Why Shrinkflation Is the Worst Business Idea in Years
Shrinkflation is an answer to the question “How can companies effectively manage rising manufacturing and distribution costs?” This involves reducing the size of a product’s packaging, rather than keeping the packaging the same size and increasing the price.
What is the problem ? Pictured above, a bottle of Gatorade goes from 32 fluid ounces to 28 fluid ounces. You barely notice the difference, do you?
It’s the lack of awareness that makes shrinkage an ethically troubling response to a dire economic reality. Let’s look at what the problem is and how companies might respond in a way that is both more ethical and more likely to keep the bottom line relatively healthy.
We start with honesty.
How Americans View Business Leaders
Every December, Gallup publishes the results of its honesty and ethics survey. Americans are asked to rate honesty and ethics across a range of professional groups as very high, high, medium, low, or very low. Last year, out of 22 groups, nurses topped the list. Business executives and advertising practitioners were ranked 16th and 19th respectively. The only groups considered less honest and less ethical than advertisers were members of Congress, car salesmen and, at the very bottom, lobbyists.
If you’re a business executive or an advertising practitioner – in Gallup’s words – you should be deeply concerned about these results. The worst things you can call someone are dishonest and unethical. If others think you are rude or rude, you are a person who does not take the rules of etiquette seriously.
But if others see you as unethical, they see you as someone who doesn’t take their seriously. And not taking your customers seriously is, or should be, a cardinal sin in business.
Shrinkflation is misleading
You might not have noticed that your favorite drink or snack now comes in a smaller package for the price, but now that you know, what will your reaction be the next time you see it on sale? “We do not care?” Probably not. “Wow, what a scam”, is more likely.
If you choose to purchase the product again, you will despite your feelings towards the company that makes it. For some consumers (like your humble correspondent), the decision will be, “I think I’m going to buy something from a company that doesn’t treat me like a jerk.”
Shrinkflation is a form of deception and is therefore dishonest. What’s dishonesty got to do with profits? We’ll take a look.
Ethics can be profitable
A report from the UK’s Institute of Business Ethics (IBE) suggests a correlation between business ethics and profitability. His report, Does Business Ethics Pay? concludes that “there is strong evidence that large UK companies with codes of ethics/business conduct have produced above average performance when measured against a similar group without codes”.
Just because a company has a code of ethics in hand doesn’t necessarily mean its leaders are acting ethically, of course. Integrity was one of Enron’s core values. The problem was that the leaders did not follow the chops.
But like The Guardian reported, the BIE found “a strong correlation between having a code of ethics, effectively dealing with non-financial risks and being an admired company”.
Much more research needs to be done to show a causal link between ethical leadership and profitability, but the IBE study is one of many that points in this direction.
What’s money got to do with it?
“The reason to do the right thing is because it’s the right thing to do,” you might say. “Profit should have nothing to do with it.” Fortunately, as Does business ethics pay off? suggests, an organization doesn’t have to choose between doing the right thing and doing the profitable thing.
Some worthy companies reject the idea of giving customers less for their money and hope they won’t notice. Domino’s Pizza announced in January that it would offer customers eight instead of ten chicken wings for $7.99. It may have cost them business, but what it didn’t cost them was their brand reputation. In the long run, that means more.
The smart money is now going to companies that do one of two things: 1) raise prices and tell consumers they are doing it, or 2) reduce package sizes and tell consumers they are doing it .
The common denominator is honesty. It’s the only hope for business leaders who are troubled by their low rankings in Gallup’s annual honesty and ethics survey and who want to show that it is indeed possible to do well by doing good.