Size is perhaps the most neglected marketing tool. On a search of EBSCO’s Business Source Complete, I counted no less than 1,890 articles published in marketing journals in the past 10 years about price, but only 22 addressing package or service size issues. It seems that marketing managers seldom question the product sizes they’ve inherited.
Sometimes these sizes were once imposed by regulation, but in most product categories any such regulations have long since ceased to apply (except in a few special cases like alcohol). Butter packs in the U.S., for example, were once required to have a minimum size of 225gms (eight ounces), which meant that the range of U.S. sizes was different from that available in Europe: 125gms, 250gms, or 500gms. The regulations no longer apply, but manufacturers have kept to these sizes in the two regions.
When marketers do change product sizes, it’s nearly always in one direction: up. This makes financial sense in industries with high fixed costs and low variable costs: larger sizes enable the company to charge higher prices that, even if they are just slightly larger, absorb a higher portion of fixed costs, while reducing packaging cost per volume and attracting value-minded consumers. Hence the great deals on large popcorn and fountain drinks in movie theaters where a gigantic 51 oz. drink costs only $1 more than the “small” 30 oz. drink at $4.75. Yet, in her new book Soda Politics, Marion Nestle showed that the deal is less generous than it seems when you realize that the larger drink only costs $0.21 more to the movie theater.
But does supersizing make sense in more typical contexts? Actually, no. It turns out that the smart strategy can be to do just the opposite.
To begin with, reducing product size for a given (or less than proportionally reduced) price can is a great cost-cutting strategy when most of the costs are variable rather than fixed, when the production and transaction costs of selling more units are low, and when the cost of packaging increases with product size. In this context, downsizing can increase perceived benefits by appealing to:
- Consumers who need smaller quantities, such as the expanding number of single households, or to those who concerned about perishability and storage costs.
- Consumers with liquidity constraints, who need sizes that fit their budget constraints, whether it is single-usage packs or phone services priced by the second.
- Consumers who want to better control their consumption and who recognize the limits of their willpower and are prepared to pay a premium in order to reduce temptations, whether in the form of chocolate candies or internet access.
- Consumers whose unit of value differs from the producer’s. For example, consumers treat the roll as the basic unit when buying toilet paper and usually don’t pay much attention to the size of each roll, let alone each sheet. But from the manufacturer’s perspective, the issue is simply how much paper they can sell. There is an opportunity, therefore, to sell less paper for a given price simply by offering more but smaller rolls, with smaller sheets, which explains why the sizes of rolls and sheets have shrunk considerably over the years.
- Consumers who take smaller sizes as a signal of quality and scarcity, which is common in luxury goods.
There are already many examples of successful downsizing. In his most recent book, Slim by Design, my co-author Brian Wansink suggests that up 57% of Americans would be willing to pay up to 15% more for portion-controlled items. In a restaurant experiment, he found that pricing half portions at 70% of the price of the regular size more than compensated for lower margins by attracting additional consumers.
If you think that these are just theoretical examples, consider Coca-Cola. After relying on a single size, the famous 6.5 oz. (19 cl) glass bottles for more than 50 years, the company introduced 12 oz. cans in the 1980s, which were soon followed by a dizzying variety of sizes and formats. But today, sales of the legacy 12 oz and 20 oz packages are decreasing while sales of the newer 8 oz cans and bottles are up by 17% in the five months of 2015. More importantly, the company no longer focuses on how many gallons they sell every year, but on getting the appropriate size choice to its customers.
The bottom line is that many marketers are ignoring a powerful and simple tool for improving margins. By thinking strategically about size as well price, and by balancing the effects of the two levers, they will find many ways to make more by selling less.
About the Author
Pierre Chandon is the L’Oréal Chaired Professor of Marketing, Innovation and Creativity at INSEAD, a global business schools with campuses in France and Singapore. He is also director of the INSEAD-Sorbonne Behavioral Lab. Follow him on @pierrechandon
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