DISCUSSION TOPIC: Brands Shrink to Avoid Price Hikes
Companies faced with higher cost for raw materials often find that a decision needs to be made. Continue production as-is and lose money if the price for the item isn’t increased; keep on manufacturing but raise the price or alter the product itself to reduce the cost of making it.
For many manufacturers, reformulations have been the chosen path to meeting consumer demand while protecting profitability. Of course, when changes are noticed, as in the case of a smaller candy bar or fewer rolls in a pack of paper towels, there is bound to be grumbling. This is especially true at a time when consumers are watching prices rise at a much faster rate than their take-home pay.
Discussion questions: Do you think most consumers are understanding in the current environment when it comes to manufacturers downsizing and/or raising prices on established brand products? Is there a right or wrong way to go about handling the announcement of a product being reformulated in a smaller size? What role is there for a retailer to play in the current scenario where products are being altered to avoid hefty increases in prices to consumers?
The process of reducing size or changing ingredients to reduce manufacturing costs is called “incremental degradation.” This can be a slippery slope. The effects of tiny reductions in size or quality are not immediately apparent to consumers and certainly fatten the bottom line. Managers begin to rely on incremental degradations to maintain margins and assume the consumer will continue to not notice. Eventually, though, these incremental degradations add up and the consumer stops buying either because they notice the difference or because they just don’t like the product like they once did. When this happens, it is too late to reverse course because the relationship with the customer is damaged. Particularly if yours is a product known for quality, incremental degradation is a dangerous path. You either believe in quality or you don’t. Make a choice.
It is a much better strategy to implement incremental augmentation: subtly adding value to your products which will tend to increase customer loyalty and keep your customers loyal even when prices eventually need to rise.
Mike Osorio, your Dare to be Contagious! TM strategist
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