Raising Prices in the Face of Deflation is Not Smart

“I think Pringles’ initial intention was to make tennis balls. But on the day that the rubber was supposed to show up, a big truckload of potatoes arrived. But Pringles was a laid-back company. They said [expletive], cut ’em up.” – Mitch Hedberg

We are experiencing a bit of credit deflation of late – despite the government’s best attempts to cause inflation. When we see a decrease in the money supply (including credit), one would assume dollars are getting more valuable. In this framework, one would also suspect that prices would go down. But, we can certainly point to instances where this drop in prices doesn’t materialize. I have a number of personal, anecdotal experiences that point to price increases, though in rather subtle ways.

Many consumers (certainly not all, and maybe not most, but many) buy the things they need/want on auto-pilot. Sure, they look for price deals, but those generally reduce to picking one brand over another, or buying more when something is on sale. We don’t often see wholesale breaks where folks simply say, “the marginal price of that item has increased too much so I am going to go without.” It is the “go without” that seems tough for us to handle.

For the customers who do regularly watch the prices, price increases are a clear red flag setting off a “no buy” alarm. Here, retailers have a problem. They want to get more money out of customers, particularly in a recession. However, they don’t want to drive customers away. What to do? Well, the next best thing is to hold the price constant and decrease the amount of product supplied. This is an effective price increase. (Clearly it’s not as effective as actually increasing prices – fixed costs such as transport and storage remain the same, but material costs go down which increases the bottom line.)

Back in 2008 ice cream makers cut their standard packages from 1.75 quarts to 1.5 quarts, apparently attempting to snow consumers. It worked for a while – but only for a while. Eventually consumers caught on and felt a little duped. (Now, the ice cream producers have every right, in a free market, to raise prices – and consumers have every right not to buy ice cream.)

Today I went to Target with two of my boys and we bought a can of Pringles (they really like Pringles). Upon opening the can, it was patently clear that the chips were smaller in width. There were still just as many – the tube was filled to the top. However, the chips were not as wide, indicating less potato powder was put into each chip. Raising prices in the face of deflation; not a smart move.

Now that millions of consumers who read this blog are onto the game, Pringles could be in for some hard backlash. Perhaps they should fix the problem before the public anger boils over.

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One Response to Raising Prices in the Face of Deflation is Not Smart

  1. beverlylynn says:

    And how long ago was a half gallon container of ice cream actually a half gallon container?!

    I will no longer buy pringles (not that I really bought them before). :0) But as a side note, did you know that pringles have such a high fact content that you can light them on fire and they will burn slowly like a wick? (this trick also works with Brazilian nuts.)

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