The problem with shrinkage is its poor view of the intelligence of buyers who are supposed to be price sensitive more than anything else and don’t care about both quantity reduction and quality dilution. / Representative image | Photo credit: Unsplash
It is not uncommon for households to indulge in a little self-sacrifice, especially when family purchasing power does not keep pace with inflation. It may not be possible with bread, but with butter yes. Thus, while continuing to buy willy-nilly a 5 kg packet of atta every fortnight, the family can reduce their consumption of butter from half a kilo per fortnight to three hundred grams to save and balance their budget as much as possible. Ditto for milk, fish and fruit.
If you can’t beat them, join them is the wise refrain of survivalists in competitive dog-eating dog businesses. Consuming fewer non-essentials is down-to-earth local wisdom for households in times of inflation.
It is in this context that the shrinking strategy of FMCG brands in India should be understood. The term which was first coined by British economist Pippa Malmgren means reducing the size, quantity or quality of the product without increasing the cost.
Namely, Haldiram reduced the weight of its 55 grams of Aloo Bhujia pack to 42g, while Nestlé has reduced the weight of its previous 80g Maggi to 55g. It’s another matter that a family of three using two packs of Maggi should use three to ward off hunger. Whatever. Even the HUL stable Vim ship cleaning powder has reduced the size of its soap from 155 grams to 135 grams. Everything to keep the price line. Optical illusion you say?
A simplified marketing strategy might be the most appropriate description of this marketing strategy. Such optical illusions do not dare to focus on the essentials. A five kg package of atta or rice cannot turn into 4.5 kg. Commodity consumption remains constant or normal inflation. In other words, the shrinkage marketing gimmick just won’t work when the demand for a product is inelastic.
Sachetization vs Shrinkage
Bagging, on the other hand, is a more sensible marketing strategy that has paid very rich dividends to India’s FMCG sector. A small shampoo pouch costing one rupee was a masterstroke that brought this modern hair wash product to rural areas. Chocolate and health drinks priced at Rs 10 a sachet have converted these drinks from an elitist product into a household product and thus catapulted the sales of the brands that manufacture them.
The difference between sachetization and shrinkage is too stark to miss. While the former pays attention to the common man’s wallet, the latter is condescending and undermines his intelligence to see through the gimmick, especially when the quality has been knocked down a few notches.
In the United States, where until recently big size was the ploy of restaurants like McDonalds to increase their revenue, now it’s the opposite small size that has become the order of the day. Dominos reduced the quantity from 10 boneless chicken wings to eight boneless chicken wings for the same price. Likewise, while Burger King has reduced the number of chicken nuggets in its meals, the salads offered by some American restaurants are two ounces lighter according to a Bloomberg report. The small size of the restaurants is taken into account by the diners as long as the quality remains the same.
Decrease buyer intelligence
The problem with shrinkage is its poor view of the intelligence of buyers who are supposed to be price sensitive more than anything else and don’t care about both quantity reduction and quality dilution. The truth is, buyers aren’t that stupid. If the price of a small packet of biscuits priced at Rs 5 containing five pieces remains as it is but the quantity is reduced to three pieces, the consumer is bound to sit up and take notice. Also, a detergent powder of a given amount should be used. So a housewife may need to buy more packs to keep her clothes sparkling clean as before.
The Amazon-like effect to the rescue of consumers
Smart shoppers fight inflation through the Amazon effect, so to speak. Instead of buying groceries and toiletries at MRP stores or apologizing for a discount from them, they buy them online and often incur a whopping 30% discount. This is through direct purchase by major online stores. Cutting out the middleman does the trick. The rapid growth of pharmaceutical applications has also resulted in considerable savings for online drug buyers. The neighborhood chemist accustomed to a whopping 30-40% margin hesitates to read the writing on the wall.
It shouldn’t be beyond the abilities of FMCG giants like HUL and P&G to sell directly to consumers online or by opening their own brick-and-mortar stores in strategic locations. The elephant in the room is unfortunately the huge commission of intermediaries. If this is significantly pruned, there is no need to practice optical illusions like shrinkage.
Where Shrinking Won’t Work
BTW, contraction just won’t work for consumer durables like washing machines, cars, and refrigerators, except on the quality front. Price increases are inevitable in this segment with the war in Ukraine disrupting global supply chains. On a subliminal level, shrinkage has always existed, like when people wisely pool their cars instead of everyone driving their own car to the same place of work. The net-net, if practiced voluntarily, is accepted with joy but if it is imposed, it is necessarily counter-productive, especially when the quality is also reduced.
(S Murlidharan is a seasoned columnist and tweets @smurlidharan)
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