Scribd
Upload
131 views3 pages

Case Study

Julie is a brand manager for potato chips facing a 25% increase in raw potato prices. To maintain her 5% margins, she would need to raise prices 15% or downsize the package. Downsizing by 1.1 ounces would maintain profits but may deceive customers who don't check weights on repeat purchases. Her boss Dave says downsizing is common but labels must be accurate. Julie is unsure if downsizing without informing customers is deceptive or if raising prices significantly would anger loyal customers. She seeks advice on the ethical approach.

Uploaded by

Butt Arham
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
131 views3 pages

Case Study

Julie is a brand manager for potato chips facing a 25% increase in raw potato prices. To maintain her 5% margins, she would need to raise prices 15% or downsize the package. Downsizing by 1.1 ounces would maintain profits but may deceive customers who don't check weights on repeat purchases. Her boss Dave says downsizing is common but labels must be accurate. Julie is unsure if downsizing without informing customers is deceptive or if raising prices significantly would anger loyal customers. She seeks advice on the ethical approach.

Uploaded by

Butt Arham
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

NAME

ARHAM
ROLL NO
BCHM-F17-009
PROGRAM
BRM
SUBJECT
BRM
SUBMITED TO
DR SHAZIA
Ethics in Marketing Research mini Case study
Incredible Shrinking Potato Chip Package
Characters: Julie, Brand Manager for potato chips at a regional salty snacks manufacturer; Dave, Marketing
Director for the regional salty snacks manufacturer

Julie has been concerned about the profitability of the various items in her line of potato chips. According to
her potato suppliers, the recent drought caused a 35 percent reduction in the potato crop compared to one year
ago, resulting in a 25 percent hike in potato prices to large buyers like Julie’s company. Potatoes accounted for
almost all of the content of her chips (which also consisted of vegetable oil, one of three different flavoring
spices, and salt), plus there were packaging costs. To hold the line on margins, which of late had been slim at
only about 5 percent due to fierce competition from several other local and regional brands, Julie would need
to raise potato chip prices about 15 percent. On her most popular 7.5 oz. size, which had a price spot of $1.59
on the package, this would require a price hike of $.24, bringing the price up to $1.83.
Julie wondered what would be the appropriate strategy to deal with this unfortunate circumstance. She was
very reluctant to raise the price to maintain the margin. First, she feared incurring the bad will of her loyal
customers; it wouldn’t be perceived as fair by them. Moreover, she was worried about competitive responses;
her other larger competitors might be willing to incur a loss in the short-run to keep their customer bases and to
attract price-hiking rivals’ customers. Julie couldn’t afford such a strategy since she was evaluated solely on
the basis of monthly net profits. Historical data in this industry revealed another possible competitive
maneuver in the face of rising ingredient costs: hold the line on prices and package size while reducing the net
weight of the package.
Julie was concerned that this might be a deceptive practice. She recalled from a Consumer Behavior course she
had taken in college a concept known as the “just noticeable difference.” This said that relatively small
changes in a stimulus (such as a price hike or content shrinkage) go unnoticed by consumers. Julie felt
intuitively that the price increase necessary to maintain margins would be noticed, given the price sensitivity of
buyers for snack foods. However, the past industry data suggested that perhaps buyers might not notice the
package size reduction needed to sustain profits, which in this case would be 1.1 ounces.
Julie asked her boss, Dave, the Marketing Director, about the advisability of reducing the net weight of the
potato chips. Dave said that this was a practice known variously as “downsizing” and “package shorting. ” It
was a very common practice among packaged goods manufacturers. For instance, he said, candy bar
manufacturers are subject to constantly fluctuating ingredient prices, and because there are expected (“fair” or
“reference”) prices for candy bars, package sizes are frequently adjusted without informing consumers. Jim
said that was a nonissue since marketers have been above board in labeling products accurately as to weight,
serving size, price, and quantity. Furthermore, the Food and Drug Administration had no laws against the
practice. Dave recommended downsizing the potato chips, but he made it clear to Julie that the ultimate
decision was up to her. Julie still had her doubts. After all, it would seem that consumers who are in the habit
of buying a particular product size generally don’t scrutinize the net weight label on subsequent purchases. If
this were true, it seemed to Julie that downsizing would be a deceptive practice.
Author: Geoffrey P. Lantos, Associate Professor of Marketing, Stonehill College.

After read the case Answer the following Questions

1. What are the relevant facts?


2. What are the ethical issues?
3. Offer your opinion on what action should be taken?
answer no 1

1. Due to a 25 percent increase in raw potato prices, Julie, a potato chip brand manager, would need to
raise her potato chip prices about 15 percent in order to maintain margins of 5 percent. This would
necessitate a price hike of $.24 on the most popular 7.5 oz. size.

2. Julie is evaluated solely on the basis of monthly profits.

3. Historical data shows that downsizing, i.e., holding price constant while decreasing net weight, is a
popular strategy in Julie’s industry as well as in other packaged goods industries.

4. Julie fears that raising the price to cover the increased cost would incur the bad will of her
loyal customers, who would view the price hike as unfair.

5. Julie is worried that competitors might maintain their prices and incur a short-run loss.

6. Past industry data indicates that buyers might not notice a package size reduction.

7. Julie believes that consumers don’t usually examine the net weight label on subsequent
Purchases

8. Julie’s boss, Dave, the Marketing Director, indicated that downsizing is a very common
practice in this and other packaged goods industries.

9. According to Dave, downsizing marketers are aboveboard in clearly labeling products regarding
weight, serving size, price, and quantity.

Answer no 2

1. Are consumers deceived, i.e., misled, by [downsizing]?


2. What is the marketer’s duty to inform customers about price and size changes?
3. Should it be the buyer’s responsibility to check weight, price, quantity, and serving size?
4. How can Julie compete if most or all of her competitors downsize their products?
5. How can Julie achieve an acceptable balance between her need to make a profit for her company
and herself and her need to maintain the trust and fair treatment of her customers?
6. What constitutes fair treatment of customers regarding significant price hikes?
7. Is it proper to downsize if many others in the industry are doing it?

Answer no3

She should try to decrease the price of product some how

You might also like