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The creative, hidden ways companies pass on rising costs to customers

During these inflationary times, companies are getting creative in how they pass on rising costs to their customers. Actual increases for consumers are even higher than reported inflation – which in Jan 2022 was 4th consecutive monthly record since 1982 at +7.5% vs Jan 2021.

With some expectation that inflation will come down, most businesses are trying to avoid a direct price increase visible to the customer and would be hard to reduce later. Instead, they are adding costs in creative, less visible ways that they could change when needed.

Wall Street Journal (WSJ) Feb'22 report says:

“Shrinkflation, as economists call it, tends to be easier for companies to pass on to consumers. Despite labels that show price by weight, research shows that most customers look at only the overall price.

“The consumer price index accounts for some changes that raise consumers’ costs, such as smaller package sizes and some fees attached to hotel packages or car purchases. But it can miss other ways in which dollars don’t stretch as far”.

Here are a few WSJ examples:

  • “Harley-Davidson’s motorcycles added a mandatory materials surcharge last year to cover rising costs, … easier to adjust than base motorcycle prices when costs decrease.

  • Peloton, is adding new $250 fees on bikes and a $350 delivery-and-setup fee for some treadmills. It cut the price of its original stationary bike in August to $1,495 from $1,895. With added fees, total price is now back up to about $1,745

  • A restaurant added 3% Covid surcharge added to the bill to offsets cost of pandemic-related government regulations and mandates

  • Disney World Orlando stopped offering free airport shuttles…and added several fees last year while keeping the base ticket price at $109.

  • Many hotel chains are replacing complimentary hot breakfast buffets with a snack bag. Some fitness centers and pools remain closed, and housekeeping doesn’t refresh rooms daily”

Consumers will gradually find out … will be interesting to see impact on brands as they do.


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