Investor's Psychology

Shrinkflation: How Big Brands Fool You All the Time

Created on 12 Feb 2024

Wraps up in 6 Min

Read by 1.5k people

Updated on 01 Mar 2024

News nowadays is filled with headlines like “India to be the 3rd largest economy in the world”, “Indian stock market crossed the $4 trillion (about โ‚น233 lakh crore) mark”, and also “India estimates to achieve 4% inflation target in the next 5 years”.

The future looks optimistic and bright for the nation, right? Then how come you are receiving less of whatever you pay for?

Confused? ๐Ÿค” Let me elaborate!

Remember when we used to get a good 140gm of goods in the โ‚น10  Parle G biscuit packet or when Maggi packets were much bigger than what’s available now? And don’t get me started on Dairy Milk chocolate. What a disappointment! ๐Ÿ˜ฐ

Examples of Shrinkflation

๐Ÿ‘† This is what shrinkflation looks like, and yes, the name comes from the term “inflation”. Both inflation and shrinkflation are correlated, which I will explain later in the article. I will also delve into its causes, and how to protect your finances.

Dissecting Shrinkflation: Inflation's Sneaky Sibling?

Shrinkflation describes the sly practice companies follow of shrinking or reducing a product's size, volume, or quantity while keeping the same price. By doing so, companies save profit margins, retain consumers’ goodwill, and avoid losses.

What shrinkflation does for consumers like you and me is give us much fewer goods for the same money. It's like a hidden inflation happening right under your nose. (That's why the familiarity in the names! ๐Ÿคจ)

How Does Shrinkflation Work?

There are many ways by which companies craftily utilise this tactic.

a. Reduce the number of items in a package: Remember those โ‚น5 Dairy Milk chocolates that contained five cubes? They come in a 3-cube package now.

b. Make containers slightly smaller: That "one-person" meal Maggi block of โ‚น10 seems to be getting smaller.

c. Offer "new, smaller sizes" at the same price: Suddenly, there's a "mini" version of your favourite chocolate alongside the regular one. Giving fancy packaging and unique shapes increases people's curiosity and the brand's profits.

As you can see, the good old days when a bag of chips appeared bottomless seem to be fading as shrinkflation creeps in. Told you, it’s sneaky!

Your brain is now swarming with all the advertisements, including price cuts or new package reveals, right? ๐Ÿ˜

Just like shrinkflation, there are two more strategies present in the market? I am talking about Skimpflation and Excuseflation, which demonstrate a different kind of inflation and are quite common.

Wish to know about them? Let me know your thoughts in the comments section below. ๐Ÿ‘‡

Understanding The Reasons Behind Shrinkflation

Companies from various sectors have adopted this method, which is slowly becoming a trend in the corporate world. Let’s uncover the why of it all:

1. Rising Prices:

When the cost of key inputs like ingredients, packaging, or labour increases, companies might choose to shrink their products. It’s like they find a loophole to maintain profit margins and remain a trustworthy brand for the consumers without raising prices directly.

Favourite brands like Lay’s have been adhering to this strategy for a long time. They have been selling their products in the same price range of โ‚น10, โ‚น20, and โ‚น30, but the amount of air inside packets is increasing instead of the number of wafers.

2. Increasing Competition:

The Fast-Moving Consumer Goods (FMCG) sector is one of the most targeted areas of shrinkflation, and the rising competition is a big reason for it.

Companies struggle to raise prices directly for fear of losing customers to competitors. And just like Satan alluring Eve, shrinkflation allows these companies to stay competitive in terms of price while still increasing their revenue per unit.  

3. Consumer Psychology:

Playing with the consumers' sentiments, brands often introduce a mini version of a popular product with pomp and show. People think they are getting a good deal at low prices but receive fewer goods at the same prices.

Many consumers are more sensitive to price increases than small changes in package size. Companies might hope that customers won't notice the reduction in quantity or won't be as bothered by it as a direct price hike.

