Today's Alphanomics 101 lesson teaches us about how to save money, although it's not necessarily your money we will be learning how to save. Confused? Let me explain.
Your favorite laundry soap just got better! Smaller bottle, use less, 3 times more concentrated. Good news right? Does this sound familiar? We see it all the time, but how do we really know that it's better? Instead of a full cap, now you only need to use a half a cap full for the same amount of laundry. Did they really make it more concentrated or did they just add more fragrance so the clothes will smell just as good using only half the product? After all, if they smell clean they MUST be clean. We have no way of knowing if they made the product better or not, we have to take their word for it. We want to believe that the manufacturers wouldn't lie to us and rip us off, but the only thing we know for sure is that the bottles got smaller and the price went up.
Laundry soap is not the only thing that has changed over the past few years. There are all types of products we use every day that seem to be getting packaging makeovers and pricing increases. Take trash bags for example. You may have noticed that when the price of fuel went up to over $4.00 a gallon in 2008, so did the price of can liners. That's because in order to produce plastics you have to use petroleum. Your kitchen garbage bags almost doubled in price so they started packing less bags in the boxes to help bring the price back down. The problem is that when fuel prices came back down the liner prices remained steady. Why are the companies that manufacture your laundry soap and trash bags paying less to produce them, yet they continue to charge you inflated prices? I wish I had the answer.
What really had me stumped until recently though was how much the toilet tissue rolls have changed? Have you noticed that your toilet paper rolls are getting smaller and smaller? First of all, the center core or the cardboard roll has gotten bigger around by an eighth of an inch, obviously reducing the amount of sheets on each roll. In addition to reducing the number of sheets per roll, over the past decade we have seen Kimberly-Clark reduce the length of their sheets with Scott tissue from 4.5" down to 3.7", almost a full inch per sheet. The standard individual sheet of tissue used to be 4.5" x 4.5". Not any more!
All companies have reduced their sheet size, but as of September 2009, Georgia Pacific had gone so far as to reduce their sheets in the Angel Soft and Quilted Northern down by at least 1/2" in width which is creating a problem all it's own. Many toilet paper dispensers are made spring loaded to go into the ends of the core and they depend on a roll at 4.5" minimum in order to hang onto that roll. As the rolls shrink in size, these dispensers are not able to connect with the center therefore causing the roll to fall out ending up on the floor, creating unsightly messes, unusable product, and financial losses for the home or business owner. In addition, certain wall mounted dispensers are having to be replaced creating more inconvenience and expense.
So why would the paper companies cause all of these unnecessary problems? Well there is one simple reason. Their bottom line. They don't really want to raise prices on their products because they know that the consumer will eventually switch to a cheaper brand and they need you to buy their product to stay in business. In order to keep prices low, they have to cut costs and the best way to cut costs is to cut back on the product. While they are cutting back on the size they are adding words like "Stronger" and "More Absorbent". This brings us back to the original question regarding the laundry soap. Just because the package says that it's better or stronger, is it really? Or are they just trying to cover the fact that they are making it smaller and giving you less while still charging the same amount of money? Wouldn't it make sense that since they are saving money, they could pass some of that savings on to you?
Lets brake it down and come to our own conclusion. We'll refer to Georgia Pacific as GP and the business and homeowner as BHO to keep it simple. So GP reduces products and packaging therefore saving space on the trucks and in return is able to add more product to the pallets, shipping more product in less space with less fuel consumption. Their suggested retail prices remain the same and GP walks away with a higher gross profit than ever before. Costs of Goods are down, Labor is down, Cost of Shipping is down, heck even the price of fuel is down from this time last year so we can mark this down for a WIN /WIN for GP. (* side note: is it a coincidence that Georgia Pacific and Gross Profit both start with G & P? Ironic isn't it?)
Now BHO is losing out on this deal hand over fist as his purchase is costing him more, he is receiving less, he has to hire a contractor to come in and remove old dispensers, install new dispensers, patch holes from the transfer of dispensers and then cleanup the mess. Also, he needs to add in any losses he has incurred due to wasted product. Sadly I am going to have to call this one a lose/lose for BHO. Business and Home Owners start with BHO but I call it Barely Hanging On)
The graph shown below was taken from CNN-Money.com and clearly shows the major changes that have taken place with the toilet tissue industry alone.
We can apply the same theories to other companies and their respective products and conclude that while we understand the need for big corporations to find ways to save money, to be able to keep employees in their jobs and to remain able to buy the supplies to produce the products, we the consumer have no choice but to continue to purchase and pay the price that is requested. I can only hope that someday soon, somebody else will come up with a better idea and we can all stop flushing our money down the toilet.
Until then friends, Good Luck.