The question might have put you in thought, is it something that you don’t know or is it just unseen? The context is, “You have it but you didn’t recognize it”. The increasing inflation is out of anybody’s control, how it affects people is evident but in consumer goods, is a quest that was unexplored. Rationally, it’s a way to stay within the margins for the businesses while also not affecting the consumer behavior in purchasing the goods.
British Economist Pippa Malmgren had something to say
Pippa Malmgren, a British economist who makes sense of the world economy, strikes the term “Shrinkflation”.
It means, “The reduction in the size, or removal of ingredient or change in the volume of the consumer product to cut down paying heavy production cost rather than hiking the prices of the products in effect to rising inflation”
This became a way to respond to the cost increment but has little or no impact on the increase in demand. It is more of an alternative form of action to mask the inflationary mechanism by the Corporates.
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What’s the underlying concept behind Shrinkflation?
The concept is simple but it’s up to the consumer to comprehend the ideology.
When inflation in the economy increases, the cost of living increases, which means the prices of everything around us increase. In that case, the cost of manufacturing, raw materials, and fueling the machinery gets costlier than usual at this time.
In effect to the increasing price of all the related elements to get the finished product, it is only fair to increase the price of the goods as well. That was pretty simple to take note of.
The catch is, if the prices of the goods are increasing then the purchasing behavior of the consumer is impacted too and in return leads to a decrease in the demand for the product.
This puts the business in a dilemma of not making profits. The next best thing for the businesses would be to still be in favor of the consumers by not increasing the prices but rather reducing the size of the product.
The scenario leads to receiving little for the higher cost paid to purchase the product for the consumers.
Well, it is legal to do so, as long as the Corporates giving out the product are straight and have mentioned the unit of each ingredient used in the product and as well about the net quantity.
Or they are conveying the reason behind shrinking the product size to the consumers.
Although the size reduction is fairly visible and is adhered to by the Corporates to a fact that the consumers react to an increase in the price more than to a decrease in the size of the product.
In short, the term Shrinkflation can be referred to as “The invisible handshake” which arises due to intensified competition and the pricey manufacturing cost.
What does Shrinkflation look like?
Ever wondered why the number of biscuits in Parle G was reduced? Because the 80-gram biscuit was not 80 grams anymore but was reduced to 76 grams and they had to remove the biscuits while giving it for the same price.
Your favorite Toblerone chocolate had to increase the gap between the pyramid blocks to reduce the quantity to battle the inflating prices.
Now you know why Lays packet looked large but over time the number of chips was lessening. They all had these intricate reasons.
How does inflation affect bond price?
How could a Consumer Perceive this?
You might not be knowing why you were getting a lesser quantity back then, and might have perceived it to be deceiving but the manufacturers can’t bear the losses when you don’t buy the products because of their increased price value.
While the manufacturers want consumers to love them for not increasing the price but compromising on losing a little quantity of it at the best desirable quality.
The Unique Approach
While most Corporates reacted to the inflation by “Increasing the Price Value”, few others adopted “Shrinkflation”, and Gits Food Products did something better.
They neither increased the price nor shrunk the product, rather are giving away the product at the same price and size as they used to. It was successful in increasing the demand for the existing product along with the new products. Though the margins were at a hit, the demand and profits were at all time higher than what was seen during the pandemic hit and that helped them have a greater market share!
What is in the end?
Shrinkflation might seem to deceive consumers at a glance and for businesses a way to mask the inflationary mechanism. Although the Consumer Market needs a better approach to strategically work on the increasing prices of goods.
To an extent, Shrinkflation is still a viable option as products become affordable to the consumers and is a means for businesses to stay profitable than facing “Skimpflation” where the quality of the goods is comprised.
Shrinkflation is termed hidden for a reason that the change in the product size or volume is fairly seen or realized. This is the immediate action to the effect of inflation in the FMCG and restaurant sectors.
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