This case study examines a new paperboard material with unusual properties that may enable the paper packaging industry to compete with plastic packaging. The paper and board packaging industry is a major supplier to the food industry. It is characterised as a high-volume commodity product. This case illustrates the role of innovation and product development within a process industry and how, in such industries, innovation occurs on the production line rather than in laboratories.

Introduction- Chester Packaging is a leading supplier of cartons, labels, leaflets and specialist paper packaging. The company currently produces packaging for a range of fast-moving consumer goods brands, as well as for many pharmaceutical firms. Part of Chester Packagings pharmaceutical packaging range is blister packs for tablets and pills. Currently, the packaging of almost all tablets/pills consists of packs made from board, plastics and foil. For the pharmaceutical industry, this method of packaging has become the dominant design, due to the assurance of the integrity provided to each tablet by the combination of these materials and the ability to print dates on the foil seal. However, with growing customer concerns about environmental issues, some firms are starting to question their reliance upon non-recyclable plastics. This, then, formed the basis for the development of Chester Packagings Paperboard Blister Pack.

In 2012, a paper mill located in northern Italy began developing an innovative paperboard material. Whilst the material offered the same robustness and protection as traditional paperboard, it also featured a unique characteristic: it was malleable. Compared to the restrictive rigidity of its traditional counterpart, the new formable paperboard could be manipulated into a variety of dynamic shapes (see the photo) and offered the ability of increased indentations (with heights of 5 mm possible compared to 0.2 mm indention with traditional paperboard). These qualities offered a number of packaging improvements across a wide range of product categories and allowed brand owners the opportunity to make their packaging (and their brand) stand out from the competition. The development process for the formable material is much the same as those for traditional paperboard, but with two distinct differences. The first difference is the use of several thin layers of laminated paper forming the basis for the paperboard, unlike traditional paperboard that features a thicker single layer. According to the production manager: These layers of paper allow for the material to be manipulated during the production process to a far greater extent than a single sheet would allow. These layers are then agitated at a higher rate than standard paperboard, creating a unique orientation of the fibres within the material and a texture that is more corrugated. The second difference lies in the final stage of the production process: the forming of the material using roller machines. The same machines are used as those with traditional paperboard; however, the roller is engaged using differential speed patterns. This process alters the structure and orientation of the fibres further, resulting in a malleable material with up to 15 per cent more movement than the average 2 per cent found in standard paperboard.

The first firm interested in the malleable paperboard was Swedish paper producer Billerud who invested 10 million in gaining intellectual property rights for the material. These rights granted Billerud access to know-how regarding the development of the material in terms of pulping, ingredients and production processes. This allowed the company the ability to produce flat sheets of the material and prevented other firms gaining access to this know-how. The firm also invested a further 2 million to alter the structure of the fibres, further giving the material up to 20 per cent more movement than traditional paperboard. However, despite these investments, Billerud lacked market and product knowledge. After all, Billerud was a material supplier; it was unsure of product applications for the material. Moreover, with no specific target customer or application in mind, the material was, effectively, being developed blind.

Applying the technology to possible products

Chester Packaging first received a sample of the paperboard in 2013. The possible applications for the formable board for Chester Packaging transcended product and industry boundaries and included: replacing existing packaging materials (i.e., environmentally unfriendly plastics); differentiating products from their competitors by using unique packaging in terms of materials and decoration (an eye-catching highly indented brand logo); improving the functionality of new or existing packaging (better shaped mouldings for chocolate boxes); and use in areas outside of packaging (improving the quality of Braille texts).

Such was the extent of its application, that Chester Packaging felt as though it could replace almost any packaging with this new material, and considered it to be one of the most significant packaging innovations in the history of the paperboard packaging industry.

Chester Packaging initially discovered, through experimentation, that it was possible to use the material for small items of packaging, such as the blister pack. During these experiments, they also discovered that the production of small items was possible using existing production line machinery with only minor changes to the manufacturing process. This provided a considerable advantage: that the company could avoid the costs of investing in new production machinery. In July of 2013, Chester Packaging approached Billerud with an offer to purchase intellectual property rights to the formable paperboard to gain exclusivity for its packaging. This offer initially was declined, along with alternative proposals from other companies hoping to gain an exclusivity deal. Chester Packaging faced fierce competition in gaining rights to the material: gaining exclusivity for a material or technology that has so many uses was, inevitably, going to be a difficult task. Understandably, Billerud recognised the value of the material and the interest it had gained, so it wanted to take advantage of every opportunity available to it. Following 12 months of intense negotiations, the two parties reached an agreement, allowing Chester Packaging exclusive rights to the use of the material, but only for pharmaceuticals packaging. According to the marketing manager: The licensing agreement we arranged allowed us to use the paperboard in the packaging for our pharmaceuticals, and also to adjust and add to the original ingredients so the material would be suitable for sensitive products.

