“Shrinkflation”: Deceptive Price Increase or Consumer Irrationality?

Marketing strategy, behavioral economics, and (perhaps) business ethics collide in “shrinkflation”: the not-new but recently much reported-on phenomenon of resizing product volume downward rather than raising prices on consumer products—particularly groceries.

On one hand, it shouldn’t matter: whether a package in an existing size carries a higher price or is downsized while carrying the same price as the earlier, larger size, you pay more (per ounce, per pound, per paper towel sheet) either way. On the other hand, the propensity of consumer product companies to opt for same-price/smaller-package rather than higher-price/same-package suggests it does matter to them. But why?

Enter marketing strategy and behavioral economics: many people are far more sensitive to prices than they are to quantities or product volumes. That is, they treat items like a roll of paper towels, a “family size” container of ice cream, or a can of coffee beans as if they were a standard unit of measure even though they aren’t. If the price changes, they notice; if the volume or count in the package changes, they are less likely to notice. Thus, a 12.5% price increase on a 16 oz can of coffee beans may be enough to induce a given consumer to seek a substitute good, but a 2-ounce (12.5%) reduction in the size of the can of coffee beans (to 14 oz) is less likely to make the same consumer search for an alternative. In short, it’s an existing-consumer-alienation-avoidance strategy born of the heuristics many people use when comparing consumer products.

What, if anything, does this have to do with business ethics? One might be inclined to say that the practice is deceptive. However, if the price is known and the volume or unit count is displayed on the package (as is required, at least in the United States, by consumer protection law), consumers have readily available the information they need to see how much they are paying per unit of volume.

The main lesson here may be to be a smart shopper: check quantities and do the division necessary to find out how much you’re paying per ounce, per pound, or per toilet paper sheet. (Some retailers are eager to help. One of the editors shops regularly for groceries at Walmart Neighborhood Market, where price tags carry not just the price of the item, but also the price per relevant unit of measure. Amazon does something similar.) In short, be sure you know what you’re getting, not just just what you’re paying. >>>

LINK: “Shrinkflation” is hitting the grocery aisles as companies charge the same amount for less (by Aimee Picchi for CBS News)

Ice cream maker Tillamook said in a recent blog post that a sharp rise in the price of berries and other ingredients left it no choice: It would “reduce the carton size from 56oz to 48oz and keep the price the same” rather than shock shoppers with a sharp price hike.

Welcome to the post-pandemic grocery aisle, where consumers are increasingly paying the same price for less — a phenomenon known as “shrinkflation.” It’s not a new trick, as the technique often comes into play during periods of rising inflation or economic downturns, experts say.

“If you are a manufacturer or retailer, you have a couple of choices — you can keep prices the same, which means you have lower margins. Second, you can run fewer promotions, and that definitely happened in the last year,” said Anne-Marie Roerink, the founder of market research firm 210 Analytics. “And the third measure is to keep prices the same but have a little less in the box.”

She added, “In times of high inflation, your ribeye will be cut a little thinner, so you are around that price point that a consumer believes is ideal.”

What do you think?


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One comment

  1. Perhaps the biggest problem is that the smaller the packaging becomes, the larger the environmental footprint of the product (materials, energy, waste). I examined this in a post on potato chip packaging – buying larger bags can save 90% of the packaging footprint (28 oz. bags versus 0.8 oz. “single-serve” packs).

    Daily Footprint, #22 – Potato Chips, Part 2: Packaging

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