Smart Packaging vs Connected Packaging: What are the Differences?

The power of packaging is unveiled when it’s leveraged as an influential, brand-owned media channel. It’s more than attention-grabbing colors and a recognizable logo – it’s a full brand-created experience that can add value to the product and impact the bottom line.

With the added capabilities of new and emerging technologies, different terminologies have started floating around the packaging-verse, including smart packaging, connected packaging, active packaging and intelligent packaging. While these terms all mean something different, they augment packaging's power to create compelling customer experiences, driving a fundemental shift in the relationship between brands and consumers. 

It can be difficult to understand or articulate the differences between the various types of packaging. The biggest difference between smart packaging vs connected packaging is that, smart packaging is the overarching term that can be broken down into three subsets: 

• Active Packaging has reactive elements that may be mechanical or chemical but wouldn’t necessarily include digital or computational elements. For example, Coors sells beer in a can that changes color when the liquid inside reaches optimal drinking temperature.
• Intelligent Packaging includes interactivity based on electronics, possibly including digital, computational elements, sensors, and display. For example, the Heineken Ignite bottle, introduced during Milan Design Week in 2013, lit up in time to music or when bar-goers raised their bottle to toast.
• Connected Packaging links to the cloud to leverage extensive data processing, tracking, social, content delivery, and commercial capabilities. It’s part of the Internet of Things. For example, when a connected box of dog food starts getting empty, it can automatically order a refill. 

Even simple and inexpensive tags can intermittently connect a package at critical moments. For instance, the Johnnie Walker Blue Label bottle uses extremely thin electronic sensors that transmit when the bottle has been opened or where it is in the distribution chain. In addition, Diageo can upload promotional offers while the bottle is in the store. However, as soon as the sensor indicates that the bottle has been opened, the information is exchanged with cocktail recipes. Even a simple QR code, scanned by a smartphone, can link packaging to a cloud-based digital shadow and serve as the basis for powerful connected experiences.

Smart Packaging vs. Connected Packaging: What’s the Relationship?

In many consumer products, the words “smart” and “connected” are used interchangeably. However, in the packaging industry, these are distinct concepts. Simply put, to be “smart” means to have some kind of intelligent behavior that enables devices to react to real-world situations or even interact with users.

On the other hand, to be “connected” refers to the ability to collect, share, process and utilize data. It involves connectivity, enabled by Wi-Fi, Bluetooth® wireless technology, 5G, QR codes or NFC tags. By gathering and transmitting this data to the cloud, companies can leverage more resources to perform complex tasks and analytics that offer a high level of engagement and interaction with their customers.  

If this sounds like splitting hairs, let me use an example.

Think of a paper towel dispenser in a public restroom. A smart dispenser will display to you when it’s running low on batteries or if the paper roll is jammed. It can do that without connectivity. But if it’s connected, it will upload that information to the cloud and send a text message to the janitorial staff. By sending rich information to a user’s smartphone, the connected dispenser can also save money on its unit cost by eliminating an on-board text display.

“Smart” and “connected” are distinct ideas, but of course a device or package can be both at once. In the Consumer Packaged Goods (CPG) and Food and Beverage (F&B) sectors, strict constraints on unit cost and lifetime can make it impractical to load lots of expensive components and processing power into the package. Connectivity allows us to do the heavy lifting in the cloud, where data storage and computational processing are cheap and scalable, and communicate with consumers via their smartphones instead of an expensive display. Practically speaking, a lot of smart packaging is connected packaging. 

Consumers Want Connected Packaging

In a 2021 Jabil-sponsored survey of more than 1,100 US consumers, almost eight in 10 indicated that they are interested in auto-replenishment. This one service solves several pain-points for consumers. Download the full survey report.

First, it is simply more convenient. Instead of trekking to the store or managing multiple subscription services that may arrive at the wrong time – or worse, running out of a crucial household staple – refills are sent out just when the consumer needs them. By gathering greater insight on when customers run out of a product, brands can make a responsive user experience based on actual product usage. Consumers get a priceless benefit: more time and peace of mind. It also creates the opportunity for brands to offer targeted discounts to their loyal consumers. This benefits both parties: consumers save time and money, and brands secure customer loyalty.

