They can also pass along the cost increases to customers in the form of price hikes, although that can cause them to lose customers who don't want to pay higher prices.
Finally, they can choose the shrinkflation option, which allows them to save on costs by simply selling less of a product at the same price. While they're providing less value to customers, they're still charging the same price.
Brands that practice shrinkflation generally believe that customers will be less put off by smaller product sizes than higher prices.
Does shrinkflation work?
A number of factors lead brands to turn to shrinkflation as a form of cost-cutting.
Not surprisingly, higher production costs are a primary reason for shrinkflation. The increased costs can be due to raw materials like ingredients or commodities or even increased packaging costs.
Additionally, companies turn to shrinkflation as a way to outcompete their rivals. Since price tends to be a primary way that customers compare different brand options, brands are wary of raising their prices if their competitors aren't.
Instead of raising prices, brands reduce package sizing with the hopes that customers do not notice or at least don't care about it as much as they would care about higher prices.
Shrinkflation also gives brands a workaround when they might already be experiencing their own supply shortages, which was common in 2021 and early 2022.
Consumer advocate Edgar Dworsky of Consumer World commented on the current shrinkflation trend, saying, "It comes in waves. We happen to be in a tidal wave at the moment because of inflation."
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