Impact Pricing Blog

Software Shrinkflation

Shrinkflation is commonly found in grocery stores.  Instead of raising the price of a can of Pringles, they keep the price the same and reduce the size from 6 ounces to 5.2 ounces.  This works because buyers are much more price-sensitive than they are size-sensitive.  They are more likely to notice the price increase than the size decrease.  

A colleague recently pointed out that Max “changed” the features in their plans.  For my friend’s plan, they didn’t raise prices, but they reduced the number of devices you could stream on from 3 to 2 and removed 4K HDR availability.  This feels like shrinkflation in software, but it’s a little different. 

In the case of Pringles, reducing volume obviously lowers their cost, so their margins go up without increasing prices.  In the case of Max, I’d be surprised if this change significantly lowers their costs.  Instead, they are probably doing it to get higher volume users to upgrade and pay more.  

Also, Pringles is trying to hide their change.  They hope you don’t notice.  Max announced it to their customers.  The reason is likely twofold.  First, Max is a subscription service.  They can’t change their terms without telling subscribers.  Second, if the goal is to get more people to upgrade, they need to alert subscribers to the change.  

What will happen? As I gaze into my crystal ball …  There are two types of subscribers.  Those who use the features they are removing and those who don’t.  Those who don’t use the features probably just shrug it off.  They keep paying the same amount and say to themselves, “This doesn’t affect me.”  

Subscribers who use those features are faced with a decision.  Upgrade?  Stop using those features? Cancel?  I predict that many will upgrade and pay more, and most will pay the same and stop using the features.  But very few will cancel because this doesn’t feel as bad as simply raising prices. It doesn’t feel like the company is taking advantage of their customers.

Compare this to Netflix.  They raised prices in January 2022 and, over the next two quarters, lost more than a million subscribers.  

Max’s shrinkflation strategy may work out well for them.  They aren’t raising prices, but instead pushing a small set of their customers to consider upgrading.  I’ll bet this does wonders for their Net Revenue Retention.  

What do you think will happen?  

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Tags: pricing, pricing skills, pricing strategy, subscription, value-based pricing

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