Monday, January 04, 2010
Smaller quantities keep prices in check
Tom Angleberger
The New River Valley-based reporter answers your questions Mondays in his column, What's on Your Mind?
Recent columns
Q: What happened to the half-gallon of ice cream? Why are we paying more for less?
Darryl Perdue, Roanoke
A: I went and checked the ice cream in my freezer. The carton looked roughly like the old half-gallon cartons, but held only 1.5 quarts.
"The whole point is to raise the price without the consumer noticing," explained William Poundstone, author the classic "Big Secrets" and the new book "Priceless: The Myth of Fair Value (And How to Take Advantage of It)."
Ice cream, he told me, is "just the tip of an iceberg!"
"Priceless" contains examples of similar carton rebuilding, including Froot Loops. In 2008, Poundstone wrote, "Kellogg's shrunk boxes of Cocoa Krispies, Froot Loops, and Apple Jacks. More exactly, it made the boxes thinner. That way, they command the same visual area on the shelf."
He also found smaller soaps, jars that hold less peanut butter and even narrower toilet paper!
It is sneaky, he wrote, but he didn't want to call it greedy.
"Simple inflation means that prices have to go up in order to stay the 'same.' But a shopper who notices they've raised the price may switch brands or stores. So retailers raise prices per ounce by making the product subtly smaller."
Roger Betancourt, an economics professor at the University of Maryland, uses some complicated equations to study all this. He pointed out that when the manufacturer reduces the amount of product per package, the cost per ounce is likely to go up out of necessity.
"The immense majority of products entail what are called quantity discounts or a higher price per unit for the smaller package sizes," he explained. "By using a smaller package ... the producer and the retailer incur slightly higher costs per ounce of milk in the packaging."
Smaller packages may not be all bad, Betancourt noted. They take up less room and may be used up before spoiling.
"If consumers value these attributes, the producers and retailers are responding by providing them to the consumer at a price. If consumers don't like the price, they should not pay it."
That brings us back to the sneaky part: keeping us from noticing the new price.
"It's like pulling an extension cord from underneath a sleeping cat," wrote Poundstone. "Do it slowly enough, and the cat doesn't stir."
Now, if you were really trying to do that, you'd keep a close eye on the cat to make sure it wasn't getting jumpy. Manufacturers do the same thing.
"The interesting [thing] is that there's now a whole profession of 'price consultants' who advise on such trickery. One of their most important tools is the loyalty card that people swipe at the checkout stand. The loyalty card people are the price-sensitive consumers who just might drive across town if they think the store has raised prices too much.
"Conveniently, the card data also tells what these shoppers buy and how often they buy it."
That's right, when you use that card to save a little bit, you're really telling the retailers and manufacturers if their changes were noticed or not.
I'm glad you noticed the ice cream carton change, but it looks like it's too late to turn back the clock on that one. They changed and we kept on buying.
But look on the bright side, that extra pint would have gone straight to your hips.
If you've got questions, please send them to woym@roanoke.com or leave your question on my voice mail at 777-6476 (please be sure to speak clearly and spell your name). Either way, I'll need your name and hometown.
