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The last time you went shopping for groceries, did you notice that the size of your favorite chocolate bar has reduced? Or did you notice that now there are a lesser number of biscuits in your favorite biscuit pack? Usually, a decrement in the weight of the product goes unnoticed as the price of the product is still the same. This is called “shrinkflation”.
For example, if Rs.15 noodles weigh 80g, then the company will reduce the weight to 60g from 80g while keeping the price of the noodles at Rs.15. Does your packet of chips seem smaller? Is your shampoo running out faster? If yes, you can blame ‘shrinkflation’.
It’s a strategy employed by companies, mostly food and beverage related, in which the size of a product is decreased while maintaining the price intact. This is done when a company is competing to boost or maintain profit margins in the face of rising input costs.
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In macroeconomics terms, shrinkflation refers to a situation where the economy starts contracting and the price of products keeps increasing. Here comes the old phrase into the picture, which is “Spread the burden, accumulate the profits”. Your favorite products are getting smaller in size (quantity reduction) and It’s because of Shrinkflation.
Why do companies downsize their products?
Customers rarely notice a decrease in the size of the product but an increase in price is hard to go unnoticed. An increase in price can also cause customers to look for other alternatives of the same product in other brands. It could also harm the brand image of the company instantly. The strategy of shrinkflation thus helps the company to compete with its rivals while also maintaining profit output.
Shrinkflation is also known as hidden inflation because even though the price of the product is the same, the price per unit of weight of the product has increased.
What is the psychology behind shrinkflation?
Here, a human cognitive bias is at play. This behavioural effect, where prices stand out more than size, is attributed by researchers to an instinctive cognitive response. Studies, however, have also issued a caution against using certain products with ineffective shrinking packs. Among these are things with observable benchmark sizes, such as a carton of eggs and a pack of butter.
What are the causes of shrinkflation?
Below are the two reasons which are causing Shrinkflation:
Increased manufacturing costs
Shrinkflation is a common strategy used by retailers to counteract rising production costs. The price of producing finished goods increases when the price of essential inputs, such labour or raw materials, soars. This consequently affects profit margins or the portion of money left over after all expenses. Management has two options: look for additional methods to make up some of these losses or wait and hope investors do not become overly pessimistic. The greatest way for businesses without sufficient pricing power to maintain a good profit without endangering sales volumes is occasionally to reduce the weight, volume, or quantity of products.
Strong level competition
High industrial competition is another major factor that causes shrinkflation. The producers can keep their profit margins by using this method to retain clients by maintaining prices. As an illustration, consider how supermarkets, which operate on a big scale and do not burden their customers with rising costs, have a competitive advantage. The small producers’ only alternative is to stick with this tactic and keep retail costs the same in order to keep customers.
Disadvantages of shrinkflation?
In most cases, a decrease in the product’s size will go unnoticed by consumers but in case it is noticed, it can badly affect the trust and confidence of the consumer in the product. This is one reason companies have to be very careful in adopting the strategy of shrinkflation. If the consumer feels that there is a better alternative to the same product, then the company will lose its hold over the customers who used to trust it for many years.
If the company keeps shrinking the size of the product, then it’s won’t take a long time for consumers to notice it. Therefore, companies need to be careful about how much of the size they want to cut, and how often.
The difficulty of precisely measuring price changes or inflation is another drawback of shrinkflation. Since the product size cannot always be taken into account when calculating the price point for the basket of items, the price point becomes misleading.
Is shrinkflation unfair to the consumer?
Although the company will never advertise the decrease in the size or quantity of its products, it is mandated legally to put the net weight of the product on its package. In this way, a company cannot be blamed for not disclosing publicly the shrinking in the weight of the product. It is up to the consumers to be smart and keep a close eye on the little information printed on the package and choose what suits them best.
How can we spot and avoid shrinkflation?
Finding a makeover on the box or a new tagline is one of the best ways to identify shrinkflation. This can be a hint that the business has changed, possibly in terms of scale.
It may be challenging to recall the previous price per unit, but comparing the price per unit for several products can help you obtain the best offer. Shoppers should check the price per unit to determine whether there has been a change.
Purchasing competitive brands is one method for preventing shrinkflation. You might receive better value for your money because other brands haven’t yet scaled back if that’s the case. Another strategy is to choose a retail brand over a name brand. In general, store brands are less expensive than name brands.
Finally, knowing the net weights of products and the prices you’re paying can help you spot any changes and choose which products will offer the best value.
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