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Companies are using 'price pack architecture' to get consumers to buy more

AILSA CHANG, HOST:

At the grocery store these days, you may have noticed that a jar of peanut butter now comes in small, medium, large, on the go and kids sizes. What is this, shrinkflation, companies raising prices obscured by new packaging? Well, Jeff Guo from NPR's Planet Money says it's not that simple.

JEFF GUO, BYLINE: Over the past 10, 15 years, there's been this revolution in package sizes. To understand it, I went to the grocery store with Ellen Kan.

ELLEN KAN: No, it's funny because I always say, like, after this job, I will never walk through a grocery store in the same way ever again. Like, you can't unsee it.

GUO: Ellen is a partner at Simon-Kucher. They're a consulting firm that helps big, famous brands figure out, like, how much to charge for a bag of chips, and also, the exact right size for a bag of chips. Ellen says, increasingly, the answer is that there is no one right size, that companies should be selling their products in many different sizes. The industry term for this is price pack architecture. And you see this trend everywhere these days, from sodas to snack foods to laundry detergent to paper towels - even queso.

Yeah. This is queso in a can.

KAN: Queso in a can.

GUO: But also, queso in a jar.

KAN: Yeah.

GUO: Also, queso in a small jar.

KAN: It's a lot of queso.

GUO: Now, manufacturing all these different package sizes is not cheap. But companies have realized that you can make a lot of money using these different package sizes to target different types of customers. For instance, Ellen says a lot of people are willing to pay a premium for the convenience of those little travel size or snack-size packages. At the same time, bigger packages are another way to get people to spend more.

KAN: I mean, if you just take the M&Ms, for example.

GUO: Yeah.

KAN: These are new.

GUO: The pouch that Ellen's pointing to, it's like half a pound of M&Ms. She says these larger package sizes are there to upsell us. You know, it's the classic super-size me strategy. They're designed also to tap into - and this is a technical term - the cookie jar effect, where the package will sit on the counter, just calling to you, enticing you to eat more M&Ms. But where all this really gets interesting is when you start thinking about pricing strategies, as well as package size strategies. For instance, Ellen took us to the beer aisle, where she pointed to all the fancy craft beers.

KAN: So you see these four-packs of beer?

GUO: Oh, yeah.

KAN: Historically...

GUO: They were six-packs.

KAN: ...They used to be six-packs...

GUO: Yeah.

KAN: ...Right?

GUO: But because craft beer costs a lot more, companies don't want to scare customers away with a big price tag.

KAN: You don't want to show up on shelf with six cans that's, like, crazy expensive relative to more of a mainstream beer, right?

GUO: Basically, what the craft beer companies have realized is that many people just cannot bring themselves to spend, like, $20 on a six pack of beer. They would rather just buy less beer. And that brings us to shrinkflation, where companies shrink, say, a bag of chips but keep the price the same. That is a very annoying way to charge us more per chip. But companies do it because the data show some customers prefer to buy less chips than to face a higher price tag. But Ellen says shrinkflation is just one small part of this much bigger strategy. Companies have realized that if they can offer us more variety at more price points - from on-the-go size all the way to party size - they can get us to buy a lot more stuff.

Jeff Guo, NPR News. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Jeff Guo
Jeff Guo (he/him) is a co-host and reporter for Planet Money, NPR's award-winning podcast that finds creative, entertaining ways to make sense of the complicated forces that move our economy. He joined the team in 2022.
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