What are shrinkflation and greedflation?
01/10/2023 - Pricing strategy
Shrinkflation and greedflation are two strategies available to companies during inflation. Both have pros and cons, as does the widespread trend of increasing retail prices as production costs rise. These concepts have become more prominent during the current period of inflation. Consumers were already fed up with the socio-economic changes brought about by the COVID-19 pandemic and, subsequently, by the war in Ukraine. In this context, reviewing and optimizing online stores pricing strategies is essential. It is also vital to know the terms ‘shrinkflation’ and ‘greedflation’ to evaluate all options available to the company.
Shrinkflation: Same price, less product
‘Shrinkflation’ refers to a reduction in the quantity or quality of a product while the price remains the same. Production costs increase to a lesser extent while e-commerce businesses maintain the same retail price. The main advantage is that users generally don’t spot these changes. However, they do notice that prices remain unchanged despite inflation. This strategy is less likely to damage the brand or retailer’s corporate image.
Greedflation: is a price rise necessary or opportunistic?
The term ‘greedflation’ refers to a price rise introduced by companies to take advantage of inflation and boost their profit margin, even if they do not need to. Production costs have not risen enough for price increases to be justified. However, price rises do not usually surprise consumers in a context of widespread inflation.
Opting for a greedflation strategy sometimes results from entrepreneurs’ wish to increase their salary at the expense of the market situation and users. When customers uncover this practice, it can negatively affect sales and damage the company’s image. The company will be perceived as unethical and showing a lack of empathy with the society in which it operates.
Managing prices and monitoring demand
A good way for brands and retailers to deal with the current context is competitor price monitoring and managing proprietary prices. Pricing tools make it possible to be up to date on how competitors vary prices and react to changes. These tools remove the need for indiscriminate price increases or strategies that might affect the brand image. This software allows companies to define the profit margin and other key variables for the business, so that the new prices remain in sync with corporate objectives.
By monitoring prices, you can also design a dynamic pricing strategy to consistently determine the optimal price for each of your products, over all the different sales channels.
Category: Pricing strategy
