Chief Customer Officers Can Stop Shrinkflation and Skimpflation

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SkimpflationChief Customer Officers are stewards of customer value. This means you’re responsible for ongoing growth of value to your customers as well as value to your company. Creative value growth is essential, regardless of booms and busts in economic cycles.

Alarmingly, product and service shrinkflation (reduced size) and skimpflation (reduced quality) are becoming a “new normal”. This is a slippery slope! Value-slashing does not foster trust and relationship strength. It is not a growth mindset.

Shrinkflation and skimpflation are typically cost-containment efforts in response to inflation, talent and supply chain shortages, and operational inefficiencies. With these changes in products’ and services’ size and quality, prices may remain stable, marginally increase, or even greatly increase. The word “skimpflation” was coined by National Public Radio’s Planet Money in November 2021 to describe the economy-wide decline in service quality.1

CX Value Wake-up Call

Customer Churn: “62% of consumers say they’ll stop buying from brands who change product size or quality to cut costs. Only 7% said they would continue purchasing from a brand that cuts costs in this way,” according to a June 2022 survey by Gartner2. This is a wake-up call to executives to re-assess options for increasing value rather than decreasing it.

Gartner Shrinkflation

Customer Outrage: Value shrinkage seems to be everywhere. There’s even “greenflation” (energy cost rises due to clumsy transition to renewables) and “stagflation” (costs rising because the supply chain is clogged). The bandwagon includes cheaper ingredients3, longer waits, more difficult policies and processes1, and extraneous fees.

For example, apartments are adding countless required fees for all kinds of things that were previously free or are not desired: general parking, garbage valet, package delivery, key fob, and so on. As called out in a television news story this week, this is more than cost containment. It’s ridiculous greed and inefficiency. It seems some of the shrinkflation, skimpflation, and inflation occur simply “because they can”.4

Egregious Fees

Negative Trends: Is this what we want our world to be? Haven’t we been through enough severe stress with the pandemic, sickness and death, disruption and uncertainty, wartime tension, diversity and inclusion angst, and the Great Reshuffle? Is this value-erosion trend guaranteed as temporary, or is it a “new normal”?

This trend is training customers to be skeptical and mercenary.3 This is the opposite of customer experience excellence! Not only are consumers making note in social media (including a Reddit thread5), but the media and studies are reporting on this trend with loud megaphones. A skimpflation study by Field Agent in January 2022 reveals inevitable trends in consumers’ habits.6 Customer behavior is being shaped in ways we’ll certainly regret!

Skimpflation Survey

Declining CX: In today’s trust crisis, we should be doing EVERYTHING possible to avoid this slippery slope. Customer experience performance is on the decline, according to several recent studies:

  • The ACSI reported that customer satisfaction is at its lowest point in 16 years.7
     
  • ACSI Profits

  • Only 8% of firms are in the top 2 levels of CX maturity, compared to 13% in 2019, per the XM Institute 2022 State of Customer Experience study.8
     
  • Forrester’s 2022 CX Index dropped to 2020 performance, customer-obsessed firms dropped from 10% in 2021 to 3% now, and no industry has ever performed in the Good or Excellent category.
     

Clearly, customer experience trends cannot afford further value reduction. Our profession must step up! Brands that avoid skimpflation, shrinkflation, and inflation will certainly stand out from their competitors.

Solutions? 45% of consumers in Gartner’s study recommend that businesses reduce executive pay instead of adopting shrinkflation, skimpflation, or inflation. Gartner advises Chief Marketing Officers to “ensure that brand messaging highlights commitments to continuity in price, ingredients or suppliers”2. They also suggest cutbacks in non-customer-facing staff or increasing technology use as alternatives. Still, these approaches are insufficient to stop skimpflation and shrinkflation.

CX Annuities Solution

How much is a chronic customer issue costing your firm? How would you like to stop those costs? When you do, you can re-allocate those previously perpetually dedicated resources to covering today’s rising costs — instead of passing along those costs to customers in one way or another. By doing this, you can generate ongoing value both to customers and to your company.

Chief Customer Officers, along with your senior leadership team, you have the power to stop skimpflation and shrinkflation. You can take the lead in avoiding these value-eroding moves. The answer is a phrase I’ve coined: Customer Experience Annuities.

CX Annuities are a gift that keeps giving. Consider your remedial costs to serve customers when things go wrong: remedies, escalations, service calls, success and loyalty programs, marketing enticements, sales acquisition to recover churn, and lost customers. When you stop the cause of a prevailing issue bothering customers, then these remedial costs can be redirected to higher value opportunities.

When researchers compared revenue growth from a 1% gain in positive word of mouth versus a 1% decrease in negative word of mouth, they discovered a 3X revenue advantage to reducing negative word of mouth.8 This is the power of CX Annuities!

3X ROI on Negative WoM

Reducing negative word of mouth decreases your costs significantly, freeing-up precious budget. Those newly available funds can now generate new value. As you take the pebbles out of customers’ shoes, you free up their ability to do more with your brand, and revenue increases.

