In both examples, downsizing provided effective alternatives to price increases at trial purchase, which can be measured at the shelf. But there is a lot to watch out for as repeat purchases continue. Besides the reaction of consumers to a downsized product on the shelf, at Ipsos, we assess how consumers perceive and notice the downsizing through product tests in a central location or in-home, depending on the category. This research reveals some hidden long-term risks:
Honesty, transparency and brand authenticity are increasingly valued by consumers. Downsizing, when eventually noticed, has the risk of breaching trust, causing long term damage to the brand.
For frequently purchased categories, downsized products expose consumers to accelerated re-purchase cycles that come with an increased risk of brand switch.
Downsizing could bring new costs due to redesign of packaging, reconfiguration of manufacturing equipment for the new sizes, etc. Such indirect costs can sometimes offset the savings on the cost of goods.
Other means of cost reduction
Apart from downsizing, product modifications in ingredients, and packaging materials are some other popular approaches by marketers to avoid direct price increases when facing inflation. At Ipsos we have conducted a lot of cost rationalisation research as part of our product testing practice. To move such a project forward, we need to understand whether the potential gain from a cost reduction initiative outweighs the potential loss. More specifically marketers are encouraged to:
Assess the impact of product change on consumer acceptance, confirming either no decline in acceptance or a notable increase.
Regardless of the change, ensure no notable franchise erosion/alienation.
Fine-tune product/communication based on risk assessment powered by consumer data.
Evaluate whether the cost to redevelop products and re-aligning supply and manufacturing would offset savings made.
Aim high, target at improving the product, beyond just statistical parity vs. today.
Pay attention to competitive reaction and especially targeted hostile communication
In summary, there are alternatives to direct price increases, but these approaches should be evaluated with caution through consumer research to balance short term and long term gains.
Next week, we will discuss how to understand your pricing landscape and how your category might change in the inflationary time