Sam Izad's Blog - Posts Tagged "pricing-transparency"
Shrinkflation Exposed: Unmasking the Impact on Consumer Purchasing Power
Article by Sam Izad
In a world where ingredients and manufacturing costs are on the rise, businesses are faced with a challenging dilemma: either increase prices or reduce the size of their products. Many companies are reluctant to raise prices as they fear it may deter customers. Instead, they opt for a subtle strategy known as shrinkflation, where they maintain a similar price point by making their products smaller. This tactic includes methods such as selling multipacks of candy bars in smaller sizes than individual bars or altering the shape of products to create the illusion of minimal weight difference.
Identifying Product Size Changes
The practice of downsizing can be quite tricky to notice as manufacturers employ various techniques to reduce package sizes while keeping prices unchanged. For instance, they may introduce more air into the packaging or increase the concavity at the bottom of a jar. Manufacturers sometimes accompany product size changes with alterations in packaging colors, materials, or design, creating the perception of added value without consumers realizing the reduction in the actual product amount. It's important to note that product size changes are not consistent across all brands, sizes, or flavors. For example, a manufacturer may downsize a bag of organic gummy bears from 4.5 oz. to 4 oz. while keeping the non-organic gummy bear bag the same size.
Upsizing is another phenomenon where manufacturers increase the size of a product while maintaining the same price. This could be done to optimize package sizes, reverse a previously downsized item, or consolidate package options. However, upsizing occurs less frequently than downsizing. Products that have been upsized are sometimes labeled as "bonus buys" or "more for the money" on the packaging. Unlike sale prices or buy one get one (BOGO) deals, upsizing provides consumers with a larger quantity of the product rather than offering it at a reduced price or multiple units.
Impact on the Consumer Price Index (CPI)
Considering the ease with which downsizing can go unnoticed by shoppers, it raises questions about how accurately the Consumer Price Index (CPI) reflects these changes. The CPI strives to capture the price changes caused by downsizing through meticulous data collection and effective price calculations. Dedicated data collectors and economists work to identify changes in the goods and services used to calculate the CPI.
Data collectors ensure consistent data collection by tracking prices for the same set of goods and services over time. When a downsizing or upsizing event occurs, the data collector records the new data, updates the product description, and notifies economists in the national program office about the product size change. While data collectors do not record specific details such as the number of chocolate chips in a cookie, they do record attributes like weight and volume.
CPI economists continuously review the goods and services included in the CPI to identify instances of downsizing. They conduct monthly reviews of CPI data and engage in online research to verify downsizing or upsizing events. Once a downsizing or upsizing event is confirmed, economists update the product information and search the CPI sample for the same item. To ensure timely detection of downsizing, economists notify data collectors to be on the lookout for any size changes in specific products.
The impact of product size change on the CPI depends on the item and its data collection procedures. For items where size is reported, economists calculate an effective price per standard size, often measured in price per ounce. This calculation involves dividing the collected price by the size of the product. For example, if a half-gallon (64 oz) of Brand A vanilla ice cream is priced at $5.99 in January 2021, the effective price per ounce would be $5.99 divided by 64 oz, resulting in $0.093 per ounce. If the same Brand A vanilla ice cream is downsized to 60 oz in February 2021 but the price remains $5.99, the effective price per ounce would increase to $0.0998 per ounce. This represents a 6.7% increase in the price per ounce, which would be included in the CPI calculation. Economists even account for items without a specific weight, such as toilet paper. For example, if the number of sheets per toilet paper roll decreases from 220 to 200, the economist would adjust the data to reflect a 10% increase in the price per sheet.
Tracking Downsizing and Upsizing in the CPI
CPI economists closely monitor downsizing and upsizing events in the CPI sample each month. Chart 1 illustrates the item categories with the highest number of downsized and upsized observations between January 2015 and December 2021. Household paper products, for instance, experienced both upsizing and downsizing more frequently than any other category, with a total of 716 reports during the seven-year period. However, these reports accounted for only about 3% of the price observations within the category during that time. Snacks had the highest number of size changes among food items, with a total of 509 reports, followed by sweetrolls, coffee cake, donuts, tea, and pies, tarts, and turnovers. For food items, downsizing and upsizing events affected approximately 2.9% of observed prices.
The CPI's comprehensive approach, which combines meticulous data collection, timely detection of size changes, and accurate price calculations, ensures that downsizing and upsizing events are reflected in the index. By accounting for these changes, the CPI provides a more accurate representation of the true price fluctuations experienced by consumers.
In conclusion, shrinkflation has become a common practice for companies facing rising costs. By subtly reducing product sizes, they can maintain price points while coping with inflation. Consumers should be aware of the possibility of downsizing and upsizing, and the CPI strives to accurately capture these changes to provide a reliable measure of price movements.
