Why Shrinkflation Works So Well
Consumers hate shrinkflation.
We notice when the package gets smaller. We complain about it. Sometimes we even swear we will stop buying the product.
And yet shrinkflation keeps working.
In a recent Globe and Mail column, I looked at research using 10 years of U.S. grocery sales data to understand why.
The answer appears to be behavioural.
Consumers react much more strongly to a change in price than to a change in quantity. A 1-per-cent increase in price led to more than twice the reduction in sales caused by a 1-per-cent decrease in package size.
That gives manufacturers a powerful incentive to make products smaller instead of simply raising the sticker price.
The research found that downsizing happens far more often than upsizing, by roughly five to one. It is also especially common among staple products that people buy repeatedly and often with very little deliberation.
In some cases, total spending actually rises after a package is downsized.
People do not necessarily switch brands or stop buying the product. They simply run out sooner and buy it more frequently.
That is why unit pricing matters.
Most grocery stores already show some form of price-per-unit information, but the presentation is inconsistent. One product might be priced per 100 millilitres while another is priced per 250 millilitres, making comparisons unnecessarily difficult.
Standardized unit pricing changes what consumers notice.
Instead of focusing only on the sticker price, shoppers can immediately see whether the amount they are paying for each gram, litre or unit has increased.
That does not make groceries cheaper.
But it makes hidden price increases much harder to hide.
Shrinkflation works because quantity changes attract less attention than price changes. Better unit pricing shifts that attention back toward value.
Sometimes better financial decisions are not about giving people more information.
They are about making the right information harder to ignore.
Preet Banerjee
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