What Goes up Must Come Down: The Incredible Shrinking – and Growing — Snack Package

Consumers have complained for years about packaged snack makers shrinking the size of their offerings. Now, the average package size for many popular snack foods – such as Doritos — has been expanding, like a waistline gone wild.

The reversal stems mainly from two factors, notes an article from the AP: First, recent high prices for ingredients are easing and second, offering more product for the money helps premium-priced brands retain customers, who often trade down in rough economic times.

Many flavors of Doritos corn chips, for example, now come in 14.5 oz. bags, up from the 12-oz. packages offered recently. That’s quite a reversal from last year at this time, when rising ingredient prices led to smaller offerings — and to articles such as "The Incredible Shrinking Doritos Bag."

With all this growing and shrinking of packages, wouldn’t it just be easier to change prices instead? For snack makers, the answer is a resounding “no.” People tend to remember prices more than quantity, says Wharton marketing professor David R. Bell. So snack makers tend to prefer to increase the amount of product in a package and keep the price constant when the price of ingredients is falling. Were they to cut prices, customers would get used to them and it would then be very difficult to raise prices back up, Bell says. When prices for inputs – or ingredients — are rising, the reverse holds. Snack makers prefer to shrink serving sizes rather than raise prices, which would spark a stronger customer reaction.

Eric T. Bradlow, also a Wharton marketing professor, agrees that it can turn customers off to lower prices, then later try to push them back up. And cutting prices has other costs: It can lead to a “prisoner’s dilemma for companies, where you and your competition drop prices and consumers win, not the firms.” What’s more, the marginal cost of increasing size by 10% is much less than lowering prices 10% due to fixed costs, he adds. Further, Bradlow notes a “little known” fact: Increasing package size tends to increase overall consumption, “so that people who have more on hand consume more, possibly in the long run,” offering other potential gains to the firm.

When costs are rising and snack makers decide to shrink the unit size, they should ensure that the shrunken offering falls within a “latitude of acceptance," where consumers do not register the change. Within a limited range of package size, customers generally do not compute unit prices, Bell points out.

Still, there are risks to manufacturers that toy with product quantities. After all, increasing the package size — the value approach — relies on touting the importance of quantities “by announcing ‘20% more chips,’ and making sure this registers with consumers,” Bell says. Manufacturers want the message to register but not for very long, because if the quantity message "sticks," then firms might also find it difficult to return packages to their usual volume size.

And since some consumers might want to limit their consumption of these snacks, Bell thinks it might be interesting to offer the larger and regular package sizes at the same time — and at the same price. Later, “when appropriate, simply eliminate the larger product from the product line. That could help eliminate the possibility of the negative attribution, ‘Hey, my bag of chips just got smaller!’”