What is Shrinkflation in Marketing?

What is Shrinkflation?

Shrinkflation is a term used in economics to describe when the amount or size of a product decreases, but the price stays the same or rises somewhat. The word may refer to a decrease in product or ingredient quality with no change in price.

The word was coined in 2009 by British economist Pippa Malmgren. This trend is now widespread in the food and drink business.

Shrinkflation can be thought of as a type of "hidden inflation." Instead of increasing the price, which would be obvious to consumers, manufacturers shrink the size of the product while keeping the same price. There is no change to the product's total cost, but the price per quantity sold rises. Manufacturers expect that consumers won't notice the little decrease in amount.

Numerous manufacturers in the food and drink sector employ the process of shrinkflation. It's a popular strategy for suppliers to assist manufacturers combat inflation. It was calculated by many businesses that if they raised prices again, consumers would protest and maybe start looking for alternatives. Solution? Shrinkflation.

It's important to remember that shrinkflation is not the same as product fraud or deception. Manufacturers will always put the product's weight, volume, or amount on the label. The act itself is not unlawful, but rather deceptive.

Examples

Due to the cutthroat nature of the fast−moving consumer goods (FMCG) industry, manufacturers strive for a happy medium between attracting new clients and alienating existing ones.

Here are some instances of shrinkflation to help illustrate the concept −

• Chocolate bar weight decreased from 55 grammes to 50 grammes with no change in price.

• A decrease from two months to 56 days for the duration of an internet data pack at the same price.

• Reducing the volume of a cold beverage bottle from 800 ml to 750 ml while maintaining the MSRP.

Business giants in the food and beverage industry in India, including Hindustan Unilever, Nestle, Britannia, Coca−Cola, Pepsi Co, Dabur, and P&G, have all embraced this practise. Nestle, for one, has decreased the net weight of a package of Maggie from 80 kilos to 55 grammes, while popular soap brands like Vim have gone from weighing 155 grammes to 135 grammes.

The same can be seen in snack and biscuit packets. The quantity has been reduced from 100gms to 80gms in popular chips brands and for biscuits, from 450gms to 400gms, without any change in the pricing.

How does Shrinkflation in Marketing Work?

A major flaw of the shrinkflation model is its scepticism of the intelligence of consumers, who are assumed to be primarily concerned with cost and hence accept both quantity decrease and quality degradation without complaint. Potential customers are not as naive as you would think. If the price of a little packet of cookie priced at Rs 5 containing five pieces remains as it is but the amount is cut to three pieces, the customer is certain to sit up and take notice. The same can happen with a pack of detergent. For this reason, a homemaker may need to stock up on more packets if she wants her laundry to retain its previous level of shine.

Let’s look at couple of more examples:

While Nestle has decreased the weight of their Maggi package from 80 grammes to 55 grammes, Haldiram has reduced the weight of their Aloo Bhujia packet from 55 grammes to 42 gm. A family of three eating from two packets of Maggi would have to eat three to avoid becoming hungry. So be it. HUL−owned Vim, a vessel−cleaning powder, has also shrunk in size, from 155 grammes to 135 grammes. It's all part of an effort to protect a set pricing.

Dumbed−down marketing strategy could be a more apt description of this marketing strategy. These visual tricks shouldn't be forced on vitals. There is no magic trick that can turn a five−kilogram bag of atta or rice into 4.5 kilos. Staple food consumption is unaffected by either inflation or regular economic conditions. If there is little room for a product's price to fluctuate in response to market conditions, then the marketing strategy of "shrinkflation" will not be successful.

Causes of Shrinkflation

Increased production expenses

The most common reason for this is an increase in manufacturing costs, which leads to a shrinking economy. Cost increases in inputs, such as ingredients or raw materials, energy commodities, and labour, eat away at profit margins in the manufacturing industry. Profit margins for manufacturers can be increased by lowering production costs by decreasing product size, volume, or quantity while maintaining retail prices. But the typical buyer won't even notice the little drop in number. This means there will be no impact on the number of sales made.

Very competitive market

Shrinkflation might also be caused by intense market rivalry. Due to the availability of several replacements, the food and beverage market is notoriously cutthroat. Producers are thus on the lookout for strategies that will help them retain their consumers' goodwill without sacrificing their profit margins.

Effects of Shrinkflation

Both individuals and businesses may feel the consequences of shrinkflation in many ways.

• For Buyers

As the quantity of a product remains constant, but its price decreases due to shrinkflation, resulting in a hidden inflation. Consumers may feel duped if they are unable to keep track of the things that they no longer have access to.

• For Businesses

Businesses frequently justify shrinkflation by saying it's essential for keeping product quality high. However, if the firm fails to adequately inform and explain the change to its customers, the latter may begin to distrust the business. It may also cause consumers to switch to a rival company's offering.

Advantages of Shrinkflation

The process of shrinkflation has a few benefits, such as −

• More wallet−friendly − like with KitKat Chunky, certain items may shrink in size but not in price. In turn, this lowers the price for end users.

• Companies can keep or even grow their profit margins if they lower the size of their products while still maintaining or increasing their sales.

Disadvantages of Shrinkflation

Even with the benefits mentioned above, Shrinkflation is not without its drawbacks; such as the following −

• When a product's size is decreased without any corresponding improvement in the product's ingredients or quality, it may be considered to be an unfair business practise.

• Trust erosion occurs when businesses fail to inform their customers of the reasons behind a product's reduction in size.

• To lower their own pricing and those of their rivals, some businesses reduce the size of their offerings in the marketplace. This might start a downward spiral that benefits neither customers nor businesses.

Shrinkflation is widely used in today's manufacturing processes. Each year, more and more items are shrunk in size. This tactic is used by major manufacturers in global markets to keep their prices low without sacrificing their profit margins.

In addition, shrinkflation often results in dissatisfied customers and a decline in public opinion of the manufacturer's brand. Customers "smart up" (or figure out) what's going on eventually. Brands and customers alike have grown accustomed to cereal boxes that seem approximately half empty while being the same size as previously