The Sneaky New Way Businesses Are Managing Costs at Your Expense

Digital Shrinkflation: Why Your Subscriptions Are Offering Less for the Same Price

Created with ChatGPT 4o

What is the economy coming to? Recently, I received two emails from companies advising me subscriptions will be downgraded at renewal time. Features I now enjoy will no longer be available…unless I pay extra for them. This is digital shrinkflation in action: a sneaky way businesses manage costs at your expense.

Why is digital shrinkflation happening?

It’s not surprising. Companies are struggling with higher costs for development, operations, and customer support.

They're turning to digital shrinkflation to manage these expenses without scaring off customers with outright price hikes. This tactic reduces the features you enjoy while keeping the price of your subscription the same—or nudging you toward higher-priced tiers.

Examples of digital shrinkflation

I experienced this with two different companies just recently. Here’s how this trend has affected two of my subscriptions.

1. Upwork – I can no longer access its Skip the Line for Upwork Skills Certifications. This program has been discontinued. The other feature they have dropped is my Freelancer Plus community group access. As much as I value these features, my budget doesn’t allow me to upgrade to keep them.

2. Loom – Like Upwork, Loom is also changing my business plan. At renewal, I’ll lose the Edit by Transcript feature, which allows me to edit videos using their transcripts. Of course, I can keep this feature—if I upgrade to the more expensive Business + AI Plan.

Frustrating, isn’t it? Like grocery store shrinkflation, where manufacturers reduce sizes and quantities while keeping prices unchanged, digital shrinkflation forces SMBs to adjust their budgets, workflows, and expectations. It’s another hurdle for businesses navigating tight margins and increasing operational demands.

More examples of digital shrinkflation have migrated to Netflix, streaming platforms like Disney+, Apple TV+, mobile options, and more. Even Sales as a Service (SaaS) companies are jumping in and cutting features while keeping prices the same. Perhaps the hardest-hit companies are in SaaS.

So, what’s driving businesses to practice digital shrinkflation? Follow along with me as I take you on a journey listing the key reasons.

Why is digital shrinkflation happening?

• Cost increases – Development, infrastructure, or labor costs constantly rise.

• Maintaining Profit Margins – Keeping up with the competition is often offered as an explanation for justifying shrinkflation.

• Feature Unbundling – Features often included in standard packages are being phased out

• Upselling strategy - By reducing features in the base tier, companies can incentivize customers to urge them to upgrade to higher-priced packages.

• Product Simplification – Some companies may streamline their products by removing features that are less used. If not communicated well, this can be viewed as shrinkflation, a covert tactic to increase profitability.

• Hidden Price Increases - Secretly reducing features or functionality without notifying customers can be a way to increase the price without a direct price hike.

Whatever the reason for digital shrinkflation, it hurts your wallet in the long run. While frustrating for users, it’s a survival strategy for many businesses.

How digital shrinkflation affects consumers and SMBs

Digital shrinkflation affects consumers and small to medium-sized businesses (SMBs) differently. Consumers receive less value for digital products or services but must pay the same price.

Consumers face the reality of reduced features, smaller data allowances, or shorter subscription durations. This can cause frustrations and, in some cases, feelings of being cheated.

SMBs, on the other hand, must compete with larger companies that might engage in this practice, potentially impacting customer loyalty and brand reputation if not managed carefully.

Let’s look further into how digital shrinkflation affects each group.

Impact on consumers

·       Reduced Functionality: Features or data allowances are cut, leaving consumers with a diminished experience.

·       Price Perception: Even if the price remains the same, consumers may feel they are getting less value for their money. This happened to me and made me wonder if I should switch brands or go generic.  

·       Difficult to Detect: Changes in plan subscriptions are not always clear-cut. The changes may be hidden in the service terms or not communicated.

Ultimately, digital shrinkflation undermines trust, leaving consumers and SMBs questioning the value of their investments.

Impact on SMBs

Small and medium-sized businesses are turning to shrinkflation for survival for several reasons, but the most common reasons are listed below.

“Business owners’ most common reasons for shrinkflation are to stay profitable (64%) and to offset rising production and supply chain costs (44%).” (Clarify Capital, March 7, 2024)

Other reasons mentioned in the survey are operational continuity, competitive pricing, and production issues.

These SMB strategies all illustrate that small to medium-sized businesses are not ready to call it quits in the face of their adversities. They are willing to adopt new strategies (even though they might seem sneaky) to manage costs at your expense. Don’t despair, however; there are ways you can fight against digital shrinkflation.

How to navigate digital shrinkflation

So, what does a consumer need to do to navigate digital shrinkflation? Here are some tips to help you copy and adapt to these changes.

• Audit Subscriptions Regularly: Evaluate current tools to see if they meet your needs.

• Negotiate with Providers: Contact companies to request discounts or custom solutions.

• Explore Alternatives: Research competitors or open-source tools.

• Leverage Community Insights: Learn how others are handling similar challenges.

• Voice Concerns: Use social media or customer service channels to advocate for better value.

Digital shrinkflation is a genuine concern to consumers and SMBs alike. However, with planning, both groups can navigate this newest trend in the economic turmoil.

Conclusion

Businesses are getting sneakier at finding new ways to maintain their profitability. Unfortunately, you are left with a decision. Do you allow them to manage costs at your expense? The answer should be no. You can fight back by auditing subscriptions, negotiating with partners, exploring alternatives, and voicing your concerns.

You are not the only party facing difficulties in this economic world we’re facing right now. Small to medium-sized businesses are also struggling to maintain their profitability. Not only do they face significant business competition, but they also have higher prices in production and supply chains with which they need to contend.

While digital shrinkflation is frustrating, staying informed and proactive ensures you can protect your wallet and adapt to changing times. Together, we can demand better value and greater transparency.

Have you noticed changes in your subscriptions? Share your experiences below—I’d love to hear how you navigate these challenges.