It’s a shift from value-rescuing to value-creating emphasis in customer experience leadership. When you stem the tide of remedial costs, your gains are multiplied.

Chief Customer Officers can stop skimpflation, shrinkflation, and inflation by making CX Annuities their number one focus. Here’s how you can gain CX Annuities:

  1. Pareto ChartConduct key driver analysis (i.e. statistical correlation) to discover which issues have the strongest ties to loyalty.
     
  2. For actionability, conduct a Pareto analysis of the key driver’s sub-themes. This reveals the “Vital Few” actionable issues.
     

    Note that the “Useful Many” sub-themes are often referred to as “quick wins”. By definition, Useful Many quick wins fail to meaningfully “move the needle” in the key driver’s performance.
     

  3. To prevent recurrence of the Vital Few issues, you’ll need cross-organizational collaboration. Accordingly, you’ll get things rolling by showing managers how much money (revenue or costs) is represented by those issues.
     

    What if you don’t have all the money data? Use whatever you can access. Let your audience know your data’s parameters, and explain that this is the “tip of the iceberg”. The figures you have on hand for a Vital Few issue will likely be alarming. Your goal is to stimulate managers’ reactions such as “That can’t stand! We have to do something about this!”.
     

  4. Focus managers’ attention on the root causes of the Vital Few issues. Engage a cross-functional group in a 5 why’s analysis to rapidly identify the true root causes. Guide them in creating an action plan (i.e. single-page strategy) that addresses each root cause. Ask them to identify an internal metric that tracks their action plan progress.
     

    Then find ways to give high visibility to these Customer Focus Metrics. For example, make these single-page strategies a standard agenda item in staff meetings and ops/business reviews.
     
    High visibility allows executives to be executive sponsors: removing roadblocks and giving accolades to speed progress. Monitor, recognize, and reward CX Annuities, prevention of customers’ issues, and lifetime value growth.

Chief Customer Officers have the customer insights and organizational influence to stop shrinkflation, skimpflation, and inflation. When I was leading CX transformation company-wide for many years, we started out with a CX Annuities focus. More than 100 plans (2 per organization) were underway simultaneously to prevent the recurrence of CX issues’ root causes. Our business units and functional areas maintained their CX Annuities enthusiasm and progress year after year. Here are some examples of CX Annuities they generated:

CX Annuities

Pursuit of CX Annuities is a mindset shift. It directs managers’ attention toward “right the first time”. It’s the wisest cost containment approach. CX Annuities are the heart of CX ROI. This is your best guarantee of ongoing value growth to both customers and your company.

CX Annuities’ byproducts include stronger, positive employee and partner relationships. As you get to the root of prevalent issues, everyone experiences less negativity. This is effective in reducing churn, increasing productivity, stretching your budget to accomplish more, and creating magnetic attraction to your brand for both existing and new customers.

Ignite a CX Annuities movement among your senior leadership team, and follow the 4-step approach outlined here to set your brand apart. As you rise above the value-erosion bandwagon, you’ll not only increase trust and customer experience strides, but also have more joy in your work. Most importantly, customers will continually reward your CX Annuities achievements.

1Meet Skimpflation: A Reason Inflation is Worse Than the Government Says It Is, NPR, November 2021.
2Gartner Marketing Survey Finds 62% of Consumers Will Stop Buying From Brands That Compromise Products to Cut Costs, Gartner July 2022.
3Feel Like You’re Getting Less for Your Money? Here’s How to Spot ‘Shrinkflation’, ABC 15, July 2022.
4Package Delivery? Trash Valet? Renters Paying ‘Absurd’ Fees, ABC 15, July 2022.
5Shrinkflation: When Product Sizes Shrink, but Prices Stay the Same, Redditt, July 2022.
6Skimpflation: Shoppers Report Declining Customer Service [Survey], Field Agent, January 2022.
7US Overall Customer Satisfaction, American Customer Satisfaction Index, April 2022.
8State of Customer Experience Management 2022, Qualtrics, July 2022.
8Advocacy Drives Growth (PDF), London School of Economics, 2005.
Two more enlightening resources:

Image licensed to ClearAction Continuum by Shutterstock.

This article is part of a year-long CustomerThink Advisors series on How Stakeholder Experiences Drive Growth.

2 COMMENTS

  1. Lynn, a trip to Panera Bread recently proved shrinkflation to me in a big way. I ordered a broccoli mac and cheese to go and paid over $5 for it. When I got home, I discovered a container that in most ice cream shops would classify as “kiddie” size, and the amount of food in the container amounted to about three tablespoons. Compared to my last visit to Panera, this choice has shrunk drastically without any change in price. Which, by the way, was my last visit to Panera. I’ve written them off completely.

  2. Thanks, Karl. Those examples illustrate the deep emotion resulting from these value-eroding practices. This is why CX/CS leaders must step up and be bold with CX Annuities guiding management’s cost containment decisions.

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