What to Do When the Cost of Goods Goes Up
Make the Product Smaller or Raise the Price?
U.S. energy and labor costs have stayed flat and inflation has been reasonably stable for several years. In fact, price increases have proven to be challenging lately even though food inflation has matched overall inflation for more than a decade. However, fast-moving consumer goods (FMCG) manufacturers and retailers, especially those who sell food products, remain under constant pressure to grow margins and profit—a task that often requires more strategy than simply raising prices.
But there’s one in particular that works best when the price of goods is high called "downsizing." Downsizing is essentially when a manufacturer makes its product size smaller but either keeps the price the same or does a price increase and downsizes to increase margins.
In this white paper, we’re going to focus primarily on downsizing: when it’s beneficial, how to do it effectively and how it can help companies protect their margins, especially when the cost of goods is high.