In-depth: Shrinkflation – What brands lose by reducing product size
As inflation levels grow, brands tend to reduce the product sizes to absorb the price hike in raw commodities. But in the long run, does it work for brands or is it better to pass on the price increase to consumers? BestMediaInfo.com does a deep dive
By: Sneha Kumari
Delhi, July 04, 2022
As inflation touches record highs across the globe, manufacturers have quietly started shrinking the product sizes.
Though a passive way of passing on the price hike to consumers, does shrinking product sizes work in the long term?
Experts believe there’s only so much you can cut on quantity when the product size is anyway super small.
Retail inflation in India has crossed over 7% and has touched its highest levels in eight years.
During the months of February and April, data analytics firm Kantar reported that the average pack size of FMCG products in India shrank by nearly 15% year on year. Shrinkages are even more common at popular price points like 5, 10, 15, and 20, where companies prefer grammage cuts to directly raising prices to 7 or 12.
Recently, RS Sodhi, Managing Director of Gujarat Co-operative Milk Marketing Federation (Amul), took to Twitter and said, “Reducing pack size is not a good long-term business strategy. It reduces the market, increasing the overheads and then further putting pressure on margins so you further reduce the pack size. Also losing trust among loyal consumers of being feeling cheated (sic).”
Reducing pack size is not good long term business strategy. It reduces the market ,increasing the over heads and then further putting pressure on margins so u further reduces the pack size . Also losing trust among loyal consumer of being feeling cheated.@Amul_Coop @livemint pic.twitter.com/3tqGqzQ67Y— R S Sodhi (@Rssamul) June 28, 2022
Does shrinking product size backfire?
Talking to BestMediaInfo.com, Sodhi said, “To maintain short-term volume, we play with the consumer's trust. I've noticed that by reducing pack size, we have not gained volume despite we are paying more for packing charges, retailing, transportation and even on the packing line, outer packing as everything remains the same.”
He said, “The volume of the major pack which the brands are selling should not be reduced. How long will the companies keep reducing it and what next are they going to do? If a consumer is buying 1 litre of ghee and if tomorrow I start selling it at 900 or 950 for the same container, I will lose their trust. It is better to shoot consumers towards the bigger pack size by making it more lucrative. They should promote the larger packs instead.”
Anita Nayyar, COO-Media & Communications, Patanjali Ayurveda, said that inflation has an impact on all brands, forcing them to either raise the price or reduce the size.
“The current inflationary scenario has reduced the purchasing power of consumers. Brands have no option but to increase the price or reduce the size. But brands should also share the burden with consumers.”
“Shrinking product sizes is an old strategy that’s losing its relevance and companies would gain much more by first, either holding price and SKU size and taking a hit. And telling consumers that they are doing it for their benefit. Second, is being transparent about the price hike, but sweetening it with offers, bulk discounts,” says Nisha Sampath, Managing Partner, Bright Angels Consulting LLP.
Harish Bijoor, Brand Guru & Founder, Harish Bijoor Consults said that shrinking offerings but holding prices is consumer deceit for sure.
“Brands need to avoid this. When there is so much distrust all around, good brands must fly the flag of trust and increase prices but hold grammage intact. Brands need to communicate trust all the time,” he said.
Changing price bands may also not work for brands. Lloyd Mathias, a leading Business Strategist and angel investor, believes a lot of companies recognise the importance of a fixed price band.
“There’s a certain value to coinage and the moment somebody breaks that coinage, like when it goes from 5 to 6 or 7, then a brand loses out. So, when that happens, they have to reduce some level. If the pack is ordinarily 25 grams, they might make it 20 grams, they might reduce the thickness of the chocolate bar, or reduce the quantity of the beverage. Sometimes, that’s a business step which many organisations take to maintain a certain price point for the longest possible time,” he said.
According to data compiled by Bizom, a retail data platform, price-conscious Indians are gravitating towards low-value packs in rural and urban areas across various product categories ranging from beverages to packaged foods. This forces FMCG companies to make the unenviable choice of raising prices or shrinking product size.
The belief is that consumers are unlikely to notice minor changes and will continue to purchase the product, unaware that they are effectively paying more for less.
“When you make a product too small then the consumers tend to feel a little cheated. It is better to take it to a high price point. It's a bit of a challenge but businesses have to recognise that trust is important at the same time. They cannot suddenly take the price point up that can make them lose share because there would be a newer player or a smaller player or a competitor who may hold that price for some months longer,” said Mathias.
Agreeing to this Bijoor said, Shrinkflation is here for sure. It however erodes the company's repute and brand trust. One of the definition points of a brand is trust. If that goes missing, everything goes missing.
Commenting on the shrinking of products, Sampath said, “The belief is that consumers will not notice or not mind. In fact, they do realise it’s happening. They may not read the pack but they are sensitive to pack size, quantity and how long an item like a dishwashing bar lasts. People complain that a pack of chips is 'mostly hawa'. With Maggi, it’s very noticeable that the size is smaller. With categories like biscuits, you won’t get away with it.”
Rising prices are also causing consumers, particularly in rural areas, to down trade to cheaper items and smaller pack sizes.
The necessity for brands to do it is quite understandable but it is entirely not ethical or fair, according to Sampath.
She said if the brands are exposed to the consumers in a negative way in the long run there is a possibility that the trust in the brands can erode.
“Brands should actually leverage vision and purpose to be more transparent with consumers. They can also leverage their goodwill to launch premium variants like Amul and Parle G,” she added.
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