How To Address Inflation: Decrease Quantity Or Increase Price?

Published on Aug 30, 2022 by Meghan Bertig

Using Marketing Research To Understand The Customer Impacts To Decreasing Quantity Or Increasing Prices

With rising inflation levels, brands are forced to make decisions to help maintain profit margins while limiting expenses. The cost of doing business paired with growing interest rates negatively impacts both consumers and brands. One tactic businesses undertake to offset rising costs is shrinkflation: decreasing product size/quantity while keeping the price the same.

To stay competitive, brands may choose to decrease quantities or increase prices. Sometimes, the choice between these options is not so clear. Brand tracking tools can help businesses determine which strategy to pursue to minimize negative customer impact. Here are a few considerations to keep in mind for each option.

Decreasing Quantity To Improve Costs

Businesses with more price-sensitive customers may choose to practice shrinkflation. The following four approaches should be considered when decreasing product quantities.

1. Be Subtle But Honest

When employing shrinkflation, be transparent about subtle changes.  For example, if a brand sells a 14.5-ounce bag of chips that is reduced to 13 ounces, the packaging should reflect the change. Keeping package sizes the same while reducing the amount of product inside without revealing it to consumers is unethical and could potentially result in legal problems.

Marketing research tools like Socratic Brand Power RatingTM (BPR) measures the conversion of those aware of a brand into purchasers and tracks with market share. This can help brands understand their competitive position and identify corrective actions needed based on their unique sales funnel. BPR, coupled with other survey metrics, can help determine how things like sizing, packaging type, and product look affect consumer buying intention.

2. Take unit pricing into account

Customers want to feel like they are paying a fair price for the product they are purchasing. If you reduce quantity, be sure that pricing per unit is reasonable compared to product prices before shrinking the product. Using brand health tools to track performance after changing prices can tell a story about customer purchasing trends.

3. Keep tabs on your competitors

Shrinkflation has accelerated around the world recently. If a business is considering reducing product quantities, now is a good time. Consumers will most likely already have experienced this in their day-to-day shopping. Leverage concept testing to determine which types of packaging appeal most to consumers.

4. Make shrinkflation part of your advertising

Although consumers may not favor shrinkflation, highlighting positives can soften the blow. Examples of positives could be maintaining prices, using the same high-quality ingredients, or a reduced environmental impact from the new packaging. Market research can help determine differences in preference and impact on demographic groups including age, gender, location, and more.

Increasing Prices To Keep Up With Inflation

Businesses who would like to keep quantities the same, or even increase them, have 3 key considerations. Unlike reducing quantity, pricing shifts can be temporary and tested with faster updates but also come with different unique challenges.

1. Raise prices slowly, not all at once

Consumers do not want to see their favorite products drastically increase in price over a short period of time. Rather than raise prices all at once, slowly increase the price in increments to prevent shock and brand switching. Use custom-built surveys to identify price point ranges that consumers will tolerate.

2. Raise prices on products that produce higher profit margins, not on the entire product family

Rather than raising prices on all products, choose only the products that produce the highest profits to increase prices. This allows consumers to be less overwhelmed by price changes from a brand while allowing the brand to balance expenses.

3. Don’t keep consumers in the dark about business decisions

When choosing to raise prices, be honest with consumers. Consider running a last-chance promotion for a product before increasing prices. When deciding to increase product quantity, emphasize it in a way that is noticeable but not overwhelming. Introduce coupons or first-time buyer discounts. Keeping communication open between consumers and businesses can mitigate brand switching.

Price increases can allow you to test the use of discounts to attract new customers and segments. Using coupons during inflationary times can encourage customers to switch to your brand and increase your brand’s competitiveness.  Introducing coupons and discounts can provide a way to promote product trial during a time when customers are more price sensitive and frugal with purchases.

Using Market Research to Drive Success

There are other tactics that can be used during times of inflation to help brands. Cutting products that aren’t reaching sale goals, increasing business efficiency, and adjusting business practices to better appeal to consumers can all positively impact a brand’s performance. Brand tracking tools produce insights that will help develop a plan of action that is tailored to a business and its customers. Quantitative research can identify what positively and negatively impacts brand health, while qualitative data can provide an in-depth account of how consumers feel about a brand and its practices. Up-to-date, personalized data can create a story about current performance and suggest enhancements to impact future performance.

By understanding how shrinkflation and price increases impact consumer brand image and purchasing decisions, brands can adjust their practices to combat inflation. Inflation will inevitably impact business decision-making and strategy considerations. Using market research will help determine the best path forward to keeping customers happy and companies’ financials healthy.