4. Maintaining Brand Image:

Companies want to avoid the negative perception associated with raising prices blatantly. Shrinkflation allows them to protect their brand image while still adjusting their costs.

Relation Between Inflation & ShrinkFlation

My parents often tell me of times in their juvenile days when โ‚น2 was enough to buy a shirt. Think about it. What do we get at โ‚น2? A toffee or two. This difference between shirt and toffee came with the decreasing currency power, AKA inflation.

Inflation is primarily of these 3 types:

1. Demand-Pull Inflation:

Imagine a happening party!๐Ÿฅณ Everyone wants snacks (demand), but there aren't enough to go around (supply). People start bidding higher for the remaining snacks, pushing prices up. That's demand-pull inflation when the demand doesn’t meet with the supply.

2. Cost-Push Inflation:

Picture a sudden rainstorm damaging the party's snack-making supplies (costs).โ›ˆ๏ธ To cover their increased costs, the snack provider needs to charge more. This is cost-push inflation when the production cost suddenly increases.

3. Built-In Inflation:

Seeing the rising prices of snacks, drinks distributors in the party also raise prices, expecting inflation to hit them.๐Ÿฅ‚ They negotiate higher wages to keep up with their expected cost of living. It's a cycle.

Due to this never-ending cycle, companies start shrinking the sizes and weight of their goods, causing shrinkflation. The situation is so bad that not even the rise-and-fall movement of the CPI inflation rate can identify it.

Inflation Rate in India

As is apparent from above, the inflation rate for the Consumer Price Index dived 5.69% in 2023, making one believe that low prices are back. However, companies still refuse to reduce prices and are thus creating strategies like shrinking their products to grab profits.

Hence, you can also say that shrinkflation is not just a passive response to inflation.

How Inflation Drives Shrinkflation:

Apart from the usual factors like rising costs and maintaining competitiveness we explored earlier, inflation also works as a hidden weapon companies wield to carry on their agendas. The following are some hidden factors for shrinkflation:

Inflation & Shrinkflation

a. Strategic Pricing: Companies may use shrinkflation as a proactive strategy during even stable inflation periods. It's a way to subtly increase profits without sparking immediate backlash from price-sensitive consumers.

b. Psychological Impact: By reducing quantity instead of raising prices, companies aim to minimise the perceived impact on consumers. Minor changes in quantity might go unnoticed or be deemed less significant than direct price hikes.

How to Protect Yourself from Shrinkflation?

Interestingly, shrinkflation doesn’t come without its own share of dangers. When consumers reveal the deceiving wall of shrinking sizes, the brand’s reputation and trustworthiness get drastically hit.

And now, a few social media posts and comments are enough to change the public's opinion and even the market's course. But you can’t wait for that one post to be aware of the scheme, right? Here are a few steps that may come in handy:

a. Compare Unit Prices: Don't just look at the package price, but the price per unit (gram, litre, etc.). This helps compare actual value across different sizes and brands, helping you decide whether you are paying more or less.

b. Track Changes: Notice changes in package size, weight, or quantity of your usual products.

c. Consider Alternatives: Explore store brands, generic options, or larger sizes, comparing unit prices for better value.

d. Buy in Bulk (strategically): If you have storage space and use the product regularly, buying larger sizes with stable unit prices can offer savings.

e. Focus on Quality: Sometimes, paying a bit more for a product with consistent quality might be worth it compared to frequently buying a "shrunken" version.

The Bottom Line

Next time you reach for your favourite product, take a moment to check if it's hiding a sneaky shrink. By being informed and savvy, you can outsmart shrinkflation and get the most bang for your buck!

You can start your journey of awareness by checking out the below articles:

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Preeti Gupta

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A book-lover who adores everything fictional, Preeti has undertaken the life mission of tasting every flavour available in the pantry. A science student with a Master's in Mass Communication, she now wishes to conquer the Finance world as a writer. With the power invested by the randomly chosen music, she is here to make Finance fun for you.

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