Brief understanding of the lipstick effect

Image courtesy of They Talk About

The Lipstick Effect, a term coined by Leonard Lauder, is a theory that states consumers are willing to spend their money on less costly luxurious items during economy crisis. For instance, instead of shelling out $1,000 for a luxury bag, consumers could buy a bottle of luxury perfume that costs $100 or a lipstick. It still comes from the same luxury brand but with a lower price tag. Lauder coined the term when he saw a rise in lipstick sales after the 9/11 attack.

In photo: Supreme brick. Image courtesy of Supreme

The Economist put this theory to test in the 2008 recession and saw no proof of correlation, but TFR begs to differ. The Lipstick Effect is happening but in a wider scope. During recession or lay-off, we tighten our budget in luxury spending and holiday, but we occasionally dine out or go to cinemas. We are replacing costly activities with affordable ones that could at least fulfil our desire. In fact, brands are aware of it. The most obvious example is novelty items from luxury brands.

While the last recession happened a decade ago, the economy is currently going through a major transformation – particularly in retail and prints. It created a shock wave to companies that failed to adapt to changes. As a result, layoff is inevitable. Even so, consumers are still buying. The demand is there but the budget is tightened. Hence, contemporary brands, such as Danse Lente, Mansur Gavriel, and Cult Gaia thrived with their pricing that is neither too expensive nor too low. Another aspect to consider is the rise of beauty brands. Luxurious cosmetics or skincare products hardly touch the price of fur coat or leather bag.