TAYLORSVILLE, UT | 25 July 2008 | When we buy gas at the pump, we see an obvious connection between the amount we get and the amount we pay. At times, the price goes up and we all recognize that filling up our tank will cost us more. At times, the reverse is true. Either way, it is easy for us to determine if we are willing to pay the current price in exchange for the amount of gas that we feel we need.Would we feel the same way if it was the quantity of gas that fluctuated, rather than the price? If the price of gas was fixed at $2, but, at times that $2 would buy you a full gallon, and at other times it would only buy you a half gallon, would it be cause for concern? The end result would still be the same—a full tank of gas would always cost more than you hoped it would. But, would you feel deceived when your $2 didn’t buy as much as they used to?

Well, some consumers are concerned that this has been happening at the grocery store. As prices have continued to rise, some food companies have recognized that there is a threshold price for any given commodity. When the price reaches that threshold, consumers will simply stop buying that product. Rather than continue to push the price to the threshold point, food companies have decided to change tactics. They have repackaged items in smaller amounts and still charge the same price. The end result is the same—a gallon of ice cream will cost you more than it used to. But, consumers aren’t used to thinking in terms of “product decreases”, and some feel that the practice is a little deceptive.

Key Points

• Consumers enter transactions freely. While it is frustrating to get less than you thought you were getting, that is the consequence of your choice. As the agent in the transaction, it is the consumer’s stewardship to verify the facts before paying for anything. (Makes grocery shopping sound fun, doesn’t it?)
• The beauty of the invisible hand in the free market system is that it leads entrepreneurs to find better, more efficient ways to create value. Deception (a form of force) hinders that process, and ultimately destroys freedom.
• If the market doesn’t continue to support your product, deception will never substitute for a sustainable marketing plan. Dollars follow value, and if the value you present doesn’t attract dollars, then it’s time to re-think your value proposition.
• Consumer-minded people believe that remaining competitive is solely a function of pricing. “If competition gets tight, find a way to give less or charge less.” This scarcity-based mentality is an unsustainable lose-lose situation where neither party really feels that it is getting what it needs from the exchange.
• A better idea, as suggested in “Blue Ocean Strategy”, is to figure out ways of tailoring the value you offer to match the value that the market place is looking for. When my wife and I go to our favorite restaurant, the price isn’t our focus. We go because the quality of the food and the experience are exactly what we are looking for.

Conclusion

Food producers have a bottom line to focus on. That bottom line has to include the costs of raw materials, transport of those materials, production and processing, product marketing, and transportation to their vendors. The costs in all of those areas have increased significantly in recent months, and that leaves the companies with a difficult choice. While consumers are responsible for the choices they make when spending their money, grocery companies should let the invisible hand work its magic. Exchange creates wealth only when both parties are getting what they think they are getting from a transaction. If there is a need to change pricing structures, make it obvious to the consumer. Rather than hope that consumers don’t catch on to what they are doing, food producers should be up front and let the market decide. Otherwise, deceptive marketing practices will almost certainly make that decision for them.

Action Items

1. Before entering any transaction, see that your expectations are being met. Failure to do so does not entitle you to play the victim card later.
2. When your obligations become difficult to meet, determine that you will never try to deceive others in an attempt to give less than is expected.
3. Read “Blue Ocean Strategy—How to Create Uncontested Market Space and Make the Competition Irrelevant”.
4. Realize that productivity, not pricing, is the standard.
5. Consider how you can increase and customize the value that you offer to your family relationships and your business relationships.

MRFC Principles: (4, 7, 8, 9, 10, 11)

Sources

Four Points Media, “Incredible Shrinking Consumer Products”, KUTV 2 News, July 22, 2008.

(Matthew Pilling is a member of the FreeCapitalist movement known as the Canadian Capitalist. Despite his time in the Great White North, Matthew loves America and all that it stands for. He lives with his wife and two children in Taylorsville and works in finance.)