With shrinkflation, we complain about less cereal or fewer sheets of paper towels.
Sometimes though, a smaller package is a good thing.
Package Sizes
Called price pack architecture, firms consider demand and supply to select the optimal package size.
When their strategy targets demand, they consider the different reasons people buy their product. As a snack? Then they want the snack size. For the family? They look for the larger bag or container. A party? the biggest bag. On the go? They select a small pack.
It is possible that Coca-Cola inspired the different-size revolution. This story starts during the early 2000s when our soda consumption slumped. At the time, we could buy a 2-liter Coke, a 20-ounce bottle, and a 12-ounce can. However, knowing they could increase sales, someone came up with the 3.3-liter container. A giant bottle, it was marketed to families in Mexico, And, if that did not work, you had a slew of sizes that Coke started selling.
Quite cleverly, Coke had achieved product differentiation without making anything new. For Coke’s consumers and its competitors, the company multiplied the products it sold through package size. Correspondingly, they discovered more sizes gave them more pricing power. For a very small individual can (Coke minis), they might charge more per ounce than for their larger bottles. In. addition, the tiny can lets them cater to people that want fewer soda calories and to others looking for a small kids treat.
It even has its own (hard to remember) acronym: OBPPC: occasion, brand, package, channel. All they were really talking about was price pack architecture. They not only care about who is using their product but how.
Meanwhile, on the supply side, manufacturing becomes more complex and expensive. Among many, one decision with chips, is how many to place in a bag:
Our Bottom Line: Oligopoly
Along a competitive market continuum, we place oligopolies close to monopoly. With just three or four but usually no more than eight competitors. they are very large firms that enjoy economies of scale, pricing power, and product differentiation. Furthermore, their size lets them compete through product size. So yes, Coke has distinguished its taste from Pepsi and Lays tries for the crunchier chip. But also, we see that package size is a competitive strategy.
As we move to the right along a competitive market structure continuum, firms become more powerful:
But everywhere on the continuum, shrinkflation is just one example of price pack architecture.
My sources and more: Thanks to Planet Money for inspiring today’s post and providing many of the facts.
