Why Are FMCG Companies Turning to Shrinkflation?

What should FMCG companies do when the cost of raw materials rises, increase prices or reduce product sizes?

In this episode of Viewpoint, Pranav Jindal, Associate Professor of Marketing at ISB, explores the strategic logic behind shrinkflation, where firms reduce package sizes while keeping prices unchanged.

He explains why consumers tend to notice price increases more readily than changes in package size, how past prices become reference points for purchasing decisions, and why firms with limited pricing power may be cautious about raising prices. He also discusses the risks of shrinkflation, including consumers perceiving it as deceptive and becoming less loyal to a brand.

Prof. Jindal further examines how firms should respond to temporary versus permanent cost increases, and when absorbing higher costs may be preferable to passing them on to consumers.

Watch the full discussion to understand the behavioural and pricing considerations that shape how FMCG companies respond to rising costs.