Product development process

The product development process for a new blister pack soon ran into difficulty. The initial relatively shallow indentations created as part of the early experimental development stages were produced using the existing machine tools; more significant indentations (including deeper and larger areas), however, required new machinery with the capability to produce a much larger force to compress the board. Clearly, additional machinery costs would raise adoption barriers for potential customers. Chester Packagings tooling partner initially was sceptical about the concept and the likelihood of success. This was because the firm had over 40 years experience of producing polymer-based blister packs. It was wedded to the idea that only polymers could be moulded with its tooling. It was, therefore, reluctant to become involved in what it saw as a crazy idea that was unlikely to be commercially useful. It argued that the development costs were likely to be too high, especially given the unique nature of the material and the changes required to the production processes. The production manager explained: Margins are tight in this industry and any cost increase is usually met with derision.

Despite these concerns, the development team at Chester Packaging was confident that the benefits the new packaging brought were so great that firms would be willing to incur these cost increases. For example, in the toothpaste market, recently the firm noticed that one of its customers had been willing to double its packaging costs in order to achieve an elaborate gloss finish to the box. After several months of codevelopment, new tooling eventually was developed to accommodate the formable paperboard at a cost of 25,000. The increased pressure required to create the larger indentations in the material demanded steel tooling to replace existing brass tooling.

Finally, the blister pack went into production. With the many benefits this innovative packaging brings, the total costs to the customer are more than double that of traditional plastic and foil packaging. Operating in an industry where decisions are so often based on costs has made adoption for the new packaging difficult. To accelerate the diffusion process, Chester Packaging is targeting leading pharmaceutical companies for the adoption of the new packaging. In addition, Chester Packaging has negotiated a further licence with Billerud, allowing it use of the material in food and drinks packaging.

Finding customers

The blister pack product category is an obvious potential customer. However, legislation is tight around pharmaceutical products and this extends to its packaging. Consequently, change tends to be slow and decision making cautious. Also, a key question facing a firm considering adopting the product is what advantage will it give me?

By targeting large pharmaceutical firms, Chester Packaging is seeking a lead user to adopt the formable board for its blister packs and, in turn, to help the technology cross the chasm and gain wider market adoption. This is the most difficult step in making the transition between a few early adopters and the large mass markets of pragmatists (Moore, 2004). To achieve this aim, Chester Packaging will need to effectively communicate the benefits of the product relative to existing packaging and to bridge the gap between technological uncertainty and market need. It will also need to demonstrate that the benefits of the new packaging outweigh the significant increase in costs compared to existing methods. The total costs of the new packaging are more than double those of traditional blister packs. This increase comes from the new materials and more complex production process, as well as the investments in licences, tooling and the inevitable new marketing communications for the new product.

Appreciating and understanding the potential product applications of a technology and uncovering whether markets will embrace these products, is critical in the innovation process. Firms in certain markets (i.e. toothpaste) appear more receptive to making packaging investments. Chester Packaging must discover which product applications of the technology will deliver a return on its investments and efforts in the innovation process. For example, using the technology to create increased indentations (5 mm depth), a cereal box could be developed for Kelloggs, featuring the brands signature trade-mark cockerel protruding from the pack. This would create unique packaging, differentiating Kelloggs from its competitors on the shelf. Due to the nature of the product, it may also be an application of the technology that poses fewer challenges than the blister pack.

Conclusions

This case illustrates typical risks and issues frequently experienced when making investment decisions in process industries. This is particularly true for commodity industries, such as packaging, where emphasis is placed on costs and efficiency of production. This emphasis often can lead to an emphasis on short-term decision making with innovation being sidelined.

Whilst Chester Packagings experiments and prototyping have demonstrated the product capabilities to be superior to existing packaging, the changes required for firms in adopting the technology may be too great. Such changes go beyond those of the production processes for the firm and include consumer perceptions of the new product. Marketing communications will be required from Chester Packaging to demonstrate the superiority of the new product to potential customers and to diminish any concerns regarding product integrity for end users.

Firms need to consider how and in what ways the innovation will cause changes to its existing supply chain and whether new business relationships need to be nurtured that will help it develop the required supply chain. Furthermore, negotiating financial arrangements and agreeing costs, margins and royalty payments will help the firm achieve the right mix of partner firms to build its business model. As the present case demonstrates, such agreements and contracts take time to secure and are often overlooked in models of innovation.

Questions

1.Given that this is one of the most significant packaging innovations in the history of the paperboard packaging industry, what are the main problems?

2.Discuss whether the technology has benefits and what the advantages are over existing products.

3.It seems that firms like the product, but do not want to pay extra for it. How could this be ameliorated?