Hidden price increases: how do consumers react?
We are currently witnessing a widespread surge in consumer prices, which is causing concern among both citizens and governments (Purchasing power: rising prices are spreading August 25, 2022 issue of Que Choisir? magazine; The purchasing power of French people in five key figures September 2, 2022, RayonBoissons).
Gilles Séré de Lanauze, University of Montpellier and Béatrice Siadou-Martin, University of Montpellier
Currentinflation (measured by the consumer price index), recorded at an annual rate of 5.8% in August 2022, can be explained by multiple factors: rising raw material prices, shortages of certain components, the energy crisis, and supply difficulties.
With the return of soaring prices, the issue of purchasing power takes on a new dimension. Most consumers have never experienced this phenomenon, and only those who lived through the decade of oil shocks (1973-1983) can remember what double-digit average inflation rates were like.
The dilemma facing businesses in the face of inflation
Today, the return of inflation has led the government to intervene to decide on and implement measures to support purchasing power. For businesses, the problem is also significant. How can they respond to consumers' concerns about their purchasing power, and thus limit price increases, without sacrificing margins in a context of widespread cost increases? Manufacturers and distributors are therefore tempted to revive certain practices aimed at concealing price increases.
These techniques, which are often old, take various forms. Some may be purely commercial, i.e., based on promotional offers and visual price codes, without any real price reductions. They are more likely to be adopted by distributors.
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Others are linked to a change in the product, aimed at reducing the cost of the product without affecting the selling price. A change in format, a reduction in volume or number of units packaged, a simplification of the recipe or formula, a reduction in ingredients, or a decrease in quality are all ways to regain margin without affecting the listed price or the appearance of the product. This "shrinkflation" strategy is often favored by manufacturers.
Mixed reactions
Already during the 2008 crisis, practices of concealing price increases were heavily criticized in the press (for example, the investigation published by the magazine 60 millions de consommateurs entitled How brands use tricks to increase prices? in October 2008). These practices had prompted numerous reactions from consumers.
We conducted a study of these reactions on the web, the findings of which can shed light on the current issue. The results highlighted three types of reactions from consumers who detected hidden price increases on products:
- Responses showing understanding: nearly one-third of respondents understood and justified these commercial practices by citing business management imperatives (rising raw material costs, strategies for genuine product improvement, or even the pursuit of profit) or by criticizing consumers for not paying enough attention to the information and conditions relating to their purchases.
- Conciliatory responses: nearly 40% of responses acknowledged the deception and shortcomings of the system and at the same time proposed reducing its negative effects through more appropriate consumption choices: consume better, consume less, consume only essentials, consume differently (substitute products), adopt other distribution channels (hard discount, local sourcing), or develop substitutes for consumption and DIY (do it yourself) activities such as cooking, sewing, crafts, gardening, etc.
- Confrontational responses: nearly 30% of respondents called for some form of rejection and confrontation in response to the phenomenon. Some wanted structural changes to the system (government intervention, market regulation by the relevant authorities, standards, price controls). Others emphasized action and called for consumer empowerment through negative word of mouth or even boycotts.
Double injustice...
Faced with inflation and such commercial practices, questions of fairness and trust are not far behind. Consumers may feel that they are suffering a double injustice: distributive injustice, which characterizes the change in the terms of exchange in terms of remuneration/contribution, and which can only be suffered by the consumer, but also, often, by the other players themselves.
But another form of injustice may also exist: procedural injustice, which stems from the consumer's perception of a dishonest, opaque, and malicious system that defends the individual and selfish interests of the manufacturer or distributor.
The study mentioned above indicates that consumer reactions to this procedural injustice will be much more aggressive and virulent toward the manufacturer, brand, or distributor associated with the hidden price increase than their reactions to distributive injustice. Once again, transparency could pay off, especially in a context where social media can quickly inflame the discovery of concealment.
Gilles Séré de Lanauze, Senior Lecturer in Marketing, University of Montpellier and Béatrice Siadou-Martin, University Professor in Management Sciences, University of Montpellier
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