The term „skimpflation“ is a comparatively fairly recent neologism that is often discussed in the business community as well as among consumers. Specifically, the term describes a situation in which companies lower the quality of their products. In the process, the product price either remains the same or, in the worst case, even increases. This results in a detrimental effect for the consumer, who no longer gets the same quality for the same money. Skimpflation is widespread in today’s economy.
However, the word „skimpflation“ itself is not a technical term. Rather, it is an artificial word, which is modeled on the terms „inflation“ as well as „stagflation“. It is accepted in large parts of the population, finds however rather in the science and research its application and less in the everyday language. In order to explain the word „skimpflation“ in a bit more detail and to give potential causes and effects of skimpflation on the consumer, the following article will provide more in-depth information.
What is Skimpflation? Meaning, Definition, Explanation
The word „skimpflation“ describes a phenomenon in the economy in which companies intentionally lower the quality of their products in order to cut costs. Product prices often remain the same or even increase. Both goods and services can be affected by skimpflation. The word itself is a compound of the two English terms „to skimp“ and „inflation“. When companies skimp on their products (in this case, on quality), they simultaneously devalue them for the customer. This can manifest itself in that the customer receives less quality for the same money.
Examples of skimpflation include the discontinuation of certain quality seals. The actual protein content of protein powders can also fall under skimpflation. Basically, skimpflation happens wherever either components of the respective product are exchanged for inferior ones or quality controls are reduced (and thus also potentially seals of approval are dropped).
Causes of skimpflation
Skimpflation can be caused by a variety of factors. For example, there may be increased cost pressure on companies or a change in competitive pressure. Other possible causes include changes in consumer behavior and political regulation. In the following subsections, the most common causes of skimpflation will be discussed in more detail.
Increased cost pressure on companies
Many companies experience increased cost pressure, especially in times of high inflation rates or difficult economic phases. As a result, companies then strive to reduce their costs on the one hand and maximize their profits on the other. In practice, this means that cheaper materials and raw materials of lower quality are used to manufacture products. In the case of services, savings tend to be made on employee equipment or training, so that one can also speak of skimpflation in the service sector.
Another possible cause in the area of increased cost pressure can also be rising raw material prices or a shortage of raw materials. Companies are then forced to reduce the quality of their products in order to remain competitive or even marketable at all.
Especially when competition for market share is fierce, companies may be forced to cut back on the quality of their products. This often comes into play, especially in the low-price segment. In the case of low-price products, it is often the price of the product rather than the quality that counts for the consumer. In order to keep up with or even outperform the competition, companies often cut corners on product quality, product design and product composition. In this way, companies can still lower the prices of their products and secure further competitive advantages over the competition.
Changed demand behavior
However, fierce competition can not only be caused by strong competition, but can also develop as a result of a changed demand situation. Specifically, customers may henceforth be more concerned with the price of products rather than their quality. For companies, this then means adapting to the changed demand requirements and lowering the prices of their products without this becoming a loss-making business for the company.
Last but not least, political decisions and government regulations can also lead to companies having to cut back on the quality of their products. These can include, for example, increased minimum wages, higher tax requirements, political uncertainties, sanctions and trade conflicts. These can all have a significant impact on product prices and quality. Companies must also react in such situations and make adjustments accordingly.
Effects of skimpflation for the consumer
Like inflation or stagflation, skimpflation has a negative impact on consumers. This is because it leads to them receiving inferior products or services and having to pay the same price as before, or even more in some places. This can lead to increasing dissatisfaction and disappointment among consumers. Since skimpflation is often not even communicated with the consumer by many companies, the consumer may also feel cheated and lose trust in a particular company or brand in the process.
In the long run, persistent skimpflation can also lead to reduced consumption by consumers, which can cause significant damage to an economy. Skimpflation is often also a partial feature of inflation and in many places even masks its actual manifestation. After all, product prices do not always have to rise (and thus devalue money); product quality can also be subject to a certain degree of inflation, i.e. skimpflation.
Conclusion on the concept of skimpflation
In summary, skimpflation has become a common tactic used by companies to respond to a variety of changing economic situations. It has a negative impact on consumers in particular, but also on national economies. Often, skimpflation happens „in silence“, which means that it is not communicated by companies to the outside world and is thus carried out more or less secretly.
Related to the term skimpflation are, among others, the words „downgrading“, „worse off“ as well as „degradation“. All of the synonyms mentioned aim at a (negative) change in the quality of a product or service. However, while the terms „downgrading“ and „degradation“ refer to a direct reduction of an existing quality level, the term „downgrading“ is used more for the deliberate (often one-time) creation of a product or service of poor quality.