Lipstick Effect Pulling Beauty Brands Out of Economic Slump

The well-known economic term “Lipstick effect” has helped brands survive economic crises in the past. Currently brands are hoping the Lipstick effect will help them survive the pandemic crisis too.

It is globally accepted now that the ongoing economic and health crisis have impacted brands to a large extent. In the Beauty industry brands are struggling to retain their current customers and gain new ones. 'The “Lipstick effect” has come to the rescue of many beauty brands, who are trying to maintain status quo during these uncertain times.

Lipstick effect is a famous economic theory which states that during an economic crisis consumers are willing to spend on less costly luxury goods. A less costly luxury good is premium in nature but is sold at a price which is affordable

The effect is one of the reasons why fast casual restaurants, branded coffee, movie complexes do well amid recession. Consumers want to treat themselves to things which help them forget their financial problems. In today’s COVID scenario we will consider the case of Lipstick

This consumer behaviour trend will help beauty brands benefit. Lipstick as a product falls perfectly in the class of goods which are of a premium nature but at an affordable price. Moreover Lipstick is a “Feel-good” product for any woman. It helps to lift one’s self-esteem. I have heard women say they feel empowered and self- confident after applying lipstick before going out. This is the power of lipstick.

Combining the above two factors, Lipstick effect could be seen in play all the way back in the Great Depression 1930. During the period of 1929-1932, when the US was struggling with production, unemployment in Germany rose to 6 million but the sales of lipsticks doubled. This was a saving factor for most of the beauty brands back then.

Similarly, post the 9/11 attack, Leonard Lauder- Chairman of Estee lauder said that his company sold more lipstick than usual. For him lipstick as a product was a contrarian economic indicator.

Economists have also noted the Lipstick effect in parts of Britain which were severely hit by Brexit, especially Liverpool. The ongoing pattern of the effect has led economists to do further research on the topic.

They say the effect is deeply connected to evolutionary psychology too where women want to attract potential mates with financial resources and the attraction function is served by these products.

The key takeaway from this is that consumers will spend whatever disposable income they have on small luxury goods during an economic downturn. This is a ray of hope for most beauty brands during the current crisis.

Lipstick being a major contributor for most of the brands, the Lipstick Effect will help beauty brands tide over the economic crisis in 2020.

Beauty companies are engaging in wishful thinking that if they promote a new wave of Lipsticks, customers will come. Early adopters of this trend are getting onto the Lipstick Bandwagon and seeing an increase in Lipstick sales. But again this is not an overall trend. It is specific to brands, regions and the nature of Brand’s customer segment and their behaviour during a downturn period.

As per the historic sales data, frequently noticed consumer behaviour towards lipsticks in recession period, lipstick being a major contributor for most of the brands, the Lipstick Effect will help beauty brands tide over the economic crisis in 2020.

(Authored by Aditi Thakur)