Hidden price hikes: How are consumers reacting?
We are currently witnessing a widespread surge in consumer prices that is causing concern among both citizens and policymakers (Purchasing Power: Rising Prices Spread August 25, 2022, from Que Choisir? magazine; French purchasing power in five key figures September 2, 2022, from RayonBoissons).
Gilles Séré de Lanauze, University of Montpellier and Béatrice Siadou-Martin, University of Montpellier
Currentinflation (as measured by the Consumer Price Index), which stood at an annual rate of 5.8% in August 2022, is driven by a number of factors: rising commodity prices, shortages of certain components, the energy crisis, and supply chain disruptions.
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 the oil crises (1973–1983) can recall what it was like to have an average inflation rate in the double digits.
The Dilemma Facing Businesses in the Face of Inflation
Today, the return of inflation has prompted the government to step in to devise and implement measures to support purchasing power. For businesses, the problem is also significant. How can they address consumers’ concerns about their purchasing power—and thus limit retail price increases—without sacrificing margins amid widespread cost increases? Manufacturers and distributors are therefore tempted to revive certain practices aimed at concealing price increases.
These techniques, which are often time-honored, take many different forms. Some may be purely commercial in nature—that is, based on promotional offers and visual cues suggesting low prices—without any actual price reductions. Such tactics are typically employed by retailers.
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Others involve modifying the product to reduce its cost without affecting the retail price. A change in format, a reduction in volume or the number of units per package, a simplification of the recipe or formula, a reduction in ingredients, or a decline in quality are all ways to restore profit margins without affecting the listed price or the product’s appearance. This “shrinkflation” strategy is often favored by manufacturers.
Mixed reactions
Even during the 2008 crisis, practices designed to conceal price increases were heavily criticized in the press (for example, the investigation published by the magazine *60 millions de consommateurs* titled How Brands Use Tricks to Raise Prices? in October 2008). These practices had sparked numerous reactions from consumers.
At the time, we conducted a study of these online reactions, 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 indicating understanding: nearly one-third of respondents understood and justified these business practices by citing corporate 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 terms and conditions related to their purchases.
- Conciliatory responses: nearly 40% of the responses acknowledged the deception and shortcomings of the system while suggesting ways to mitigate its negative effects through more informed consumer choices: consuming better, consuming less, consuming only the essentials, consuming differently (substitute products), adopting alternative distribution channels (hard discount, local sourcing), or even developing alternatives to consumption and DIY (do it yourself) such as cooking, sewing, home improvement, gardening, etc.
- Confrontational responses: nearly 30% of respondents called for some form of resistance and confrontation in the face of the phenomenon. Some called for structural changes to the system (government intervention, market regulation by relevant agencies, standards, price controls). Others emphasized action and called for consumer empowerment through negative word-of-mouth or even boycotts.
A double injustice…
In the face of inflation and such business practices, questions of fairness and trust are never far behind. Consumers may feel they are facing a twofold injustice: a distributive injustice, which involves a shift in the terms of exchange regarding compensation and contribution—an injustice that consumers, and often other stakeholders as well, can do nothing but endure.
But another form of injustice may also exist: procedural injustice, which stems from the consumer’s perception of a system that is dishonest, opaque, and malicious, and that serves the individual and self-serving interests of the manufacturer or distributor.
The study mentioned above indicates that consumers’ reactions to this procedural injustice will be far more aggressive and vehement toward the manufacturer, brand, or distributor associated with the hidden price increase than their reactions to distributive injustice. Once again, transparency could pay off, particularly in a context where social media can quickly turn the discovery of such concealment into a major controversy.
Gilles Séré de Lanauze, Associate Professor of Marketing, University of Montpellier and Béatrice Siadou-Martin, Professor of Management Sciences, University of Montpellier
This article is republished from The Conversation under a Creative Commons license. Readthe original article.