What is Shrinkflation?

In simpler terms, shrinkflation is a disguised price increase.  The price tag might stay the same, but you’re actually getting less of the product. This is a common practice in the food and beverage industry, but it can also affect household goods and other consumer products.

Increasing the price of a product can sometimes discourage potential buyers from making a sale. Therefore, businesses adopt the Shrinkflation technique to increase their profits. 

In this article, we will look into the causes, effects, and other related concepts to clarify the concept of Shrinkflation.

Reasons of Shrinkflation

Here are some major reasons why shrinkflation occurs.

  • Increased Production Cost 

As inflation hits, the cost of raw materials goes up. To maintain their profit margins, companies may resort to shrinkflation instead of raising prices directly. 

  • Weak Pricing Power 

Small companies or those with a low customer base and credibility in the market cannot set prices for products as they wish. Since higher price rates might subsequently decrease their customer base, the only option to maintain their profit rates is by practising shrinkflation.

  • Market Competition 

Companies often try to gain a competitive edge in the market by delivering products at the cheapest rates. Therefore, to ensure that the company’s revenue is generated even at a lower price, shrinkflation is a practice that reduces the quantity of products. 

Effects of Shrinkflation

Here are some effects of shrinkflation when practised constantly by businesses.

  • Inflation 

While minor adoption of shrinkflation might not affect the economy, widespread and frequent adoption will ultimately boost product prices. This will result in the rapid growth of the inflation rate, which will eventually impact the country’s economy.

  • Quality Degradation 

Although shrinkflation is primarily linked to lowering the quantity of a product, its constant practice might also result in quality degradation. Since producing less will demand only a few quality control inspectors on site, there is a high chance of quality being compromised as a result of shrinkflation in the long run.

  • Loss of Trust 

Practising shrinkflation without proper communication with consumers might lead to a loss of trust between the company and consumers. This will ultimately result in a lower customer base and a decline in the sales of the company.

  • Unfair Practice 

Many customers might consider the practice of shrinkflation unfair. This is because businesses lower the quantity of the product without prior information. This fact might instill a feeling of cheating and playing with consumer emotions against the business.

Conclusion

Although shrinkflation is sometimes a necessity for businesses to maintain their profit margins, constant practice has its downsides.

Moreover, businesses often practice shrinkflation out of greed to cut their production quantity while generating the same amount of revenue. This ultimately increases their profit margin. However, its constant adoption can ultimately lead to a decline in a business’s customer base and a loss of trust among the consumer

FAQs

Is shrinkflation legal?

Shrinkflation, where the size or quantity of a product shrinks but the price stays the same, is generally legal. However, there’s a key condition: companies must be transparent about it. As long as the reduced size or quantity is accurately labelled on the packaging, it’s not considered deceptive.

Is shrinkflation inflation?

No, shrinkflation is not inflation. Inflation refers to a broad increase in prices across the economy. Shrinkflation, on the other hand, keeps the price tag the same but reduces what you get for that price.

What are the problems with shrinkflation?

Shrinkflation can lead to customer dissatisfaction. You might feel like you’re paying the same amount for less product. It can also affect your purchasing power, as you may need to buy more of the same item to get what you used to. Perhaps most importantly, if not communicated clearly, shrinkflation can erode trust between businesses and consumers.