In addition, it reduces the cognitive overhead of managing a home. Consumers don’t have to deal with the stress of trying to remember what they need…or what they already have. That stress may be minor for any single product, but for a house full of frequently replaced stuff, it adds up. Many survey participants indicated that overbuying products they already have at home is a significant issue. Nearly half (47%) of participants say they buy something they already have on a monthly basis. This number jumps up to 85% on a yearly basis. CPGs have an opportunity to help solve this pain-point for consumers through auto-replenishment or other services.

Benefits of Connected Packaging: Improved Customer Insights and Power to the Brands

Brands and retailers used to control most of consumer experience, from the attractiveness of the box to what ads people see to (in collaboration with retailers) the product’s placement on the shelf. But increasingly, with the advent of online shopping, an algorithm determines what customers see. A consumer may read some buzz about a product on Twitter, see a targeted ad on Facebook, read customer reviews on Amazon, and then Google the best deals on that or similar products. The targeting and search algorithms mediating these interactions are proprietary, opaque, and constantly in flux, taking control out of the hands of both brands and consumers.  

Over the last year, the COVID-19 pandemic has driven the socially distancing population further into the online shopping space. As of May 2020, there was a 202% increase in online grocery delivery web searches in the wake of the initial outbreak. In fact, sales of grocery delivery and pickup in the U.S. surged from $1.2 billion in August 2019 to $7.2 billion in June 2020. Analysts expect these rapid e-commerce gains to persist even after the pandemic wanes. As a result of this anticipated sustained shift, CPGs urgently need to develop packaging and overall strategy to do e-commerce right.

The importance of algorithms in the online shopping experience will only grow as consumers increasingly use smartphones and voice interfaces that favor top-tier search results over scrolling and comparison shopping. In our survey, almost three out of four smart speaker owners said they enjoy online shopping. However, when someone tells their voice-activated assistant to buy toilet paper, the consumer will likely choose the first option or two that the assistant offers, and those top spots are determined by an algorithm. 

E-commerce also makes valuable behavioral data available to online retailers, such as what a specific consumer clicks on, puts in his/her cart, where they would have heard about the product, and what products or brands he/she is most likely to purchase. However, connected packaging solutions opens up a previously untapped data goldmine: how consumers use products within the home. This insight can be leveraged in ways that prove to be priceless; for instance, brands can use it to make variations on products that will fit more easily with how consumers use them.

While tech companies and online retail have increasingly mediated the brand-consumer relationship over the last few years, connected packaging can help create a more direct relationship between brands and consumers. With connectivity, packaging can become a data source, a convenient tool or a point of interaction. It gives brands the ability to cultivate a relationship as well as gather data and provide delightful customer experiences. The digital trace tells brands what people are ordering, when they are ordering more (or less) as well as usage habits. This information tells the brand what’s valuable to their customers and how they can create a product or service that makes their consumers’ lives better.

In turn, this data can be used in a myriad of ways: it can drive decision-making, marketing campaigns, product development as well as optimize supply chain and more. By delivering a product, service or experience more personal to the consumer, they can build greater brand loyalty and create alternatives to their reliance on other people’s algorithms.

How Connected Packaging Affects the Bottom Line

Gathering data helps companies understand how their products are being used, which can help them develop customer-tempting variations on those products. It can make consumers happy. It can make them more loyal. That's kind of the fluffy, feel-good part of this story, but we can also build a compelling commercial case for auto-replenishment through connected packaging. 

In the Jabil survey, 74% of participants agreed that it’s very convenient when the products they need are automatically sent to them. Companies can use auto-replenishment to increase profitability in two ways: wallet share and overall consumption.

There are certain inelastic goods that people will always need the same quantity of. For example, if they run out of baby formula, they won’t stop feeding their baby for a few days until they can carve out a convenient time to go to the store and get more. Conversely, if they have too much formula, they probably won’t successfully convince their baby to eat more. In this case, brands cannot necessarily increase consumption of their product, but with auto-replenishment, they can establish themselves as the go-to brand and reduce customer churn.

