June 14, 2024 • 24min

What's with all the tiny soda cans? And other grocery store mysteries, solved.

Planet Money

This episode of Planet Money explores the behind-the-scenes industry that helps major consumer brands determine the optimal package sizes, prices, and marketing for their products. While "shrinkflation" - where package sizes get smaller while prices stay the same - has been a hot topic of discussion, the experts reveal that this is just one small part of a much larger, more complex strategy known as "price pack architecture."

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Key Takeaways

Companies have become obsessed with offering products in a wide range of package sizes and prices, a strategy known as "price pack architecture"
This allows companies to target different customer segments and usage occasions, as well as engage in price discrimination
Coca-Cola pioneered this approach, introducing smaller "mini cans" to appeal to calorie-conscious consumers and mixers
The "cookie jar effect" encourages overconsumption by making larger package sizes resealable and readily available
Shrinkflation, where package sizes get smaller while prices stay the same, is one tactic within price pack architecture
Companies use data and research to fine-tune package sizes, prices, and labeling to maximize profits

Introduction

This episode of Planet Money explores the behind-the-scenes industry that helps major consumer brands determine the optimal package sizes, prices, and marketing for their products. While "shrinkflation" - where package sizes get smaller while prices stay the same - has been a hot topic of discussion, the experts reveal that this is just one small part of a much larger, more complex strategy known as "price pack architecture."

Over the past 15 years, nearly every major consumer goods company has become obsessed with offering their products in a wide variety of package sizes and price points. The goal is to precisely target different customer segments and usage occasions in order to maximize sales and profits. This has led to an explosion of package options, from jumbo-sized peanut butter jars to mini cans of soda.

Topics Discussed

The Rise of Price Pack Architecture (3:51)

In the mid-2000s, soda sales in the US were declining, leading Coca-Cola to look to their Latin American markets for inspiration
In Latin America, Coke bottlers were offering a wide range of package sizes, from huge 3.3 liter bottles to smaller premium bottles
This allowed them to target different customer segments and engage in price discrimination
Coke brought this "price pack architecture" strategy to the US, leading to an explosion of new package sizes for their products

The Soda Aisle as a Battleground (7:50)

The soda aisle is where price pack architecture is most evident, with Coke leading the way in introducing new package sizes
This includes the successful "mini can" launch in 2009, which appealed to calorie-conscious and mixer consumers
Coke's strategy of constantly introducing new package sizes has become fundamental to their business model

Segmenting the Market by Occasion and Usage (16:14)

Companies use price pack architecture to target different customer segments and usage occasions
Examples include "on-the-go" snack sizes, family-sized packages, and premium/luxury versions of the same product
The "cookie jar effect" encourages overconsumption by making larger package sizes resealable and readily available

Using Price Points to Attract Different Customers (22:24)

Smaller package sizes allow companies to offer lower price points to attract more price-conscious consumers
Conversely, premium products are often sold in smaller packages to keep the price accessible
This allows companies to reach a wider range of customers with the same underlying product

Shrinkflation as Part of Price Pack Architecture (24:02)

Shrinkflation, where package sizes get smaller while prices stay the same, is one tactic within price pack architecture
Companies may do this to keep a product's price below a certain psychological threshold, like $4.99
While some consumers see this as deceptive, companies argue it allows them to offer lower prices that some customers prefer

The Grocery Store as a Battleground (26:01)

Packaging consultant Ellen Khan says walking through a grocery store is like a "secret garden" for her, as she analyzes all the different package sizes and strategies
The explosion of package options, from jumbo peanut butter jars to mini soda cans, is the result of companies using data and research to fine-tune their offerings
This has fundamentally changed the look and feel of grocery store aisles compared to the past

Conclusion

Price pack architecture has become a major competitive strategy for consumer goods companies over the past 15 years. By offering a wide range of package sizes and prices, they are able to target different customer segments and usage occasions, as well as engage in price discrimination.

While this has led to an explosion of package options that can seem overwhelming, it also reflects companies' efforts to give consumers exactly what they want in the right quantities. However, tactics like shrinkflation have also allowed companies to squeeze more profits out of consumers, blurring the line between meeting customer needs and maximizing their own bottom line.

Ultimately, price pack architecture has fundamentally changed the grocery store landscape, with companies using data and research to constantly fine-tune their product offerings. For better or worse, this strategy has become a key driver of growth and profitability in the consumer goods industry.