Posted: Monday, September 9, 2013 12:46 PM ET
You may not notice it the next time you run out to grab some diapers, but Procter & Gamble (PG) is raising the price of Pampers. In a move that shows that companies like Procter & Gamble are still concerned about the overall economy and wary of raising the price on the shelf, the company is going raise the price per diaper by lowering the number of diapers in each package.
It is a much used tactic in retail, referred to as downsizing, and while Procter & Gamble argues it is doing so in order to improve its products, I believe it is merely a way to boost profit margins.
For example, customers that are used to paying $45.99 for 140 size five Pampers Cruisers will still pay $45.99, but instead of getting 140 diapers in the pack, they will get 132. On the surface it does not seem to be that big of a change, but when you break down the average cost per diaper it is a 6% increase from 33 cents to 35 cents. Overall, the company's diapers will cost around 5% more once the downsizing is complete.
It is a very common practice. Kimberly-Clark (KMB) recently cut of the number of tissues in its Kleenex boxes by 13%. The company said that each tissue was bulkier, but in essence they were able to increase the unit cost of each tissue. I am sure that the increase in cost was greater than the increase in the amount it costs to make the new tissues.
Procter & Gamble has taken a similar stance on its new prices. According to company spokeswoman Lauren Thaman, the company is using downsizing in order to deliver new innovation to moms. The diapers are supposedly more absorbent, but in order to make its diapers better there are going to have to cost more.
Diapers are huge part of Procter & Gamble's business. It sells both Pampers and Luvs, and its high-end Pampers line generates more than $10 billion in annual revenues for the company.
The company last raised the prices of diapers in 2011, at which time parents found themselves paying 7% more.
If you want to avoid the higher prices, start stocking up now. The company will start shipping the newly priced diapers on September 16. The date of the new shipments is not random. The company is using a study conducted by a Harvard professor, which revealed that September 16 was the most common birthday for babies born between 1973 and 1999.
Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.
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