Tuesday, Mar 21, 2023
International Finance
Economy Magazine

A little less of everything: The era of skimpflation

IFM_ era of skimpflation
Retailers, travel companies, and restaurants are reducing quality instead of raising prices or sacrificing profits

People complain about canceled vacation flights, delayed deliveries, low-quality products, distasteful food, and unresponsive customer service. Has life become worse for everyone lately?

There is a cost-of-living crisis in British households unseen in the 80s recession. But economists hint at a new phenomenon making a bad situation worse.

They call it skimpflation — a term coined in the US, now a familiar word in the UK. Alan Cole, a writer at Full Stack Economics and a senior economist at the US Congress, summarised skimpflation as “when consumers get less for their money.”

In inflation, you pay more for the same goods, but in skimpflation, you pay more for something worse. Cole said that having to wait longer for products is a symptom of this phenomenon. He remarks that slow deliveries and the loss of timeliness are a downgrade.

The current crisis has familiarised the average citizen with inflation: The cost of living will touch the moon. Now there is talk about skimpflation and shrinkflation. Shrinkflation is when you get less for the same amount you pay. It’s getting half a chocolate bar for the price of one.

Skimpflation is hard to identify, but you can spot it when you become aware. You might bump into someone filling the shelves at a supermarket because there are no night shifts. Maybe your favourite brand is missing because some products are removed from supermarket inventories to save warehouse costs.

New clothes that tear on the first wear, rescheduled holiday flights, or chargeable inflight meals exemplify skimpflation. And when you seek a refund, you realize the only customer service you can get is from a bot on a website.

US radio producer NPR’s, Planet Money podcast came up with the term in 2021. The podcast remarked that it is stealthy inflation where consumers pay the same or more for services that are subpar to what they used to be.

They used the example of Magic Kingdom, where Disneyland and Disney World visitors had to walk a mile to get to the amusement park as the tram service from the car parking broke down.

It is difficult for consumers and businesses as the pandemic-battered economy is teetering on the precipice of a recession. Unlike Disney, a megacorp capable of weathering an economic storm, many small enterprises might perish in a full-blown recession.

These businesses barely outlived the pandemic lockdowns, only to be crushed by weak demand and high energy and material costs. For an average company, there are only three options. The first option is to pass on the added expense to the consumer already struggling with the unmanageable cost of living expenses. The second option is to forego profits, but many organizations aren’t making much in these difficult times. The third option is to cut corners and replace parts or services with a cheaper alternative. And skimpflation is born.

When queried about the concept, David Blanchflower, a professor of economics at Dartmouth College and a former member of the Bank of England’s monetary policy council, said that he always believed it was the [high-street] model with socks. He added, “I recall from many years ago: the cost of socks stayed constant, but as costs increased, so did the sock’s thickness. I’m not sure how significant it [skimpflation] is. What I’d like to know is to what extent does inflation gauge things accurately?”

For most of his economic career, Cole argued that because it was so hard to include increases in product quality in the data, official statistics exaggerated the severity of inflation. He now believes that the official numbers understate the severity of inflation.

Skimpflation, according to him, is more common when it’s difficult to make goods or when the global economy is suffering. “Typically, as the globe becomes wealthy, you’ll notice that goods and services are becoming more upscale. However, the Covid-19 pandemic reduced our productivity and made us poorer in numerous areas, pushing us to make cuts.

He adds that it is more common in “seller’s markets” like the one we are in now. In that atmosphere, there is greater financial flow across the economy and numerous eager consumers of limited goods and services. In an economy similar to one from 2008 to 2011, buyers with cash had the upper hand in transactions, and sellers or workers had little negotiating power. If you could afford to be a buyer, the world was a “buyer’s market” from 2008 to 2011. Money was significantly less abundant at this time.

You should expect to receive less value for your money if money is moving around at a faster rate than production. Some businesses raise prices, while others make slight product compromises.

Before the Ukrainian conflict, food prices were already rising as a result of high energy prices as well as other problems. According to Jason Bull of the West Yorkshire-based ingredients company Eurostar Commodities, businesses are looking for more affordable recipes to pay for this inflation. To offset the increased prices of supplies and freight, he says, “all companies are looking at ingredients and thinking: Can we use something cheaper to perform the same job — a different flour, or a different starch.”

Bull claims that while the quality and flavour may not vary if the recipe changes, the price may. Food producers want to make it so that people can afford to eat a balanced diet. However, there is a chance that consumers will consume less nutrient-dense food.

Jason’s point of view is shared by Andrew Selley, the chief executive of Bidfood, a significant UK food distributor, who warned last month that rising food prices will force school caterers to make “tough decisions.” Kids will be unhealthy if caterers serve fewer servings or utilize less expensive components.

Increasing food costs are a major concern for the hospitality industry as well, forcing restaurants to use “menu engineering” (the phrase for employing less expensive components) to make the math work for each meal. According to Peter Backman, a consultant to the restaurant business, this occurs frequently but is more pertinent now because of the “crazy” pricing increases for less durable textiles.

According to Jo Causon, chief executive of the ICS, “the number of customers facing an issue with an organization is at its highest ever level.” When things go wrong, they can go very wrong, leading to aggravation and distress, especially when big life events are involved or for consumers who are fragile or who are less confident about participating through digital channels.

Ten thousand consumers were surveyed, revealing that 16% of respondents had encountered an issue with a brand’s service in the previous six months. There were fewer complaints about the employees, but many more regarding the quality of the products or the lack of inventory.

Although skimpflation is a novel concept, Cole contends that economists should take it seriously. We are in a “you get less for your money” regime, where sellers have the power and companies can lower product quality for the same price. It’s very obvious that people are dissatisfied with the way services are being provided in the UK.

A&E wait times, ambulance response times, and staffing levels in the NHS have all come under close scrutiny. However, other issues like the rising cost of train tickets and airport service have also come to light.

According to the Institute of Customer Service’s Customer Satisfaction Index, complaints have reached new heights. Over the previous six months, over 16% of customers had complained about a brand’s customer service; additional complaints related to product quality or stock shortages also came in. The main issues are with the calibre, dependability, and accessibility of goods and services.

In reality, a process that was already well under way has merely been hastened by the outbreak. Years before the epidemic started, the American Customer Satisfaction Index (ACSI), a gauge of consumer satisfaction with businesses, was dropping. It is currently at a 15-year low.

Service cuts have been made by businesses for a while; the pandemic has only given them a new green light to continue. Consumers are often subjected to indignities by firms, including endless 800-line hold times, understaffed stores, hidden surcharges, outrageous pricing, and unclear messages. Even complaining has gotten harder because it now takes three interactions to fix a customer service issue with a business.

However, a lot of customers put up with these deteriorations in service. They give in to consumer inertia and continue to support unsatisfactory companies because they don’t want to take the time to look for and use an alternative.

We are inherently lazy beings who follow the “rule of less labor,” as prominent American psychologist, Clark Hull put it. So, we remain with the institution that we despise, whether it be the bank, the insurance, the cell phone carrier, the internet service provider, or the software store. We persuade ourselves that all rival companies and organizations are equally awful. The devil we are familiar with is preferable to the one we are not. In these times, let the buyer beware is an adage that comes to mind when discussing customers.

Leave a Comment

* By using this form you agree with the storage and handling of your data by this website.