What is the Lipstick Effect?
Leonard Lauder, the creator of the research and development laboratory for Estée Lauder, first established this when he noticed an increase in sales of lipstick after the 9/11 attack. It is an economic indicator for the theory that, when facing an economic crisis, consumers indulge in less costly luxury goods as their real incomes fall. Adapting to falling incomes, consumers may purchase smaller luxury items like branded lipsticks instead of luxuries, which take up a larger sum of income, causing an increase in sales for such products. Therefore, the recession may not affect these companies at the same scale.
Treating Oneself in Times of Hardship
The relationship between income and demand is most prominently seen during a recession. With a fall in income, demand for more affordable goods increases, which are also known as inferior goods. The lipstick effect comes from the same idea. Lipsticks serve as a substitute for luxuries to treat oneself in times of lower incomes, making them an inferior good and a substitute.
Accuracy of Indicator
The lipstick effect is logical as it is based on multiple economic theories, especially those of demand. Leonard’s proof of sales also supports the accuracy of the indictor. However, it is difficult to carry out research and analysis on a frequent basis as access to lipstick sales is difficult, which results in less reliable data.
Significance To Us?
The lipstick effect is therefore an interesting phenomenon to be aware of, as it summarizes consumer spending during times of recession, making patterns easy to understand. Moreover, it also assists in strategizing and planning for an increase in sales; however, it does not play an important role in decisions for anyone but Estée Lauder. In conclusion, a recession causes a decline in sales overall; however, due to substitution indulgence in small luxuries, sales of products similar to lipsticks may increase.
Expanding Beyond
Economic recessions are when people's adaptability, need for self-care, and desire for indulgences are most evident. Even though the cosmetics industry is where the phrase "lipstick effect" originated, companies can still apply these ideas to improve the way they sell their goods. Businesses should concentrate on marketing more of their more cheap products as sales of goods that account for a larger portion of revenue are declining. Sales of these products rise in response to a growing desire for affordable luxury, which may help the business make more money.
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Sources:
Hayes, A. (2021, September 28). Lipstick Effect: Definition, Theory, Value as Economic Indicator. Investopedia. https://www.investopedia.com/terms/l/lipstick-effect.asp
Lipstick effect. (2023, December 30). Wikipedia. https://en.wikipedia.org/wiki/Lipstick_effect
“Пин от пользователя Haley Jordan Art на доске Red в 2024 г | Разное.” Pinterest, kr.pinterest.com/pin/55732114132379976/. Accessed 19 July 2024.
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