Will 'Shrinkflation' Drive Away Your Customers?

Small business owners are thinking about shrinking -- shrinkflation, that is. A recent survey from Clarify Capital found that 12% of small business owners have implemented "shrinkflation" -- defined as selling smaller sizes, portions, or packages of products, but at the same price. And an additional 20% of business owners are considering this strategy.

Recent years of high inflation and supply chain problems have hit small businesses hard. Consumers often believe that inflation is good for business, or that businesses enjoy driving up profits when prices are high. But that's not always true for smaller companies. Many small businesses are struggling to cope with higher costs of doing business, and they can't always raise prices without risking customer attrition.

Sometimes shrinkflation could seem like a viable pricing strategy, especially as a last resort. If you don't want to raise prices or can't compete against lower-cost competitors, your business might consider shrinking your product sizes. But beware: shrinkflation can be risky.

Let's look at a few reasons why shrinkflation can hurt your relationships with customers -- and what you could do instead.

Customers hate shrinkflation

You might feel like you're doing your customers a favor by "not raising prices," but customers have strong feelings about shrinkflation -- they don't like it. Clarify Capital's shrinkflation survey found that 81% of consumers are already noticing shrinkflation in their everyday lives, and 78% are worried about it. Shrinkflation also has a general air of dishonesty to it; 96% of customers believe that businesses are not transparent about shrinking their product sizes.

It's no wonder that people can sometimes sound a bit paranoid and conspiratorial about shrinkflation. The Clarify Capital survey found that sizable percentages of consumers believe shrinkflation is happening even to products that shouldn't be possible to "shrink" -- like eggs, meat, and dairy.

Shrinkflation can shrink your sales and customer loyalty

According to Clarify Capital's survey, shrinkflation can be bad for customer retention. In fact, 68% of consumers said they have switched brands due to shrinkflation, 45% chose generic alternatives, and 29% researched alternative products. Only 32% of people said they responded to shrinkflation by buying the same product as usual.

The lesson for small business owners: Don't assume that you can get away with shrinkflation. Customers will notice, and they'll vote with their wallets.

What to do instead of shrinkflation: Better marketing built on trust

Shrinkflation is not an ideal way to treat your customers. People who are loyal to your business deserve better communication and honest engagement. Instead of quietly (sneakily?) giving people less value for money, it's time to get creative with your small business marketing. Try to turn higher prices into an occasion for deepening your customer relationships in these ways.

Communicate openly about your pricing challenges

Instead of sneaking in a price hike, communicate openly and honestly with your customers, with human vulnerability. Be blunt about how hard your business is trying to keep prices low, and how you've been affected by global supply chain issues. Customers might understand -- if they don't feel as if they're getting price-gouged, they might be willing to pay more for the same product sizes that they're used to.

Tell the story of your supply chain

If you run a small chocolate shop or cafe, tell the story of how much it costs to buy the ingredients from your suppliers -- whether it's sustainable, eco-friendly coffee or Fairtrade cocoa that pays a generous living wage to small-scale farmers. Show customers why they're getting extra value from what they spend with your business. They might be willing to pay a bit more to help keep your company (and your suppliers) thriving.

Offer new customer loyalty incentives

The Clarify Capital survey also found that 36% of customers are responding to shrinkflation by buying items in bulk. Instead of making the size of your products and packaging smaller, what if you could do the opposite -- and make your customer relationships "bigger"?

Offer more bulk items. Offer premium add-ons so people get more value for their dollar. Launch an expanded customer loyalty program where people can get a discount if they buy from you more often. Instead of making your customers feel short-changed by shrinkflation, extend an invitation to make higher prices a win-win deal: Spend more money, get more value.

Bottom line

Shrinkflation is becoming a more popular pricing strategy for struggling small businesses, but this might not be the best plan for your company. Consumers tend to have strong, negative feelings about shrinkflation. They might respond to smaller portions and package sizes by taking their money to a competitor.

Instead of shrinking your customers' experience with your product, try doubling down on generous offers and authentic, human-centered marketing. Don't drive customers away by giving them less value for money. Instead, try to use this occasion to show that small businesses are also hurt by rising prices, and we're all in this together. Building trust with your customers and improving customer retention is always a good investment.