Shrinkflation is a real problem and consumers are getting worried. Actually, recent studies show that 64% of customers are concerned about this “trend”. In this article, we are going to focus on shrinkflation. You will discover what it is, its impact, and how retailers should be fighting against it.
Let’s get started!
What is shrinkflation?
Shrinkflation is a term used to describe a subtle form of product downsizing or reduction in the quantity or size of a product while maintaining its price. Essentially, it refers to the practice where manufacturers or retailers reduce the content or dimensions of a product without lowering the price, often without prominently notifying consumers of the change. This can manifest in various ways, such as:
- Smaller product packaging: Companies may reduce the physical size or weight of a product's packaging while keeping the appearance similar, creating the illusion of the same quantity.
- Fewer features or components: Electronic devices or appliances may have fewer features, accessories, or components included in the package, even though the price remains steady.
Shrinkflation is not a new approach
- 1970s Oil Crisis: Shrinkflation gained prominence during the 1970s oil crisis when rising oil prices led to increased production costs. To maintain profit margins, many companies began reducing the size or quantity of their products rather than raising prices significantly.
- Post-2008 Financial Crisis: In the aftermath of the 2008 financial crisis, economic instability and inflationary pressures prompted some companies to adopt shrinkflation as a cost-saving measure.
Why is shrinkflation back in “trend”?
Shrinkflation has gained renewed popularity in recent years, particularly in 2022 and beyond, due to a combination of factors, including inflationary pressures, increased production costs, and heightened consumer price sensitivity.
Inflationary Pressures: Inflation refers to the general increase in prices across the economy. When inflation rises, it exerts pressure on businesses to maintain their profit margins, as they face higher costs for raw materials, labor, and other inputs. In such an environment, companies often look for strategies to avoid significant price hikes that might deter price-sensitive consumers.
Increased Production Costs: The economic challenges of 2022, including supply chain disruptions, rising labor costs, and higher prices for raw materials, forced many manufacturers to reevaluate their production processes. By reducing the content of their products, they can maintain their profit margins without immediately passing on these cost increases to consumers.
Consumer Price Sensitivity: Consumer price sensitivity, especially during times of economic uncertainty, plays a pivotal role in the popularity of shrinkflation. Companies are aware that consumers are sensitive to price changes, and a noticeable increase in the price of a product can lead to reduced sales or customer dissatisfaction.
In 2023, this trend continued to grow, affecting additional sectors such as household goods and beverages.
Manufacturers across various industries are finding it necessary to adopt shrinkflation as a means of coping with ongoing economic challenges. Consumers may notice that their favorite products seem to be shrinking, not due to increased consumption but as a response to the complex economic landscape. As this trend persists, it raises questions about the long-term implications for consumer trust and the need for greater transparency in product packaging and pricing.
Impact of shrinkflation on consumers
Here are some of the ways in which consumers are impacted by shrinkflation:
Reduced Product Quantity
One of the most immediate and noticeable impacts of shrinkflation on consumers is the reduction in the quantity or size of a product. While the price may remain the same or even increase slightly, consumers receive less product for their money. This can be frustrating and may lead to a sense of being shortchanged, as consumers have to buy more units or packages to obtain the same amount of the product they were accustomed to.
Perception of Value
Shrinkflation can affect how consumers perceive the value of a product. When a product's size or quantity decreases, it may appear less valuable compared to its previous version. Consumers may feel that they are getting less for their money, which can lead to a diminished perception of the brand or product.
Impact on Household Budgets
Shrinkflation can have a cumulative effect on household budgets. When multiple products that consumers regularly purchase experience reductions in size or quantity, it can result in increased overall spending on everyday essentials.
Overall, the impact of shrinkflation on consumers is multifaceted. While it allows businesses to manage rising costs without significantly increasing prices, it can leave consumers feeling as though they are receiving less value for their money.
Why should retailers fight against shrinkflation?
Retailers can take several steps to address shrinkflation and maintain consumer trust.
Retailers should first acknowledge the ethical dilemma associated with shrinkflation. Recognizing that this practice can erode consumer trust and potentially harm the brand's reputation is a crucial first step. Retailers should commit to providing customers with fair and transparent pricing and product information.
Transparency is key to addressing shrinkflation and maintaining consumer confidence. Retailers can benefit in several ways from being open and honest about product changes:
Build and Maintain Trust: Transparency fosters trust between retailers and consumers. When customers know that they are being informed about changes in product size or quantity, they are more likely to continue supporting the brand.
Competitive Advantage: Retailers that openly communicate changes due to economic factors like rising costs may gain a competitive edge. Customers appreciate honesty, and it can set a brand apart from competitors that use less transparent practices.
Long-Term Customer Loyalty: Transparent retailers are more likely to retain loyal customers who appreciate the honesty and integrity of the brand. This can lead to long-term customer relationships and repeat business.
Strategies for Addressing Shrinkflation
Retailers can consider modest price adjustments to reflect changes in production costs. While price increases may be necessary in some cases, it's important to communicate the reasons behind these changes. Price adjustments should be reasonable and fair to consumers.
Retailers should provide clear and prominent labeling on product packaging to inform consumers of any changes in size or quantity. This labeling should be easily noticeable and understandable, allowing customers to make informed purchasing decisions. Additionally, retailers can include "before" and "after" comparisons on packaging to highlight the change.
An example of a retailer that is “fighting” against shrinkflation is Carrefour France. The retailer took a proactive step by adding stickers to its shelves. These labels aimed to alert shoppers to the phenomenon known as "shrinkflation," where the size or quantity of a product is reduced while its price remains unchanged. The purpose behind this initiative was to encourage suppliers to reevaluate their pricing strategies, particularly as the costs of raw materials become more favorable.
Carrefour placed labels on 26 different products with messages that conveyed the following:
"This product has experienced a reduction in its volume or weight, leading to an increase in the effective price charged by the supplier. We commit to engaging in price renegotiations for these items."
Stefen Bompais, the Director of Client Communications at Carrefour, elaborated on this approach in an interview, stating, "The primary objective in highlighting these products is to prompt manufacturers to reconsider their pricing policies."
Retailers can differentiate themselves by offering value-added services or benefits to consumers. For instance, if a product size is reduced, retailers can offer loyalty programs, discounts, or bulk purchase options to mitigate the impact on consumers' wallets. These value-added services can help offset the perceived loss in value due to shrinkflation.
Retailers can fight against shrinkflation by recognizing ethical concerns, embracing transparency in their communication with consumers, and implementing strategies that balance the need for profitability with consumer trust and satisfaction. By doing so, they can maintain strong relationships with their customer base and navigate the challenges posed by economic pressures and rising production costs.