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KONDA: How loyalty programs could soften blow of 'shrinkflation' for consumers

Column: Pitch in

To cut costs, many companies opt for smaller product sizes while keeping products at the original price, which easily rubs consumers the wrong way.  – Photo by Sgroey / Wikimedia

The word "shrinkflation" started trending on social media sites in 2022, becoming a common phenomenon that people worldwide began to recognize. Our products are getting smaller, but the prices? They are precisely the same.

Downsizing products has been a tactic used in various industries since the 1960s, first notably used when attempting to inflate the price of vending machine items. Akshay Rao, a professor at the University of Minnesota's Carlson School of Management, says it was "difficult to change the price on vending machines, so manufacturers reduced the quantity provided for the price."

Companies have avoided explicitly increasing their prices, knowing it will garner unfavorable scrutiny from consumers, and have instead opted to physically reduce the product while keeping it at the same price. 

Of course, it does not go unnoticed, but you probably never looked at a chocolate bar and realized the weight changed by 0.25 ounces in the span of a year. But it tends to draw attention when it comes to larger scale items and consumers of low income.

In a Forbes article discussing this kind of downsizing in supermarkets, shoppers noted that it is most notable in canned foods, chip bags and frozen pizza. For food items that are meant to be cheap and easily accessible, this phenomenon seems to be particularly unfair to those who may be struggling with food insecurity.

Food budgeting is becoming more complex because people cannot keep up with inflation, even though prices may look the same on the shelves.

As customers blame retailers for price increases, stores such as Tesco are forced to challenge disproportionate spikes in costs from certain brands. Not only does shrinkflation affect consumers, but supermarkets will also begin to lose customers. The relationship between a retailer and its customers is vital to maintaining the company's well-being. If most people do not like a store, they will not shop there.

Many people would describe shrinkflation as unreasonable, as companies are discreetly profiting from an alternate type of inflation without being easily known by the buyer. Manufacturers want consumers to overlook the size, realize the familiar price and buy the product as usual. It can be frustrating but not necessarily fraudulent.

The shrinking of product sizes tends to happen in response to rising production costs, often in raw materials that can be difficult to obtain, depending on multiple factors. When the cost of raw materials increases, they are sold at a higher price to manufacturers, and so on. 

Simple supply and demand can explain cost increases, but take India's recent ban on rice exports, for example, which led to increased prices in global markets. As the supply of Indian rice begins to decline in other countries, it could trigger a downsizing in rice products. With a high demand, the price could stay the same or even increase, meaning people would get less rice for an even higher cost. 

While laws on large exports can change with time, consider fast food chains that are established all over the world. For big brand names such as Subway or McDonald's, known for their low prices, it can be challenging to see a downsize in the amount of food served to customers.

But fast food chains are also reducing the amount of food per order to cut costs, along with investing in loyalty programs to guarantee that higher prices will not discourage customers. With personalized deals, restaurants are able to keep menu prices higher while users combat them by using coupons.

For example, MyMcDonald's rewards program allows users to get a free Big Mac with a minimum $1 purchase just for signing up. Points accumulate with every proceeding purchase, which can be redeemed for other various orders. 

So, is it possible that loyalty programs could help soften the blow of shrinkflation? Would consumers feel less affected by their favorite products reducing in size every year if they had redeemable coupons for future purchases?

It depends on our attitude and whether we want to make the most of the situation. Inflation, whether in the form of downsizing products or rising costs, is a persistent problem that will continue to question our economy.

We must be willing to compromise.

Vaishnavi Konda is a sophomore at Rutgers Business School majoring in business analytics and information technology and minoring in linguistics. Her column, "Pitch In," runs on alternate Mondays.

*Columns, cartoons and letters do not necessarily reflect the views of the Targum Publishing Company or its staff.

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