• EconAfterHours

The Lipstick Effect

Updated: Mar 11, 2020

By Abigail Samyuktha Rabindran


Much to the relief of most readers (and to the disappointment of some), this article will not remind you of something snipped right out of the pages of a glossy fashion magazine. Rather, the aim will be to explore an intriguing economic phenomenon which is now being popularly referred to as the ‘Lipstick effect’ or what economists would refer to as the ‘Leading lipstick indicator.’

Quite simply put, this is the tendency to buy cosmetics or in particular lipstick, during a period of economic turmoil or recession. History and research have shown that when an economy undergoes depression, the sale of lipsticks increase. Let’s understand this strange pattern of consumer behaviour and analyse the various leading causes of the ‘lipstick effect.’

The term ‘Lipstick effect’ was coined by Leonard Lauder, the chairman of Estee Lauder, who observed an increase in his lipstick sales during tough economic times. And while the ‘lipstick effect’ may itself sound  irrational and unfounded, various examples across different time periods have in fact shown that during periods of economic recession, a consumer does resort to less expensive indulgences such as the purchase of lipstick.

The earliest evidence of the ‘lipstick effect’ was observed during the Great Depression, which saw an unexpected boom in the sale of cosmetics in the four year period between 1929 and 1933.Also, post 9/11, lipstick sales in the United States almost doubled (rose by 40%).The year 2007 began with what most economists consider the worst recession since the Great Depression and despite that the cosmetic industries had done unusually well in terms of their sales, commensurate with the ‘lipstick effect.’

An economic recession is a period marked by downsized spending by households on various goods purchased by households, which includes major purchases made in terms of automobiles, homes and luxury items and basic purchases such as groceries. This period has also been marked by myriad workplace layoffs, home foreclosures and an overall decline in economic activity. All though spending on most consumer goods significantly declines, the ‘lipstick effect’ ensures a steady market for cosmetics. But, why do people buy lipsticks when times are hard?

During an economic recession, consumer patterns imply that they now have less money on their hands to spend on the ‘feel good’ commodities and hence would naturally move towards the purchase of commodities which they can afford despite the decline in their purchasing power. Lipstick is one such ‘feel good’ commodity, which consumers can now purchase in lieu of a more luxurious purchase, such as an expenditure on a trip abroad. However, what needs to be kept in mind is that the term lipstick is being used as a metaphor and consumers may shift from lipsticks to other commodities within the range of cosmetics. (Nail polish is the new lipstick, if recent statistics are to be believed).

New research conducted through study of psychological patterns (Boosting Beauty in an Economic Decline : Mating, spending and the Lipstick effect Sarah E.Hill & Christopher D.Rodeheffer) traces back the lipstick effect to the ancestral mating psychology so as to better explain the strange phenomenon. The findings suggest that when the economic resources are scarce, women are tempted to increase their efforts directed towards attracting mates with resources. Men often chose their romantic partner based on physical attractiveness. As an adaptive phenomenon, one of the most efficient methods used by women to attract or retain mates is connected with enhancing physical appearance.

While this theory may seem preposterous in a world slowly moving towards gender equality, which gives you the image of a resource deprived woman seeking a rich husband, a more reasonable assumption to make would be the psychology explaining the natural tendency to want to look attractive to the opposite gender (not necessarily in pursuit of a spouse) which might then lead a person to feel good about themselves, which then takes us back to the first point explaining the need to spend on ‘feel good’ commodities.

So while the event of an economic recession and the increase of sales of lipstick may seem as related to each other as sour cream and music (for lack of better example), Economics has once again been successful in proving that there is, in fact, a correlation between the two and that this isn’t sour cream and music after all.

References:

1.Boosting Beauty in an Economic Decline: Mating, Spending, and the Lipstick Effect Sarah E. Hill & Christopher D. Rodeheffer Texas Christian University Vladas Griskevicius University of Minnesota Kristina Durante University of Texas at San Antonio Andrew Edward White Arizona State University

2.Redefining the “Lipstick Effect”– Examples of Recession-Proof Categories Analyst Insight by Audre Biciunaite – Contributing Analyst

3.LIPSTICK EFFECT IN ROMANIA: PROPENSITY TO BUY COSMETICS AND STOCK MARKET EVOLUTIONS Aurora Murgea

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