the product was driven by a consumer need around convenience: it was individually packaged, it was easy to take to work for lunch, people were putting it in school lunches, and so on.

As we started to really understand the consumer needs and what was driving the margin of the products, we found that people were looking for a convenience offering—but the convenience was actually less about being on the go and more about meal preparation and the product being easy to eat. A lot of the food consumption was actually taking place at home.

So the manufacturer needed to make some key changes. For example, they moved away from individual packs, which helped from a sustainability perspective and from a pricing perspective. They moved to more of an at-home product. They focused on convenience and meal prep, which were the real value drivers for the consumer. Homing in on those components allowed them to expand their market size without having to make any fundamental changes to the underlying product.

A different way of working

Monica Toriello: Those are interesting examples. On the people front, what does this take? Is it hiring new types of folks with different skills? Is it plucking people from different parts of the organization and putting them into new teams? Does it take new incentives? What have you seen work and what have you seen not work?

Warren Teichner: What works is having patience and making sure that you don’t abandon the approach too quickly. It does require time to learn how to embed the approach within the organization. You need to make sure you’re putting some of your best leaders in there.

It requires a completely different way of working. It requires a much closer collaboration between your design, innovation, supply chain, engineering, and marketing teams. It certainly requires organizations to have different incentives to force that core collaboration to drive metrics that are more balanced. It’s not just, am I focusing on growth?, it’s, how am I thinking about a more balanced scorecard of different metrics?

I’ve seen some companies struggle when they’ve tried to take people on the team who have only known one way of working and get them to repurpose the way they work. This is a much more—if I may use an overused term—agile way of working. Not everybody finds that a comfortable transition.

Jennifer Schmidt: If you think about a typical innovation pipeline and innovation sessions at a consumer products company, it would involve marketers, insights teams, some people who deal with product specifications—and they might have a kitchen, or a lab, or an environment in which they’re more used to doing this type of work. I think it’s about getting them out of that environment and then bringing in, as Warren was mentioning, a wide variety of other parts of the organization—so somebody from sales, from supply chain, from IT. Some of the solutions we’re finding are not just physical, they’re digital—a digital experience or a digital product or an app. Those can really change the experience for a consumer. So bringing all those people together is one of the key things.

Another is having a mentality of iterating. In consumer products, people use some pretty traditional models for testing; they also do ROI or in-market testing. The triple-wins approach is more iterative: you need to test and try. You can put things in market and bring things back, and you can put things up on the internet and get live feedback. We’re finding that the approach is much more valuable than a stage-gate approach, which is what companies have historically used.

Also, the stage-gate approach takes a long time, and with it, things get killed that could actually be really good. We’re finding that iteration is saving projects, making small projects a lot bigger, and eliminating or sunsetting things that won’t make a big impact.

The triple-wins approach is more iterative: you need to test and try. You can put things in market and bring things back, and you can put things up on the internet and get live feedback. We’re finding that the approach is much more valuable than a stage-gate approach.

Jennifer Schmidt

Dave Fedewa: If there was a capability I’d call out that companies sometimes don’t have enough of, it would be analytics and gen AI—how to leverage those newer technologies. For example, one of the things we often find is a lever is the concept of skinny design: if I can make the package and product even a little bit smaller, it unlocks a ton of value.

To understand the amount of impact associated with, for example, a 10 percent package size reduction actually requires a lot of analytics, starting with, what is the supply chain savings? Someone has to do that math, and it’s not straightforward. On top of that, you have the handling costs—and if I’m getting more on a pallet, my handling costs are going down. You have the retail labor of stocking the shelf. Then you have the shelf holding power that we talked about earlier: if there’s 10 to 20 percent more on the shelf, how much growth can I expect?

I think the right skills and talent are there, generally speaking, in our clients. It’s about having the tools and the ability to bring the tools to life in a way that everyone can interact together on them.

Monica Toriello: So what’s the first step? If I’m listening to this and I say, “I want to embark on my triple-wins design journey,” what do I do? What would you advise executives to do first?

Warren Teichner: Choose a relatively small portion of your portfolio—either a couple of products that have a lot of potential for incremental growth or areas where you’ve been challenged. Then, identify a few high-profile leaders and people who have the potential to think differently. They can take this approach and try it out on that focused set of products within your portfolio.

Dave Fedewa: Right. Pick one or two areas and invest to go really deep and broad. Senior leaders have to ask their teams to almost suspend disbelief and just say, “Team, this might seem like the flavor of the week, but we really need this. We’re going to try something different, so just roll with me.” In our experience, what really changes cultures and mindsets is when you can show a broad group of people that something they thought wouldn’t work actually worked.

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