Is P&G’s plan to cut package contents to increase prices a winner ?

Posted on September 16, 2013 by aviyer2010

An article in the Wall Street Journal (September 8, 2013) describes a plan by Proctor and Gamble (P&G) to reduce 8 diapers from a box of 140 while maintaining the price, thus raising prices by 6%. This policy follows the “de-sheeting” trend in the paper industry, which the article claims was used by Kimberly-Clark to increase prices by 13%. Will diaper buyers attribute their need for more frequent purchases to usage, rather than smaller pack sizes, and thus be unable to recognize the pack size reduction ? Are such schemes to increase prices less demand disruptive than price increases for the original pack sizes ?

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This entry was posted in Operations Management, Supply Chain Issues and tagged Capacity, Consumers, Cost, Margins, package sizes, Retail. Bookmark the permalink.

7 Responses to Is P&G’s plan to cut package contents to increase prices a winner ?

yanbingshi says:

September 16, 2013 at 9:26 pm

It is hard for consumers to notice a reduction in the quantity of products given that the a large number of diapers in each pack.What’s more, many consumers would rather companies reduce the quantity of products in each pack than lower the quality.It seems that this strategy is good for companies that have to raise prices in the face of competition from store brands and other cheaper alternatives.But overwhelming reliance on “desheeting” and other volume-shrinking tactics will definitely undermine company’s image and lead to loss of consumers.

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Qiutong Zhang says:

September 17, 2013 at 11:10 am

Customers are hard to find missing 6 packs in the large package. After they find out ,they may think the P&G are trying to find a way to cheat the customers, that is not a good way. Unless P&G can announce that they make some changes to the diapers and increase the quality.

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Gopal says:

September 18, 2013 at 8:28 am

Game theory dynamics probably will be at play here. If the competition decides to cooperate(by also reducing their quantities to increase price), they both win. If KC decided to advertise the decision by PG on their packaging and promo material(such as promise for more bang for the buck), they stand to gain a lot of market share.

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Yuntao Guo says:

September 18, 2013 at 10:45 am

They will notice the changes, but they will not reduce their demand for the diaper. I think there are at least two reasons related to this.
Proctor and Gamble (P&G) is one of the dominate players in this industry and they have the market power to make the changes.
In addition, the marketing power and reputation will also contribute the purchase of the diaper. Proctor and Gamble (P&G) will focus on selling “every diaper P&G offers will be more absorbent and soak up more leaks”, instead of the changes in quantity.

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arpitmehra says:

September 23, 2013 at 3:52 am

This is a tactic commonly used by retailers and is known as “downsizing” and is merely done to improve profit margins. It is more to do with the psychological play around with consumer minds than to really add value to the consumer by providing better quality.
Being a market leader one can experiment changes and when the competition is also doing the same it becomes as a win situation for both.
Demand is less disruptive in the case of changing quantity per pack since a price change is a well spotted phenomenon than quantity per box change. A consumer going with quality product in the basket will look at the price per diaper comparison between P&G and KC products and will only shift loyalty in case of a huge price difference.

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Matt L. says:

September 23, 2013 at 8:57 pm

I found myself today in this same kind of dilemma…not with diapers, but rather when contemplating different quantities of slices of cheese. I believe most consumers do this weighing sub consciously when comparing two items. For perishable items, it boils down to how much do I think I can consume relative to the amount of money I want to spend. In other situations, it may come down to simply the budget. In the case of P&G, the situations that I described will command two different buying behaviors from their consumers. Once consumers make the realization that they are buying fewer diapers for the same price, they will either change their buying habits or be forced to price it out on a per diaper cost. On the other hand, since diapers are a non perishable item, some consumers will choose to buy in bulk and not caring about a 6% price difference. Finally, budget minded consumers will look for the lowest priced item and go with that. If P&G is able to offer a lower price compared to its competitors regardless of a small difference in quantity, they may be able to pick up additional customers.

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John Nafar says:

September 25, 2013 at 10:32 pm

I think P&G’s plan to cut package contents to increase prices is a winner because removing eight diapers from a quantity of 140 is great way to disguise a price increase because I think the majority of consumers will look at it as their only losing about six percent of the quantity of diapers instead of there is a price increase of 13%. Obviously, P&G needs to be aware of what Kimberley-Clark is offering to consumers before making these type of moves because that is their main competitor in the diaper industry. In 2010 P&G lost market share to Kimberly-Clark due to issues with their pamper’s product giving rashes to babies. When it comes to diapers consumers are more concerned about the quality than the price because consumers care more about the health and safety of their babies than the price. So, if P&G are able to convince consumers that their diapers are of good quality then the six percent decrease of diapers in the eyes of the consumer is minimal and therefore would make their increase price strategy a winner. I think this strategy would be extremely effective if they used the increased profits to advertise on the quality of their product because that is what the consumer is most concerned of.

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