We’ve been out of the recession for almost two years now — though popular culture might have you believe differently — but unemployment is still high, and so is the drive for profit.
Let’s keep this simple. Most definitions of a “recession” are based on gross domestic product, or GDP. GDP is the market value of all final goods and services produced in a certain location over a certain amount of time. Most media you hear will refer to GDP as U.S. GDP in one year.
GDP has been growing for some time now, according to Federal Reserve Economic Data from the Federal Reserve Bank of St. Louis. We’ve been producing more goods and services, so this idea that we’re still in a recession is demonstrably false.
That said, prices of commodities — cotton, soy, gold and the like — are seeing an increase in price, which creates issues for companies in, say, food and clothing industries.
Marketing research has shown customers to be more sensitive to changes in price than changes in quantity, so firms are using sneaky tricks to hide the cost-cutting measures, John T. Gourville, Harvard Business School marketing professor, told The New York Times.
Take a box of cereal, for example. Cereal companies, especially in the wake of a recession, have kept the width and height the same, while reducing the depth of the box and amount of cereal. The result: less product, more profit. We never know what happened.
Similar tricks are used all the time. Smaller packages might be used for “environmentally friendly” advertising, and small portions can be relabeled “low calorie,” or even more deceptively, “20 percent less fat.” That way, companies charge consumers more for less product, and the buyer is happy about it.
Nice work, Corporate America.
Ever seen new “jumbo” sizes? Those husky monsters tend to pop up when consumers are feeling optimistic — yes, economists measure that.
The common understanding is that “bulk” is cheaper and larger. That’s not always the case.
Frequently, retailers will produce a jumbo size that costs slightly more than its normal counterpart. We rationalize the price increase as a small compensation for the increase in size and assume we’re saving money, and in our attempt to be savvy buyers, we throw that jumbo “economy-sized” cereal box into the buggy.
However, smart sellers are frequently trying to “pull one over” on consumers — and why not? There’s money to be made.
Companies know most people aren’t going to check the price per unit on the food they buy. At the same time, they know consumers will disregard an increase in price as acceptable and assume savings will be made.
They don’t even have to lie. Kellogg’s can jack up the price on Tony the Tiger’s kid-crack, throw it in a bigger box and we’ll not only buy it, we’ll happily do so and believe we got the deal.
Well played, Tony. I like the things you do.
In 2006, our beloved Raising Cane’s reduced the number of chicken fingers included in their box combo but, kindly enough, offered the missing finger for an extra fee.
Not one to miss out on a profit, Cane’s has continued to raise prices and reduce chicken portions in the past several years since its initial price hike. Its three-year growth is around 64 percent, recording $125.6 million in revenue in 2009, according to Inc.com.
What I’m saying is, the tricks make money. That’s why retailers use them.
Many stores, Walmart included, provide a price-per-unit label on the price tag on countless items. Use them.
Devin Graham is a 21-year-old business management senior from Prairieville. Follow him on Twitter @TDR_dgraham.
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Contact Devin Graham at [email protected]
The Bottom Line: Consumer deceit: Food prices increase, portions decrease
April 5, 2011