Hidden Price Increases: How Are Consumers Responding?
We are currently witnessing a widespread surge in consumer prices that is causing concern among both citizens and government officials (Purchasing Power: Rising Prices Are Spreading 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 is taking 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 a double-digit average inflation rate was like.
The Dilemma Facing Businesses in the Face of Inflation
Today, the resurgence 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 retailers are therefore tempted to revive certain practices designed to conceal price increases.
These techniques, which are often long-standing, take various forms. Some may be purely commercial—that is, based on promotional offers and visual cues suggesting a low price—without any actual price reductions. These are more likely to be adopted 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.
Heterogeneous reactions
Even during the 2008 crisis, practices designed to conceal price increases had come under heavy criticism 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 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 regarding 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.
- Reconciliatory responses: Nearly 40% of the responses acknowledged the deception and the system’s shortcomings while also proposing ways to mitigate their negative effects through more appropriate consumer choices: consuming more wisely, consuming less, consuming only the essentials, consuming differently (substitute products), using alternative distribution channels (hard discount stores, local sourcing), or even developing alternatives to consumption and embracing DIY (do-it-yourself) activities 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 this phenomenon. Some called for structural changes to the system (government intervention, market regulation by the relevant agencies, standards, and 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 is characterized by a shift in the terms of exchange regarding compensation and contribution, and which is inevitably borne by the consumer—but also, often, by the other stakeholders 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 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 much 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 issue.
Gilles Séré de Lanauze, Associate Professor of Marketing, University of Montpellier and Béatrice Siadou-Martin, Full Professor of Management Sciences, University of Montpellier
This article is republished from The Conversation under a Creative Commons license. Readthe original article.