There’s a term companies are using more frequently these days: “price package architecture.” This is a way to entice customers to buy more items, sometimes at a higher price per item.
Zhang Aisha, host:
At the grocery store these days, you may have noticed that jars of peanut butter now come in small, medium, large, carry-on and kid’s sizes. What is this, shrinkage inflation, where companies raise prices under the cover of new packaging? NPR’s Planet Money’s Jeff Kuo says it’s not that simple.
JEFF GUO, BYLINE: There’s been a revolution in package size over the last 10, 15 years. To find out, I went to the grocery store with Alan Kan.
Alan Kan: No, it’s funny because I always say, after this job, I’ll never walk through a grocery store the same way again. Like, you can’t cancel it.
Guo: Ellen is a partner at Simon Kucher LLP. They are a consultancy that helps large, well-known brands determine how much to charge for a bag of chips, and the exact dimensions of a bag of chips. Increasingly, Allen said the answer is that there is no right size and companies should sell their products in multiple different sizes. The industry term for this is price package architecture. The trend is everywhere these days, from soda to snack foods, laundry detergent to paper towels, and even cheese.
Yes. This is canned.
KAN: Canned cheese.
Guo: Also, queso in a jar.
Jane: Yes.
Guo: Also, queso in a small jar.
KAN: There are a lot of questions.
Kuo: Now, manufacturing all these different package sizes is not cheap. But companies have realized there’s a lot of money to be made by using these different pack sizes to target different types of customers. For example, Allen said many people are willing to pay a premium for the convenience of these small travel or snack sizes. At the same time, larger packages are another way to encourage people to spend more.
KAN: I mean, take chocolate beans, for example.
Guo: Yes.
Jane: These are all new.
Guo: The bag that Allen is referring to is like half a pound of chocolate beans. She said these larger package sizes were meant to market to us. You know, the classic super-me tactic. They’re also designed to take advantage of (that’s a technical term for) the cookie jar effect, where the packaging will sit on the counter and just call out to you, enticing you to eat more chocolate beans. But it all really gets interesting when you start thinking about your pricing strategy, as well as your pack size strategy. For example, Ellen took us to the beer aisle and she pointed out all the wonderful craft beers.
KAN: Did you see this four-pack of beer?
Guo: Oh, yes.
Kan: Historically…
Guo: Six pack muscles.
KAN: …it used to be six yuan…
Guo: Yes.
Jane: …really?
Guo: But because craft beer is more expensive, the company doesn’t want to scare away customers with high prices.
KAN: You don’t want to display six-packs of beer on the shelf, which is too expensive relative to mainstream beers, right?
Kuo: Basically, craft beer companies have realized that a lot of people just don’t want to spend $20 for a six-pack of beer. They would rather buy less beer. This leads to contractionary inflation, where a company shrinks a bag of potato chips but keeps the price the same. This is a very annoying way for us to charge more per wafer. But the company is doing this because data shows some customers would rather buy fewer wafers than face higher prices. But Allen said deflating inflation is only a small part of a larger strategy. Companies have realized that if they can give us more variety at more price points—from carry-on sizes all the way up to party sizes—they can get us to buy more stuff.
Jeff Guo, NPR News.
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