Pricing Strategy Of Taking The Costs Out Of Products

On July 25 the Wall Street Journal published an article titled “‘Desheeting’ Shrinks Rolls, Plumps Margins.”  The article discusses the practice of shrinking the volume of a product but keeping the price the same, referred to in the article as “desheeting”,”taking the weight out”,”volume shrinking” and “downsizing.”

An excerpt from the article:

Companies, particularly in the food business, have long shrunk packages as an alternative to hiking prices in the face of higher raw-material costs. Cereal boxes and bags of chips have in many cases become lighter over the years in what the food industry refers to as taking “weight out.” A regular Snickers bar now weighs 1.86 ounces, down from 2.07 ounces in the past, which Mars says was done to cut calories to 250 per bar. Tropicana Pure Premium orange juice is now sold in 59 ounce bottles, versus 64 ounce cartons prior to 2010.

My comments:

The practice of shrinking the product’s volume, instead of raising prices, seems (very) common.  Of course, a similar practice is often used for durable goods, in which costs are removed from the product in order to maintain (or increase) product profitability.

While these practices are widespread, and may seem like a “sensible” approach to deal with rising product costs and/or substandard product profitability, there are many potential drawbacks and caveats to these types of pricing “tactics.”  Adverse impacts can occur in a variety of areas, including competitiveness, product positioning, and value proposition, to name a few of the more readily apparent areas.  As such, I don’t believe that such pricing “tactics” should be done without a comprehensive analysis of the impact of such implementations.

Of note, many of the (full) adverse impacts may not immediately manifest and/or become readily apparent until some time in the future.


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