Making a profit and staying competitive while keeping customers satisfied is a challenge. Inflation only complicates that juggling act.
The escalating cost of living driven by growing overheads for utilities and logistics is a defining challenge for small businesses in 2025. By forcing brands to make concessions to maintain a viable business, difficult decisions must be made, and this means scaling back in one or more aspects. Something’s got to give.
For small businesses, inflation presents a complex obstacle. How can this obstacle be overcome in step with ensuring that customers are kept happy while operational costs don’t take too big a bite out of overall profit?
Why shrinkflation? The advantages and the drawbacks
What kind of concessions are being made, and how are they perceived by the public? As detailed in a recent consumer trends report, the process of reducing the unit volume of a product while charging the same price for it – aka ‘shrinkflation’ – blew up by over 50% in Q4 2024 compared to Q3.
A price hike is still perceived as the biggest turn-off for the public and a significant influence on consumer behavior, particularly if introduced without any accompanying promotion or consolation. To avoid this, more and more brands are pursuing the shrinkflation route instead.
Shrinkflation is generally considered the favorable option by brands due to the following reasons:
Profit maintenance
By maintaining the same dollar-per-unit figure, shrinkflation mitigates the need to make cuts in other areas to achieve the same rate of profit, thus keeping changes compartmentalized and relatively simple.
Avoiding the price hike
Consumers are thought to be much more sensitive to pricing than subtle changes to the product itself. Practicing shrinkflation dodges the unpopular price rise that alarms cost-sensitive shoppers.
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Leveraging a competitive price point
For many consumers, the shelf price of an item is and will always be the determining factor in their purchase decisions. Shrinkflation allows a brand to remain in the race for the dollar of this particular demographic.
Of course, the shortcomings of the shrinkflation approach are inherent. Consumer complaints are on the rise as shoppers become increasingly sensitive to product size and pricing.
Shrinkflation tests customer trust and loyalty
There are fewer things that the savvy consumer despises more than feeling cheated. Shrinkflation is recognized by many as an audacious sleight of hand that insults the customer and takes their brand loyalty for granted.
55% of those questioned in this survey believe shrinkflation to be a ‘major problem’ in the US, many of whom would likely take their business elsewhere if they saw a brand engaging in shrinkflation practices.
Social media chatter and poor online reviews
By upsetting a vocal segment of their customer base, brands make themselves vulnerable to an online backlash spearheaded by negative reviews on popular platforms and bad publicity across social media.
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Harming brand image
While shrinkflation may be adopted as a short-term solution unless managed cautiously, the resulting reputational damage and lost consumer confidence will make itself felt very quickly and set a small business up for the difficult task of regaining lost customers.
What should a small business focus on to ensure customer satisfaction?
To finesse any inflation-prompted changes, businesses need a clear understanding of the mindset of their market. Upon this foundation, brands can work with the needs of their customers to find the best ways to balance financial demands with the requirements of the consumer.
Be open, straightforward, and honest about any changes
It’s naïve to think consumers won’t notice changes. While some may not recognize the differences immediately, they will certainly hear about it from those who do. To prevent this situation from being framed as a scandal, a small business should be upfront and put the changes into their own words. Be transparent, communicate the reason for the changes clearly, and invite direct feedback from your customers.
Add value for the customer in other ways
Consumers don’t always rate the products they buy based on price or volume. An emphasis on quality or other factors that influence consumer trends and purchasing decisions – for example sustainability – can be the differentiator that gets the sale.
Value can be perceived in other ways, too. Loyalty discounts for repeat buyers, value packs that give a discount for bulk purchases, and other incentives can all sweeten the deal.
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Seek behind-the-scenes solutions
Price hikes and shrinkflation aren’t the only inflation-proofing tactics available to a small business – it’s not always necessary that the consumer foots the bill. Looking into supply chain possibilities or renegotiating contracts with existing suppliers is a viable approach to making up for the inflation shortfall.
Internal audits can also be a smart means to cut costs. Businesses can identify process inefficiencies and inessential outgoings and make changes in these areas to maintain profitability without penalizing their customers.
Be attentive to customer needs and engage with feedback
The voice of the customer can be the guidance that a small business most benefits from during the inflationary crunch. Understanding what matters most and what customers could live without will inform a strategy that solves problems of profitability whilst having the smallest possible impact on the consumer.
Feedback from surveys, customer service interactions, and online reviews are an effective means of gauging current sentiment around your brand and are instructive as to where changes should and should not be made based on real consumer insights.
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Indeed, customer service also plays an important role in managing customer reactions to any changes that take place. Addressing concerns quickly and satisfactorily will see a brand assert itself as customer-centric–considered by many as equal to or even surpassing price and product factors.
To this end, CS staff that are trained to understand and handle inflation-related queries, and thus handle them in an empathetic, solution-oriented way rather than being unhelpful or dismissive, are invaluable. Furthermore, AI integration into the customer service process can boost customer satisfaction by facilitating speedy responses to customer inquiries by assigning simple, easily addressed questions to automated systems.
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Surviving inflation as a small business
Small businesses need to be shrewd when choosing how to mitigate inflationary pressures. Whilst shrinkflation is being applied as a solution in many corners, it does come with inherent reputation-damaging risks if not applied judiciously.
Consumer trends in 2025 are forecast to see shrinkflation become an even hotter topic, so transparency and direct communication with customers are essential if this approach is to be taken. Alternative solutions that focus on internal changes, such as process optimization, should also be explored before pushing ahead.
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