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Could you just speak to how you'd like to improve the product? That way they can get a sense of how you think and bring things to life, and you're not doing spec work/they can't just take your design and pass on you.
I personally don’t mind doing free work if it’s going to open the door to a conversation I want to have. If I went this route, I wouldn’t let them use the work though, it’s just to show the skills. I’ve heard of some sketchy companies just taking your work but I don’t believe it’s the norm.
A real redesign project though, has to be in response to a problem. Either stated by the customer, new regulations, competition, etc. For me to see value in your redesign, I would like to see that you deeply understand the product, the brand, the customer, etc. So a successful redesign would include research and documentation around your design decisions. Otherwise, it just shows me that you do pretty things, but I don’t know if you actually solve business problems. Now that sounds like a big investment just to interview, so I’d probably find an alternate way of getting their attention. Personally, I’d write about the problems I see with their current packaging, do some light research and not redesign anything. Just show them that I understand the challenge, which IMO is the hardest part.
This is great advice, thank you!
I tend to agree with Consultant 1. While I have known people who had their work on "assignments" used by the company/manager where they were applying, I think this is rare. As long as what they are asking me to do only takes me a few hours, I will do it. I had one company give me one of their dashboards and I completely redesigned it, resolving multiple usability and information architecture issues, and they offered me a job.
If you are worried, one alternative is to redesign the packaging (etc) from a different, well known company. This shows your skills without actually "giving away" something of value to your potential employer.