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Service sector ‘shrinkflation’ has some benefits

Cash is fanned out from a wallet
Associated Press/Elise Amendola
In this June 15, 2018, file photo, cash is fanned out from a wallet in North Andover, Mass.

Inflation continues to impact the buying power of consumers. To further exacerbate the situation, companies not only raise prices, they also employ ‘shrinkflation’ to shrink the amount of food or product that a prepackaged unit holds. Whether it be packages of toilet paper, cartons of juice, or containers of ice cream, consumers have been paying more for less for years.

Clever packaging using opaque definitions of servings, or labeling packages as “family sized” or “improved” have created sufficient “smoke and mirrors” to keep consumers off guard and lull them into a calming state when shopping. Such marketing techniques are the work of consumer magicians, creating an illusion of greater value when less product is being offered.

What has received less attention is how shrinkflation has impacted the service sector. 

Consider air travel. The distance between seats on an airplane can be adjusted to make room for more passengers on a flight. This distance, referred to as the seat pitch, can be found for every airplane in an airline’s fleet. By reducing seat pitch by just one inch, an extra row of seats can be added on some airplanes. Seat width on wide-body airplanes can also be reduced to add an extra seat in each row. With America’s obesity epidemic running rampant, that small amount of lost space can make a two-hour flight far less comfortable for some passengers. 

The same principle applies to paying for checked baggage, preferred seating and early boarding. Airlines have created clever ways to increase revenue while keeping ticket prices down. Low-cost airlines have been particularly adept in doing this, offering deeply discounted ticket prices with ample add-ons that enhance their bottom line. 

Moving call centers offshore is yet another example of service sector shrinkflation. Companies can staff and operate such centers at lower costs due in part to lower labor and technology costs. Such offshoring is invisible to consumers until they require assistance with a product. Some argue that the quality of offshore call centers is inferior to domestic call centers (which studies suggest are what consumers prefer). As such, some companies are rethinking offshore call centers, bringing them back onshore

In other facets of the service sector, we are also expected to both do more and pay more. 

Technology has facilitated shrinkflation, by moving more tasks and activities from the company to the user.

Credit card and bank statements are now offered electronically, rather than being sent in the mail. If paper copies are wanted, a fee may apply. This is also the case with other recurring monthly bills, like utilities and cell phones.

Such convenience benefits providers, by reducing the cost of processing such documents, but also consumers, who have immediate access to their accounts, less paper clutter, and they can manage all their finances from their smartphone or computer. This is a case where shrinkflation creates a win-win for everyone. 

The one downside for electronic billing and payments is that weekly or monthly subscription charges get billed without any effort. As such, they can fly under the radar unless they are stopped intentionally. This could include gym fees, newspaper website access fees, or television cable service fees. The adage “out of sight, out of mind” may lead to additional expenses that are being paid unless a close examination of bills, charges, and statements is conducted, something that many do not bother to do. 

The question that remains is where will shrinkflation end?

Mail service has already been slowed down with higher postage rates. Will mail service eventually be reduced to three or four delivery days per week? Will the weight limit for a one-ounce first-class letter be reduced to nine-tenth of an ounce?

Our health-care system is fraught with higher deductibles and fees paid, with lower levels of service delivered. Your next visit to the clinic may unexpectedly be with a health care provider like a nurse practitioner rather than a physician. The health insurance industry has been adept in guiding many changes using techniques like prior approval requirements, resulting in lower costs for them.

Shrinkflation is about more than just less product. It is also about less service. Where this spiral of cost savings will end is anyone’s guess. What is certain is that it will continue as long as more tasks can be pushed to consumers, with few opportunities for recourse.

Sheldon H. Jacobson, Ph.D., is a founder professor of computer science at the University of Illinois at Urbana-Champaign. With a background in probability modeling and data science, he applies his expertise in data-driven risk-based decision

Tags cost of living economy Inflation Service sector Sheldon H. Jacobson travel

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