Why Shrinkflation Is A Great Pricing Strategy In Inflationary Times | Entrepreneur

(This column originally appeared in Entrepreneur)

Want to make more money this year? Or at least protect your profits? Consider shrinkflation. You may have heard of this — or maybe not. But shrinkflation is a powerful pricing strategy that you should consider in these times of higher costs that are cutting into your margins.

So, what is shrinkflation? It’s when you charge the same price for something that you’ve always charged, but this time, you deliver just a little bit less. If that sounds unethical or immoral, it’s not. In fact, it’s being practiced all over the place by some of the world’s largest brands.

Take Walmart, for example. Their Great Value Paper Towels used to be 168 sheets per roll, but now it’s 120 sheets. Did the price change? Nope. Charmin toilet paper used to be 650 sheets per roll and now only contains half of that — at the same price. A bag of Doritos used to be 9.75 ounces, and now it’s 9.25 ounces, which means you’re getting fewer chips at no discount. Hefty’s Mega Pak went from 90 to 80 bags without changing the price. Burger King includes fewer nuggets, and Domino’s is delivering fewer chicken wings, but all at the same price (who’s getting chicken wings from Domino’s anyway? It’s a pizza chain!)

Related: ‘Shrinkflation’ Is Skyrocketing, and Complaining About It Can Help (Seriously)

Have you noticed that your hotel is cutting back on all those little amenities like soaps and chocolates and even housekeeping? Are they reducing their rates? I think you know the answer to that question.

There are plenty of other examples of this kind of thing, but I think you get the point. Does this make you angry? It shouldn’t. It’s just smart business. People don’t really check this stuff. And no one’s breaking any laws. Your company — just like those companies — is allowed to provide whatever products or services you want for what the market will bear. They’re simply offering a little less for the same price.

You may say that this is only possible for big consumer brands, but that’s not the case. Even if your business is selling to other businesses and even if you’re much smaller, you have the ability to make more money with shrinkflation. This strategy applies to all businesses in all industries.

If you’re operating a restaurant, this may mean including one less meatball with that order of pasta. Or two strips of bacon with those eggs instead of the usual three (yeah, that’s a tough one, I know). Some retailers I work with are now not including shopping bags with a purchase (they cost extra). They’re providing less help on the shop floor because there are fewer employees. They’re pushing their customers towards self-checkout kiosks. This is all a form of shrinkflation and for the most part, customers just take these things in stride. Even e-commerce giant Amazon is raising the bar on what’s qualified for free shipping. That’s shrinkflation too.

I have some manufacturing and distribution clients that are including a few less bolts in a box or shipping lighter pallets than before. Like Amazon, they’re adjusting their “free shipping” policies or limiting it to closer geographic areas. I have some clients that no longer include setup or training in the price of the equipment they sell. These are all examples of shrinkflation, and you can be doing the same.

Are you in the service business? My clients in these industries are now excluding certain ongoing support and maintenance services from their normal billing. Others are now adding “travel time” as part of their projects, a cost they previously absorbed. They’re not raising their prices, mind you. Just providing a little less service for the fee.

While big consumer brands have the luxury of increasing their prices — via shrinkflation or otherwise — across the board, smaller companies can take advantage of our size and be more selective. That’s because we have at our disposal what our parents and grandparents, who navigated through their own inflationary periods in the late 1970’s and early 1980’s, did not: data. Today, we have better databases. We have more advanced accounting systems. We have more information at our disposal. So how does this impact our shrinkflation strategy? It means we can decide which customers are impacted by this pricing strategy.

For those good customers with strong sales, strong relationships and satisfactory margins, maybe we continue to offer the same level of products and services as we did before. But for other customers that have not been so great or whose profits aren’t as high, we can make up for this with shrinkflation strategies. My best clients are combing through their databases and determining their pricing based on these factors.

This is all about margins. Core material costs for most of my clients have risen anywhere from 15–30 percent over the past few years. Wages are up significantly during that time period as well. Overhead — which includes utilities, rents and interest — has also gone up.

Related: Owning Your Customer Data Is the Key to Profitability. Here’s Why.

Something’s got to give. You can only raise prices so much. But margins have another input: materials and labor. If you can provide less materials or labor while holding prices firm, it has the same positive impact on your net margins. This is why shrinkflation can be a powerful pricing strategy, and it’s why so many large corporations and smart small business owners have used it so effectively over the past few years. Shouldn’t you?

Originally published at https://www.entrepreneur.com on November 9, 2023.