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Experts: Be on the look out for 'Shrinkflation' as more companies shrink products to save money

Prices are going up for a lot of things right now, but instead of raising their prices, experts say a lot of companies are shrinking their products.

MINNEAPOLIS — It's no secret that prices are going up for a lot of things right now, from gas to groceries.

But instead of raising their prices, financial experts say a lot of companies are now shrinking their products, making them just a little bit smaller to save money.

This process is called “shinkflation.”

It’s a relatively new term that describes the process of reducing the size of a packaged item while maintaining the same price.

A good example is to think about your favorite chocolate bar.

Let's say the cost of cocoa goes up, which is one of the raw ingredients that goes into making chocolate.

The company that makes the chocolate bar can do one of two things, they can either raise the price of their chocolate bar, or reduce the size of the chocolate bar to save money. 

Professor Akshay Rao at the University of Minnesota Carlson School of Management says the company’s main goal when it comes to these decisions is to make the changes to their products as hidden as possible.

"The firm is faced with a conundrum. Their input cost is going up. Their profits are being squeezed, but if they raise prices, consumers will stop buying them because they will notice,” Professor Rao explains.

"Price sensitive consumers tend to look at prices. When they go to the store, they kind of remember what they paid the last time, and if there is an increase or a change, they will notice it. They don't look at quantities."

He says it's easier for a company to hide a candy bar that is now one ounce lighter, or a bag of chips with a few taken out, than it is to hide a price increase of a few cents.

"Most consumer packaged goods you're unaware of what the container contains in terms of quantity,” Professor Rao says.

You're most likely to see shrinkflation in packaged consumer products, like drinks and snacks.

You might also see it in things like cleaning and paper products, like napkins and paper towels.

Rao says the trick for companies is to change just little bits at a time so people don't notice.

"There is a law of psychophysics that is based on something called the ‘Just Noticeable Difference,’” Rao explains.

"For example, if you have a dimmer switch, and I start to slowly reduce the intensity of the light in the room, for a while you won't notice it, and then suddenly you'll sit up and say hey, it's gotten dark here.”

The same principle applies to shrinking the size of consumer products.

If a company reduces the size of a product by a small amount, for example, a 5% reduction, most consumers probably wouldn't notice.

However, if the same company reduced the size of their product by 50% consumers would notice right away.

So, the changes will be small, but spread out across millions of products, a company could save a lot of money.

And Rao says modern day manufacturing equipment makes shrinkflation easier and cheaper than ever.

"My advice to consumers who are price sensitive is read the unit price information. Don't look at the retail price alone. Read the unit price information and track that."

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