Shrinkflation, Brand Reputation and Imagination: What To Do (and Avoid) When Downsizing Packages
- Shrinkflation is the strategy of downsizing products and packages to offset rising costs in the age of sky-high energy prices, supply chain disruptions and the economic fallout of the COVID pandemic.
- CPG companies have approached this practice in a number of ways, with mixed results. Some have packaged smaller volumes of product in deceptive ways, which inevitably backfires. The best cases of downsizing add real or perceived value for consumers.
- How can design accomplish shrinkflation while retaining brand equity and brand reputation?
Not long ago, Stuart Leslie, VP of Industrial Design at Product Ventures, noticed something amiss with his ice cream.
He was splitting a pint of a popular brand of ice cream with his wife and daughter — something they’ve done many times before — and his lone scoop looked especially skimpy. What the heck happened?
“I didn’t even notice it, and I’m a packaging designer,” said Stuart. “It’s only when I looked at the label that I noticed: It’s 14 ounces. It’s amazing how two ounces make a visual difference in ice cream in a bowl. But that container — I would never know it wasn’t a 16-ounce container.”
Cue the dramatic musical sting: What happened is called shrinkflation.
Shrinkflation (a portmanteau of shrink[ing] and inflation) is the practice of selling less product for the same price. Manufacturers use this tactic, also known as downsizing, to offset rising costs of labor, materials, production and transportation.
“They could absorb the price increase and reduce their margin. But who wants to do that?” Product Ventures CEO and Founder Peter Clarke asks. “The purpose of a business is to be profitable.”
The other option — he notes — is to increase the price of the product and pass it on to consumers. However, most consumer packaged goods (CPG) brands resist sticker-shocking the public. Consumers know what things cost — and companies know they know.
Consumers will “instantly recognize a price increase,” says Stuart. “Whereas a volume decrease, most of them won’t ever notice.”
With inflation at a 40-year high in the U.S., threats of a looming recession and a global supply chain disruption, shrinkflation is a hot topic in the CPG space and in mass media. Here, Peter and Stuart weigh in on the good, the bad and the ugly of downsizing.
INFLATION NATION: RISING COSTS CAN SINK PROFITS
Despite headlines that suggest otherwise, recent downsizing trends are “not necessarily — and most likely not … cases of gouging,” Stuart says. He cites “tremendous pressure” on CPG companies that have to find a way to keep selling a profitable product when commodity prices rise.
“They’re getting hit themselves and passing it on,” he adds. “It’s not like they’re profiteering … they’re just trying to find the least disruptive way to still maintain their margins.”
Not only do companies pay more for the ingredients in their products, but rising (or unpredictable) gas prices have a domino effect on other costs, including transportation, labor and packaging materials (plastics in particular, which are petroleum products).
Even commodity materials you might not expect are susceptible to inflation: Stuart recently heard an executive talk about his company’s need to reduce its volume of cardboard because “corrugated prices are through the roof.”
BRAND EQUITY IN THE ERA OF SHRINKFLATION: DOWNSIZING CAN’T BE DECEPTIVE
Because consumers immediately clock a price hike but tend not to keep track of details like net weights, “manufacturers are basically tapping into the part that’s least understood, which therefore makes it the least noticeable,” Stuart explains.
After all, the difference between 14 ounces and a full (16-ounce) pint of ice cream is that it’s just small enough to be undetectable — until you’re faced with a smaller portion of rum raisin, that is.
But even subtle, gradual downsizing can lead to “a tricky situation when managing the brand-consumer relationship,” Peter notes, adding that brands have to be “super careful” about how they communicate changes to consumers. “While it’s not illegal to change your package size — so long as the product amounts are clearly labeled — it may be viewed as unethical, and it could fracture that brand trust.”
Consumers are more savvy than ever and hyper-aware of economic issues that hit close to home, thanks to countless news segments and social media posts about inflation.
“Even the term shrinkflation is an attention-grabber,” Peter says.
Trade journals like CPG Specialist and consumer outlets like Forbes both publish stories rife with examples of downsizing. That’s why now is an especially lousy time to mislead or confuse consumers (not that there’s ever a good one).
Even if there are good reasons for downsizing and a company is transparent about doing it, no brand can risk consumers feeling like they’re being cheated. So brands should avoid misleading the consumer to assume the product is the same as before (whether it is the amount, packaging or whatever).
Peter says one of the worst, and “arguably deceitful,” examples of downsizing gone wrong was when a peanut butter company deepened the pushup in its jar to reduce the internal volume of the product while maintaining its outer size, proportion — and price.
The push-up is a classic technique, but “when consumers notice it, they have a negative response.”
RIGHTSIZING, RIGHTWEIGHTING AND BEST PRACTICES
Shrinkflation has existed for decades and it is a reality of the CPG industry, but how can companies cut costs in ways that don’t exacerbate negative reception by the public?
Peter points out some companies downsize products (including size and quantity) based on studies of consumer behavior. Some metrics, like shopping frequency, can dictate smaller packages that attract consumers precisely because they’re the right size.
“I think that’s something that’s not done often enough,” he says. “For instance, if you know how many trips to the store somebody takes — if their shopping pattern is once a week, you can literally size something so it’s a week’s worth [of product].”
This can create value for consumers in a number of ways: There’s less chance of product going to waste, and often consumers don’t have enough storage space to stock surplus goods in their pantry or fridge at home.
On the flip side, single-serve items frequently contain an “arbitrary quantity” of product and “redundant packaging,” Stuart adds. Think of a protein bar that’s too small to satisfy hunger on its own. If consumers typically eat two or three, that product is a candidate for rightsizing.
“By working with consumers to really understand the optimum size, you can cut back on all kinds of extraneous costs like packing, shipping and everything else,” he says.
ADD VALUE, CHANGE THE GAME
If brands find themselves in a common package format and the only difference is price per ounce, then consumers will make a price-per-ounce calculation. Brands can get out of that price-per-ounce calculation by changing the format. With a new format, brands can add more value to consumers at the same time.
Peter says one of the best examples of ingenious rightsizing is laundry detergent pods — which arguably offered less product but potentially a better consumer experience.
“If you really think about it, you’re getting a lot less detergent, but it’s the right amount of detergent,” he says. “It’s been right-sized and put in a delivery system that provides ease of use for the consumer.”
Pods cost more per ounce, but there’s “no direct comparison to liquid detergent anymore. It’s a whole new animal.”
Why have pods become such a sudsy success? The manufacturer “removed the pain point” of ambiguity around how much liquid or powder to use per wash. Once consumers acquainted themselves with pods, their perception of value changes — they valued the product more even though it costs more per ounce.
The company enhanced the experience while delivering a right-size product.
“Brands are going to be careful not to get commoditized. And if they’re not just being judged on price, they should be judged on value,” he points out. “That value can be added value.”
Peter and Stuart agree the CPG industry can turn to innovation to unlock opportunities in their business, and that’s especially true for companies looking to downsize their products. “Find ways to deliver a much better experience and right-size it at the same time,” says Stuart. “That’s the real win-win.”
Product Ventures works with the best-known brands to provide a holistic approach to product and package design. What can we do for your company? Contact us today to discuss your next challenge.