Marketers are increasingly shrinking package sizes as well as cutting prices

Hurt by the slow economy, marketers are trying a new pitch: Instead of offering more for less, they're selling less for less, shrinking package sizes and cutting prices in hopes of spurring purchases from penny-pinching consumers. 

Everyone from chewing-gum makers to soda-pop purveyors are playing small ball, or at least planning to, in yet another sign that corporate America doesn't see the downturn lifting anytime soon. "We're seeing a lot more paycheck-to-paycheck buying and so in those instances you're talking to consumers with limited dollars," said Rick Shea, a marketing consultant and former Kraft Foods marketer. "They are only going to spend so much, so there's much greater sales growth through $2 price points as opposed to $4," for instance.

Some products are still in the pipeline, like at Kraft where CEO Irene Rosenfeld has foreshadowed new, smaller pack sizes for gum at lower prices. "We were finding that increasingly, particularly teenagers, were having less pocket change," she told Wall Street analysts. 

H.J. Heinz is planning smaller sized versions across its portfolio aimed at struggling, low-end consumers. These buyers often only have $40 to $50 a week to spend on a family of four, Heinz VP-Investor Relations Margaret Nollen noted on a recent earnings call. 

Coca-Cola, meanwhile, is rolling out new 12.5-oz. "hand-held" bottles for 89¢ that are targeted at convenience-store customers. "Continued recruitment of new users and an entry price point below a dollar is essential to keep the category healthy and viable," Ray Faust, VP for small store strategy and marketing at Coca-Cola Refreshments, said in a statement. 

The moves come as marketers have to deal with rising commodity costs in addition to sluggish demand. In the face of the inflation, "manufacturers have very little choice but either stay the same and see their profits drop or make modifications to their ingredients to make themselves more profitable, or modify pack size," said Todd Hale, senior VP-consumer and shopper insights at Nielsen. Indeed, while companies have tried to pass higher raw-material costs along to consumers, most buyers balk at paying more because their incomes have flatlined or shrunk. "We'll never let food costs rise faster than our incomes," said NPD food analyst Harry Balzer. So "we buy less-expensive things." 

And that means marketers must get creative. Consider Procter & Gamble, which recently reduced the size of 100-oz. Tide to 75 oz. While the move was part of a broader price increase when calculated by price per volume, it allowed P&G to sell the smaller version for under $10 at Walmart compared with about $12 for the 75-oz. version.