The increase in VAT to 20% from January 1, 2019, in Russia, provoked a rise in prices for all groups of goods. We should also pay attention to the behaviour of both consumers and producers. First of all, for consumers, the price increase was an unpleasant surprise. After all, their increase was not the difference in VAT increases of 2 p.p. For a number of food items, prices rose by 15 and 20%. Thus, manufacturers and retailers made a step to cover their costs, because previous months worked without changing prices.
Since January 2019, the downsizing of FMCG product packaging has been actively manifested. Thus, non-standard packaging of eggs appeared on the counters of stores in Russia - for nine pieces at the same price as ten pieces. It is worth noting that eggs were among the leaders in the ranking of the more expensive products at the end of 2018, despite the fact that their production was growing in 2018. Even earlier, a package for cereals was cut from 1,000 and 900 to 800 grams. Producers of carbonated drinks are pouring into bottles, not a litre, but 900 millilitres, the weight of bread decreases. Is this a response to a consumer request or a conscious attempt to save money? One of the main reasons for what is happening, according to experts, is the rising cost of inflation — rising prices for feed, utilities, and so on. In addition, increased VAT, it is necessary to index wages. And these changes have caused negative emotions in consumer behaviour. What is the reason for this fact?
The food industry has long established certain standards for the masses and volumes of food packaging. For different categories of products, these standards were their own. For example, 0.5 litres was the most popular volume for bottling and alcoholic (vodka, beer), and soft drinks (lemonade), the wine was bottled in 0.75 l bottles, sour cream was packed in 500 and 250 ml, the package of butter weighed 200 g, and chocolate bar - 100 g.
Even 30 years ago everything was simple and clear. Packing standards were determined by the convenience of production, including packaging, or product accounting: in the Soviet period, products were manufactured according to state standards using a no brand system, products of regional producers of the same category did not differ much, and their prices were approximately the same, often without taking into account the difference in the organization of production processes and costs of a particular enterprise.
In a market economy, packaging standards are gradually disappearing: today in one shelf you can find milk in containers of 0.97, 0.95, 0.83, 0.75, 0.6, 0.45 litres and other volumes, a chocolate bar can weigh 95, 90, 87, 75, 45 and fewer grams. Everywhere products are packed more and more beautiful and in smaller volumes.
Unfortunately, the media often presents this in negative colour as a way of deceiving consumers for the benefit of manufacturers and retailers. At the same time, manufacturers, indicating on the labels “incomplete” litres and kilograms, are everywhere accused of underfilling, underweight and unfair treatment of consumers. One of the unfortunate examples of downsizing is the case when, in England, the manufacturer of famous Toblerone chocolate reduced the weight of a product by increasing the gaps between triangles, for which they received many complaints from consumers.
In the professional literature, downsizing means reducing the weight or volume of a product in a package without changing the price. If we turn to the literal translation, the word “downsizing” means “reducing (reducing) the size”. The term does not contain references to any value characteristics of a product, appealing exclusively to the size of the package or the quantity of the product in it.
Over the past decade, the cost of many goods has almost doubled, and prices could have been even higher if enterprises had not constantly adapted their business processes and products to changing conditions and price increases for currency, gasoline, etc. Therefore, the indicators inflation across the country and the cost of the food basket does not reflect the whole picture of the development of the food industry and its many segments. When an official assessment of the inflation rate in the country is compared at the price of goods that do not change their quality characteristics over time.
The method of calculating the inflation index does not take into account the innovation and marketing activity of enterprises aimed at stimulating sales of their products. Inflation reflects the change in prices for a group of goods intended only to maintain basic human life but does not increase his level of satisfaction with life. Also, the official inflation index does not take into account changes in the prices of chocolate, yoghurts with fillers, cakes, carbonated drinks, skim or vegetable milk and other products, which the consumer could easily do without if he wanted.
At the same time, various external and internal factors also influence the production and marketing activities of an enterprise. If competition increases in different categories, multidirectional phenomena can be observed, and with an average inflation rate of 2-3% in the country, due to seasonality and supplier stocks, the cost and price of shelves in stores of the same category can vary significantly.
In conditions of high competition, an increase in the price of a product may frighten off customers, so manufacturers, not being sure of the stability of sales of goods at a higher price, avoid such decisions and feel the need for more sophisticated tools like downsizing.
In fact, the concept of downsizing does not exclude changes in the price of a product in parallel with the change in its volume. Given the price elasticity of demand for most food products, the sale of goods in smaller packages, but at a lower price, could well be used to expand sales and increase company profits, but unfortunately, this does not occur on the market.
Downsizing is one of the most effective tools for launching new products on the market. If the product is new, consumers have not yet formed any expectations regarding its characteristics. The first purchase is always a trial, and no one will ever buy an unknown product in large quantities. When withdrawing a new product, it is more reasonable to distribute the entire volume produced to as large a quantity of container as possible and to present it to as many customers as possible, some of which are planned to be used in the future for regular consumption.
In practice, downsizing is recommended in the following ways:
1) Noticeable, by 25-50%, reduction in the size of the packaging of the usual goods, based on consumption situations and consumer needs with a simultaneous (but not necessarily proportional) decrease in the price of it, for example, the production of alcohol products in containers of 375 ml, 250 ml and 100 ml. It is recommended not a direct replacement of a larger product with a similar one in a smaller container, but a parallel display on the shelf of a new volume in order to evaluate the sales of both products for 1-6 months and to conclude that both formats are cost-effective.
2) Reduction in the size of the package (including an insignificant one) with a parallel change - increase - in the characteristics of the goods in order to present the goods to consumers as new or improved. In this situation, both production factors (manufacturer's convenience in terms of production and packaging of the product, its storage, transportation, display on the shelves in stores; shortage of raw materials), and consumer trends (situations of consumption, volume of single consumption, daily rate of consumption of products; modern image and rhythm of life; convenience and aesthetics of packaging / packaging; shelf life and use of the product).
Downsizing makes products more accessible to the consumer without reducing their value, which occurs when using discounts, sales and other promotions. Users become accustomed to stock purchases, and after prices return to the standard level, manufacturers experience a sharp decline in sales. A more expensive product is usually perceived as better, but less accessible, due to the budget constraints of the individual consumer or value ideas about the value of certain products. At the same time, the product at a low price, albeit in a smaller package, is perceived at the same time as more affordable and more qualitative.
One of the downsizing directions is secondary/intermediate group packaging - when several small-sized packaged products in individual packaging are combined into one package. A small package with a product appeals to the individual taste preferences of consumers and one-time consumption of the product in the freshest form thanks to just opened package. That is great for carbonated drinks.
Downsizing affects not only the food market but also household chemicals, as well as the scope of services and other non-material products. Downsizing is justified in the segment of detergents that vacationers take with them on vacation, business trips, and sports activities. The trend of “relief” is also observed in the service sector - “test” versions of subscriptions, services, applications allow the consumer to try a new product for him with the least risk and low cost and make a rational decision about further consumption or rejection of it.
Thus, reducing the volume or weight of a package can be not just a marketing ploy, but a serious economic tool, financially sound and effective in terms of overcoming the crisis phenomena in the country and improving the welfare and health of the nation.