May 27, 2024

Economix: Big Prices Come in Small Packages

2:05 p.m. | Updated Stephanie Clifford and I had an article onTuesday about how many food companies are selling their products in smaller packages to subtly raise prices.

Companies are doing this because the prices of their raw materials, like cotton and sugar, have been rising. But this technique has been around for decades.

John Gourville, a marketing professor at Harvard Business School, said that the process probably first became commonplace and well known to the public in the late 1980s, when coffee companies began reducing tins from 1 pound to 13 ounces. Consumers took notice because the “pound of coffee” had long been the standard unit, like a dozen eggs or a six-pack of beer.

The shrinking strategy predates even that, though.

Benson P. Shapiro, a professor emeritus at Harvard Business School, says he remembers when candy manufacturers shrank the size of their products, but kept the price the same — making the per-ounce price higher — because they feared consumer retribution for abandoning the standard “5-cent candy bar.”

“There are certain price points that are magic, and the 5-cent candy bar is one of them,”he said.

Or it was, anyway.

Of course, if input prices continue to rise over time, consumer goods prices must, too. Companies can’t keep making goods infinitely smaller until they’re dollhouse-size. At some point, after all, even the least astute consumers start to notice that their purchases look weirdly small.

That’s why you often seen the introduction of a new “jumbo” size as the smallest package size gets phased out. Then, the whole downsizing process starts all over again.

Addendum: To give you a sense of how common the downsizing stratagem is, I should note that I just received an e-mail from a press representative for Blue Bell Ice Cream, which has been advertising the fact that it’s not shrinking its half-gallon cartons.

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