As businesses try to keep revenues and profits up amid the ongoing global inflation spike, so-called ‘upflation’ is one technique that has been identified as being used.
A recent Bloomberg article characterised the trend as finding “new uses for old products” and charging a premium for them. It drew particular attention to how US personal care and beauty market companies are rolling out entirely newly iterated product niches – like an all-body deodorant – to “claw back” falling unit sales.
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Although a trend of upflation has been identified more widely, Tom Holder, spokesperson for the British Retail Consortium (BRC) notes that it is “not a new phenomenon”. Indeed, it sits along another slight of hand – ‘shrinkflation’ – as a means for companies to make more out of less.
Inflation vs. shrinkflation vs. upflation
Inflation is the general rise in the prices of costs and services across economies caused typically by demand-pull, cost-push and built-in factors. The jump in inflation around the world since 2021 was a result of disruption to supply chains caused primarily by the Covid-19 pandemic. Other factors, like attacks in the Red Sea by the Houthis, have exacerbated matters, but, fundamentally, international trade has been disrupted and costs/prices have risen as a result.
One way manufacturers have historically avoided raising prices for consumers when their own costs have risen has been by reducing the size of products being sold. This is known as shrinkflation, and allows companies to sell less while maintaining a price point. It is perhaps most widely recognised in the food industry with products likes snacks or cereal, but elsewhere items like make-up remover have also fallen foul of the trend.
As Neil Saunders, the managing director for retail at GlobalData, explains, upflation is almost the reverse of this.
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By GlobalData“In a nutshell, upflation is trying to get consumers to spend more on new products that offer additional benefits or perform more specialist functions than traditional products. It’s really an attempt to create new demand occasions to drive consumer spending,” he tells Retail Insights Network.
Saunders notes that upflation has been around for some time and is reasonably widespread, but he adds that it has become more developed of late.
“There are kinds of toothpaste that have extreme whitening properties or protect gums, there are laundry detergents made especially for sports clothes, and so forth,” he says. “These things are not new – they are range extensions designed to push people up the price ladder.”
“However, we are now seeing some companies create whole new demand occasions such as all-over body deodorant, or moisture masks for hair. These things are not so widespread, but we are seeing more of them.”
What’s causing it?
Saunders explains that the biggest impact on consumer behaviour currently is inflation and the cost-of-living crisis, which he says “is causing consumers to buy less, to trade down, and to switch brands much more”.
Delving into why firms are deploying upflation, Saunders identifies that the two driving forces are a desire to protect margins and a desire to drive volume by consumer packaged goods (CPG) firms.
“Creating new consumption occasions and charging higher prices helps to solve both issues,” he says.
Of other drivers behind the trend, Holder adds: “Sometimes an original product has seen prices fall due to competition and so manufacturers look to try and regain some of that margin by creating a slightly more tailored version of the same product, innovating slightly to meet the needs of a specific audience.”
“[Upflation] is often driven by the manufacturers who are looking for new markets for their products and I’m sure if you looked closely enough, you’d find examples where that new product is sold at a higher price and other times where they’re sold at lower prices to entice new audiences.”
Old tricks, new names
As Holder notes, a “key marketing strategy since the dawn of time has been identifying groups of consumers with specific needs and tailoring existing products for them, potentially at a higher price.”
In this way, he argues, the new focus on upflation is really just zooming in on an old habit of retailers and manufacturers.
Corroborating this standpoint, Saunders adds: “In some ways, upflation is not new – CPG firms have always innovated to create new products with enhanced benefits – but this is now seen as more critical because consumers are very price sensitive and are generally buying fewer things.”
To determine the scope of upflation, Holder says: “You would need to ask manufacturers whether the products are fundamentally different. For example, what are the chemical differences between dry/damaged hair shampoo and ordinary everyday shampoo, or different product specifications for men’s and women’s razors?”
“If so, then it suggests that innovation is at the heart of upflation. However, I’m sure sometimes they are simply marketing gimmicks, such as the infamous Bic For Her women’s pens.”
Which sectors?
Considering which sectors are most likely to witness upflation, Holder comments that “it will often be areas where people are used to incremental innovations or improvements.”
“So, it’s less common in food, because if you’re buying a cucumber, you’re not looking for a more innovative cucumber that speaks to one sector of the market.
“But health and beauty, say, where products are modified constantly, is a more likely area – consider the improvements in razors, toothbrushes, shampoos – first there were general items for everyone, then items for people of different skin types, hair types, and teeth sensitivities.”
Saunders explains that upflation is more prevalent in the beauty and personal care sectors due to the resilient nature of spending in these sectors and the maintained consumer focus on wellbeing.
Therefore, he adds: “Firms are looking to cash in on these trends”.
