Most consumers have noticed brands cutting back on product sizing or quality. They say these corporate responses to inflation make them rethink brand-specific purchases more than price increases do. CMOs must devise cost-cutting methods that don’t harm consumer perceptions of value.
Almost a year after Gartner research recommended marketers be vigilant about consumer perceptions of price increases and increase transparency about pricing, consumers remain steadfast (see How Marketers Can Address Consumer Inflation Concerns). Updated research from January 2023 shows 60% of consumers would penalize a brand reducing product quality or volume by switching to other brands or no longer buying from that brand.This is virtually unchanged from June 2022,suggesting that brands still aren’t doing enough to reassure consumers they will keep prices stable. The longer this perception persists, the more reputational damage to brands in categories where these types of cost-cutting are perceived as rampant.
Despite headline-grabbing news of inflation easing, consumers continue to believe inflation will increase.They are actively seeking ways to afford the products and services their household needs. Some brands have turned to proven methods of cost-cutting like shrinkflation (reducing product volume) and skimpflation(reducing product quality) to keep consumer price shocks in check. However, continued, widespread media attentionto shrinkflation and skimpflation have raised consumer awareness of the use of these tactics and their impact on purchasing power.In addition, the prevalence of higher-than-expected earnings at many companies could have consumers rethinking their loyalty to brands, when those brands seem to be benefiting at the expense of the already-strapped wallets of their consumers.
Consumers are on high alert due to financial pressures they are facing. One-third (33%) of consumers admit price increases have had a big impact on their household, and have caused financial hardship. Low-income households have been hit hardest, with 46% saying they have felt financial hardship as a result of inflation, while even 19% of high-income/affluent households make the same claim.Gartner Consumer Community data reveals:
Consumers are wary of how companies are navigating a high inflation environment. Sixty-nine percent believe that companies take advantage of higher inflation to price gouge, or charge unreasonably higher prices, in an effort to reduce financial losses and deliver profits for shareholders.
Consumers notice product size/quality changes more at the grocery store: 61% of consumers claim to have noticed shrinkflation among food, beverage and groceries in general, up from 56% in June 2022. Another 45% report noticing shrinkflation in household products and 41% in beauty or personal care products. Consumers notice skimpflation most often in clothing, shoes and accessories (25%) and home decor (14%). (See Figure 1.)
Skimpflation is more likely to cause consumers to retaliate against a brand by stopping a purchase even though shrinkflation may be more noticeable. Fifty-one percent of consumers say seeing a company reduce the quality of a product or stop using ecofriendly materials, even if the prices were lowered, would make them stop buying from that brand. (See Figure 2.)
Consumers believe brands can redeem themselves by taking specific actions even though they respond negatively to cost-cutting strategies like skimpflation or shrinkflation.More than half (52%) of consumers say they would feel more positively about companies that engage in shrinkflation or skimpflation if they also offered promotions or discounts on their products to keep them more affordable. Forty-eight percent would want these companies to clearly state when they change to smaller package sizes and why they have done so. Consumers also want commitments from all companies that they will address price increases, not just from those caught using cost-cutting tactics. Forty-two percent want companies to commit to keeping prices steady. These actions, paired with proper messaging, will help alleviate negative consumer perceptions associated with tactics such as shrinkflation/skimpflation and price gouging.
What You Need to Do
Brands make strategic decisions to optimize costs by changing packaging, ingredients, suppliers and service offerings all the time. Not all of these actions are perceived by consumers to be deceptive business practices, or perceived to be happening at all. But in a period of prolonged inflation, noticeable changes that impact the value proposition of a brand’s product or service are more likely to result in harm to that brand. They are also more likely to cause consumers to change their behavior by switching brands (91%) or punish brands by cutting out purchases from brands that skimp on quality to save money (42%).
Consumers are on high alert. Regardless of whether a brand actually engages in the tactics described as skimpflation or shrinkflation, CMOs can lead by directing teams to emphasize continuity and value rather than cut product amounts or quality. CMOs can also build trust by pledging to keep consumer prices steady, reducing operating costs (in particular, executive compensation) and be transparent about raw material and production costs. Additionally, CMOs can offer promotions or discounts on key brands to preserve consumer loyalty and maintain brand reputation. Build trust by pledging to keep consumer prices steady, reducing operating costs (in particular, executive compensation) and being transparent about raw material and production costs. Offer promotions or discounts on key brands to preserve consumer loyalty and maintain brand reputation.
Message on what hasn’t changed:CMOs at brands that retain product quality and quantity despite inflationary pressures should ensure that brand messaging highlights commitments to continuity in price, ingredients or suppliers. Design this messaging to combat the widespread perception that all products have been subject to shrinkflation even if that isn’t the case for your brand. Kraft Heinz, which announced no further price hikes for 2023, continues to hold strong brand reputation with consumers.
Openly communicate product packaging and production changes when possible, and the rationale for those changes, to avoid the perception among consumers that companies surreptitiously change packaging to hide higher prices. Companies likeTillamook, which proactively addressed product sizing changes in a press release, won positive consumer attention for transparency in the midst of inflation.
Amplify value proposition with functional benefits that save consumers money. For example, manufacturers of home appliances and personal electronics (categories where consumers haven’t seen widespread price increases or shrinkflation/skimpflation changes) should emphasize the ways their products stretch dollars further. An energy-efficient appliance could tout that it helps cut down the utility bill; a refrigerator with low- and high-humidity crisper drawers that help consumers keep fresh produce longer could lead with that feature. In addition, focus on thrift-related market product attributes that consumers increasingly care about, such as the durability of big-ticket items (see ).
Offer tech alternatives to staffed services without dramatically impacting the customer experience. Retailers, restaurants and other service-oriented brands may find that cutting back on staffed functions is more palatable to consumers than the product tweaks that CPG brands try, even though the former is also a form of skimpflation. Examples of service reductions supported by tech alternatives include self-check-out and QR-code-based menus and ordering apps in lieu of cashiers and full table service.
Gartner Recommended Reading
While the Gartner Consumer Community (n ≈ 500) resembles the U.S. general population, the data cited in the attached presentation is based on the responses of community members who chose to take each activity. These samples may not be representative of the general population and the data should only be used for directional insights.
Gartner Consumer Community (19 to 26 January 2023, n = 293)
Gartner Consumer Community (10 to 17 June 2022, n = 245)
2023 Gartner Consumer Cost-of-Living and Price Sentiment Survey. The purpose of this survey was to understand how inflation impacts consumer decisions and attitudes toward brands and products. The research was conducted online from 23 November through 15 December 2022 among 2,013 respondents in the U.S. Respondents were required to be at least 18 years old. Disclaimer: Results of this study do not represent global findings or the market as a whole, but are a simple average of results for the targeted countries, industries and company size segments covered in this survey.