For instance, we’ve seen brands increase their wallet share through the discontinued Amazon Dash button. Amazon reported that brands like Peet’s Coffee and Ziploc saw more than 50% of their Amazon sales via the Dash Button in 2016, and Cottonelle’s share of wallet in the bath tissue category doubled from 43% to 86% among Dash users in that same time period.

With some of the best-in-class products that used the Dash button or Subscribe and Save, their share of wallet is generally in the mid-80% range. We expect similar numbers as connected packaging formats begin to enable auto-replenishment at scale. For many CPG brands, that can translate to a significant jump in wallet share.

By providing replacements exactly when people need them, CPG companies can not only protect and grow wallet share but also increase overall consumption.

Unlike products such as baby food or pet care, if you run out of essential oils for your diffuser, you won’t necessarily run out to the store to stock back up. It’s a non-essential (no pun intended) item a consumer can procrastinate on refilling. So, if a brand can provide that refill when a product is on the edge of running out, they can increase consumption. 

Auto-replenishment also eliminates the need for romance packaging, which is strategically designed to be attractive enough to woo the consumer into selecting it. After all, brands aren’t vying for attention next to all of their competitors on the store shelf, like a hopeful contestant on The Bachelor. 

Rather than being festooned with attention-grabbing colors and fonts, packaging will need to focus more on protecting its contents and withstanding the stresses of the e-commerce transportation and delivery process. This also opens up the opportunity to make cheaper and more sustainable packaging. 

As the costs of sensors and connectivity components decrease, we expect auto-replenishment will often take the form of a durable device with consumable refills. This also opens the door for brands to become more reliant on concentrates. For instance, instead of buying a new bottle of glass cleaner every two months, consumers could buy the spray bottle, and as the cleaner runs out, the brand will send a concentrate (a version of the active ingredients that are needed for a product in either liquid or powder form) to refill it. Consumers simply add water to recreate their cleaning solution and refill the bottle. In this model, romance packaging lessens in importance, and shipping costs drop as brands stop shipping air and water.

Because eliminating romance packaging paves the way for more eco-friendly options, it can improve margins as well as brand reputation, as an emphasis on social responsibility has become increasingly important. 

Challenges in Developing and Implementing Connected Packaging: Security and Privacy

In the Jabil survey, 90% of consumers acknowledge that companies can create better products by gathering user data. Furthermore, 58% of survey participants say that they don’t mind data collection as long as they’re aware of how it is being used.

As all industries – from automotive to healthcare to retail – begin to gather increasing amounts of data, security and privacy have become a highly sensitive issue. 

In 2019, retail cyberattack attempts during the holiday season rose by 20%, according to an article by Retail Dive. The article went on to state that two-thirds of retailers reported being targeted by a ransomware attack that year.

These attacks break customer trust and loyalty as well as potentially cost companies millions in lawsuits. In 2013, Neiman Marcus paid out $1.5 million to settle a 2013 data breach that exposed store credit card data for 370,000 customers.

As data collection escalates, companies have a corresponding responsibility to ensure product security and protect customers’ privacy. Simply put, security is about stopping the bad guys from accessing someone's data in an unauthorized way, whereas privacy refers to a company’s responsible usage and protection of the data it collects. Both are necessary to retain customer loyalty and trust. 

Of our survey participants, 87% say they would be concerned about privacy with regards to sensors and other technology that track consumption of household staples for auto-replenishment. However, consumers are more concerned about microphones than sensors. Nine in 10 say they are concerned about their smart home speakers’ data privacy, even though the rate of adoption is rising very quickly.

Think of Tiffany & Co.’s signature robin’s egg blue box. It’s so iconic that, like Barbie Pink or UPS Brown, that particular shade of blue is trademarked. More recognizable than Tiffany’s jewelry, this package doesn’t represent a single product; it represents the entire enterprise. Similarly, Apple’s packaging represents its company’s philosophy: modern, minimal and clean.

Connected packaging sends an even more potent message about a company’s values: one that is dedicated to crafting a personalized, convenient experience for its customers. It gives power back to the brands, allowing them to grow their product, service or experience and ultimately to form a long-lasting relationship with its customers.

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