Taking You to the Cleaner: The Hidden Cost of Detergent Pods

Innovation in consumer products is a good thing, right? We take it for granted that, over time, items tend to get more efficient, compact, and cheaper to produce.

But sometimes innovation is too good -- and consumers end up paying a higher price because of it.

Case in point: your laundry detergent. This household staple has gone through a series of dramatic makeovers over the years, evolving from a powder to a liquid into today's pre-assembled "pods." No more measuring, pouring, spilling; just drop in the pod in and you're good to go.

Sounds great, right? It is, unless you happen to be a company trying to sell more laundry detergent.

Bubble Trouble

A recent article in The Wall Street Journal dove into the effect of the pod's arrival three years ago on laundry detergent sales and found that in dollar terms, detergent sales are down 5.1 percent, to $7.06 billion from $7.44 billion.

That's because companies "have long profited from consumers' tendency to use more than the recommended amounts of their products," a Procter & Gamble (PG) executive and former Tide brand manager told the Journal. In other words, we "overdose" when we pour detergent into the washing machine.

Because pods perfectly portion out the precise amount of detergent needed, there is no longer a margin of error, which means consumers don't need to stock up on laundry detergent as frequently.

Now remember, the publicly traded companies that sell laundry detergent (including Procter & Gamble, Clorox (CLX), and Church & Dwight (CHD) have to answer to shareholders with growth expectations. So they have to make up the difference in lost sales somehow.

Guess who ends up paying the difference? Right -- you do. Companies make up the difference by charging higher prices, even for less detergent, even.

Getting Hit With the 'Grocery Shrink Ray'

The problem isn't unique to laundry detergent. In fact, it's a regular occurrence in your local grocery store aisles. The Consumerist devotes an entire section of its popular website to what it calls the "Grocery Shrink Ray."

Its pages are full of user-submitted examples of products for which the companies have shrunk the amount of food inside a box or can and continue to charge the same price, sometimes even more.
Because most shoppers don't regularly examine exactly how much food is inside each container, this is a covert way to increase prices with all but the most eagle-eyed customers figuring it out.

Unfortunately, there's not much you can do about this.

When customers slow down their purchasing frequency (as with detergent pods) or when input costs rise (as is often the case with prepackaged food at the grocery store), companies will eventually have to figure out a way to make up the difference.

But the reality of these business moves is something to keep in mind as you fill up your shopping cart. When it comes to consumer products, innovation often comes with a hidden cost.



Motley Fool analyst Adam J. Wiederman has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble.