Many companies masking inflation by holding prices … but shrinking products
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I used to remind students that there are two ways to increase prices: (1) you can just increase nominal price (i.e. “sticker price”) or (2) you can hold price constant and offer less product (i.e. increase the “unit price”).
For example, assume that a 5 oz. candy bar sells for $1 … that’s 20 cents per oz.
Shrink the bar to 4.5 ounces, hold the price per bar at $1 and it’s 22 cents per oz.
Presto … an 11% “effective” price increase … with customers probably none the wiser … and the Feds reporting: “inflation in check”.
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You’ve probably noticed that gasoline and lumber prices have been soaring.
A gallon is a gallon … and an 8” board is an 8” board.
So, those products show up clearly as inflation.
But, many companies can mask their price increases by shrinking their products by less than a “just noticeable difference”.
For example. Red Flag Deals reports that Costco has cut the size of its private label paper towels from 160 sheets to 140 sheets.
No harm, no foul, right?
Wrong.
That’s a 12.5% reduction in quantity and a 14.3% price increase
Assume that a roll is priced at $5 before and after the size change. The effective price before the size reduction was 3.125 cents per sheet … after, it’s 3.571 cents per sheet … that’s equivalent to a 14.3% price increase.
And, it’s not just Costco.
One price tracking site has noticed that the following products are among those that did the same in 2020:
- Powerade (Was: 32 oz.; Now: 28 oz.)
- Lay’s Potato Chips, party bag (Was: 15.25 oz.; Now: 13 oz.)
- Nutella (Was: 14.1 oz.; Now: 12.3 oz.)
- Puffs tissue (Was: 56 count; Now: 48 count)
- Dawn dish soap, small (Was: 8 oz.; Now: 7 oz.)
- Hillshire Farms Kielbasa (Was: 16 oz.; Then: 15 oz.; Now: 14 oz.)
- Nathan’s Hot Dogs: (Was: 16 count; Now: 14 count)
- Keebler Club Crackers (Was: 13.7 oz.; Now: 12.5 oz.)
- Charmin Ultra Strong toilet paper (Was 286 sheets; Now: 264 sheets)
- Hershey’s kisses, family size (Was: 18 oz.; Now: 16 oz.)
As they say in marketing circles (and sometimes in court) … caveat emptor!
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For more examples (pre-2020), see the list below…
The Homa Files 