A brief on Lipstick Economics

Have you ever purchased an item which has a small cost - not too high but not too low, and which satisfies your desire to consume something fashionable or trendy? I bet most of us have. Personally, I went through the same process during the lockdown where I needlessly purchased small luxurious items which reflected a sense of gratification or a sense of owning something trendy. This process of “spending money on small indulgences when running low on cash or during economic downturns” can be explained by what we call lipstick economics.

Those who are reading about the topic for the first time will definitely be wondering about the reason behind the word ‘lipstick’. Well, this theory was published in 2001 when Leonard Lauder witnessed an increase in lipstick sales (and hence the name ‘lipstick effect’) in his company post the 9/11 attacks when the economy was facing a downturn. It was then concluded that women settled upon purchases of simple cosmetic items such as lipsticks, to fulfill their consumeristic desires when running low on money. This provided mental satisfaction of owning a luxury item.

Leonard Lauder

Psychology behind the Lipstick effect

Due to a lack of income on account of recession, people cannot indulge in expensive purchases. On the other hand, they cannot just sit back while their friends (who might have some extra funds on hand) go on and purchase trendy, high profile items. It is basic human nature to imitate consumer patterns by observing others. So basically, buying small ticket size items as substitutes for extravagant purchases satisfies us. It avoids the arousal of a feeling that we are lacking money or that the economic situation is unbalanced. This effect is not confined to lipsticks or women. Movies such as Dream Girl, Chichhore, etc. earned 100+ crores in the box office despite an economic slowdown. The reason behind this is simply people’s urge to indulge in the small joys of life. Although the ticket to a movie uses up quite a lot of their money, it provides satisfaction of being able to enjoy themselves amidst apparent gloom.

Implications

The lipstick effect acts as an economic indicator. As you might have already concluded, it symbolizes the presence of recession in an economy. It has been found that consumers generally opt for low-cost luxury items which keep industries (such as cosmetics) going on even during economic recession. Thus, the above mentioned consumer psychology is quite beneficial to understand. So next time when you come across any article mentioning the profits earned by NYKAA during the recent pandemic, you will know what might have caused it ;).

Pros and Cons

The advantage of the lipstick effect doesn’t really need an explanation, does it? It is a win-win situation for the firms producing low-cost luxury products during times of a recession. Consequently, it also benefits the economy to some extent. Having a few firms moving ahead in their business while other sectors are facing trouble can definitely help a country continue the money flow.

However, as consumers we should be aware of the negative impact of this effect. We are influenced by outward shows of wealth and fashion. These small luxurious products act as liabilities. The psychological mindset of using whatever money we have while running low on income is harmful for our pockets. The wise thing would be to save the money we are in such situations. We do not realize and the cart gets filled, money is spent just like that! Happens, doesn’t it?

What we can do is limit our purchases to products which we need. It is not about completely stopping the cycle of purchasing luxurious items, rather it is a process of taking rational decisions. This way the firms and economy can keep on running and our pockets can be safe and sound from overspending. Believe me, you will appreciate the latter in the long term!