#Shrinkflation #ProductSizeChanges #InflationImpacts #RisingCosts #PriceAdjustments #ConsumerAwareness #PackagingTricks #PriceFluctuations #MarketAdaptation #ConsumerPriceIndex #HiddenChanges #UpsizingAndDownsizing #ProductValue #EconomicTrends #PricePerception #ConsumerExperience #MarketingStrategies #ProductPackaging #PriceCalculation #ConsumerInsights
In a world where ingredients and manufacturing costs are on the rise, businesses are faced with a challenging dilemma: either increase prices or reduce the size of their products. Many companies are reluctant to raise prices as they fear it may deter customers. Instead, they opt for a subtle strategy known as shrinkflation, where they maintain a similar price point by making their products smaller. This tactic includes methods such as selling multipacks of candy bars in smaller sizes than individual bars or altering the shape of products to create the illusion of minimal weight difference.
Identifying Product Size Changes
The practice of downsizing can be quite tricky to notice as manufacturers employ various techniques to reduce package sizes while keeping prices unchanged. For instance, they may introduce more air into the packaging or increase the concavity at the bottom of a jar. Manufacturers sometimes accompany product size changes with alterations in packaging colors, materials, or design, creating the perception of added value without consumers realizing the reduction in the actual product amount. It's important to note that product size changes are not consistent across all brands, sizes, or flavors. For example, a manufacturer may downsize a bag of organic gummy bears from 4.5 oz. to 4 oz. while keeping the non-organic gummy bear bag the same size.
Upsizing is another phenomenon where manufacturers increase the size of a product while maintaining the same price. This could be done to optimize package sizes, reverse a previously downsized item, or consolidate package options. However, upsizing occurs less frequently than downsizing. Products that have been upsized are sometimes labeled as "bonus buys" or "more for the money" on the packaging. Unlike sale prices or buy one get one (BOGO) deals, upsizing provides consumers with a larger quantity of the product rather than offering it at a reduced price or multiple units.
Impact on the Consumer Price Index (CPI)
Considering the ease with which downsizing can go unnoticed by shoppers, it raises questions about how accurately the Consumer Price Index (CPI) reflects these changes. The CPI strives to capture the price changes caused by downsizing through meticulous data collection and effective price calculations. Dedicated data collectors and economists work to identify changes in the goods and services used to calculate the CPI.
Data collectors ensure consistent data collection by tracking prices for the same set of goods and services over time. When a downsizing or upsizing event occurs, the data collector records the new data, updates the product description, and notifies economists in the national program office about the product size change. While data collectors do not record specific details such as the number of chocolate chips in a cookie, they do record attributes like weight and volume.
CPI economists continuously review the goods and services included in the CPI to identify instances of downsizing. They conduct monthly reviews of CPI data and engage in online research to verify downsizing or upsizing events. Once a downsizing or upsizing event is confirmed, economists update the product information and search the CPI sample for the same item. To ensure timely detection of downsizing, economists notify data collectors to be on the lookout for any size changes in specific products.
The impact of product size change on the CPI depends on the item and its data collection procedures. For items where size is reported, economists calculate an effective price per standard size, often measured in price per ounce. This calculation involves dividing the collected price by the size of the product. For example, if a half-gallon (64 oz) of Brand A vanilla ice cream is priced at $5.99 in January 2021, the effective price per ounce would be $5.99 divided by 64 oz, resulting in $0.093 per ounce. If the same Brand A vanilla ice cream is downsized to 60 oz in February 2021 but the price remains $5.99, the effective price per ounce would increase to $0.0998 per ounce. This represents a 6.7% increase in the price per ounce, which would be included in the CPI calculation. Economists even account for items without a specific weight, such as toilet paper. For example, if the number of sheets per toilet paper roll decreases from 220 to 200, the economist would adjust the data to reflect a 10% increase in the price per sheet.
Tracking Downsizing and Upsizing in the CPI
CPI economists closely monitor downsizing and upsizing events in the CPI sample each month. Chart 1 illustrates the item categories with the highest number of downsized and upsized observations between January 2015 and December 2021. Household paper products, for instance, experienced both upsizing and downsizing more frequently than any other category, with a total of 716 reports during the seven-year period. However, these reports accounted for only about 3% of the price observations within the category during that time. Snacks had the highest number of size changes among food items, with a total of 509 reports, followed by sweetrolls, coffee cake, donuts, tea, and pies, tarts, and turnovers. For food items, downsizing and upsizing events affected approximately 2.9% of observed prices.
The CPI's comprehensive approach, which combines meticulous data collection, timely detection of size changes, and accurate price calculations, ensures that downsizing and upsizing events are reflected in the index. By accounting for these changes, the CPI provides a more accurate representation of the true price fluctuations experienced by consumers.
In conclusion, shrinkflation has become a common practice for companies facing rising costs. By subtly reducing product sizes, they can maintain price points while coping with inflation. Consumers should be aware of the possibility of downsizing and upsizing, and the CPI strives to accurately capture these changes to provide a reliable measure of price movements.
#Shrinkflation #ProductSizeChanges #InflationImpacts #RisingCosts #PriceAdjustments #ConsumerAwareness #PackagingTricks #PriceFluctuations #MarketAdaptation #ConsumerPriceIndex #HiddenChanges #UpsizingAndDownsizing #ProductValue #EconomicTrends #PricePerception #ConsumerExperience #MarketingStrategies #ProductPackaging #PriceCalculation #ConsumerInsights
