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Economic downturns are said to be identified as periods characterized by an evident fall in consumption demand. Recession tends to shake up the business environment everywhere which pushes them to develop fail-proof strategies to prepare themselves for such uncertainties. At the same time, not all product lines are equally impacted by the recession periods. The literature from evolutionary psychology and behavioral economics states that during these times of troughs firms manufacturing cosmetics, and particularly 'lipstick' observe an increase in sales. This is the phenomenon most popularly referred to as “The Lipstick Effect” and describes why cosmetics, beauty centers, and personal care products attract special attention when all other businesses visibly head south.
The standardized theory of economics would essentially segregate goods based on their response to demand caused by a shift in income levels or their income elasticity of demand. the goods that are demanded more with an increase in income are termed “normal goods” and goods that have a negative relationship between change in demand and change in income are referred to as “inferior goods”. But it is impossible here to consider lipstick as an inferior good as people, on average would spend on cosmetics only when they think they have enough income to spare for self-care products after making expenses for items of necessity. Hence they would purchase lipstick only with a rise in income, or if a fall in income happens simultaneously with a fall in price. In that case, the quantity demanded of a normal good will not be affected.
Thereby the lipstick effect in isolation of business cycles can be understood concerning the economic theory of income elasticity, given that fall in the price of lipsticks is greater than a fall in the level of income.
The traditional theory also proposes the fact that due to the income effect, technically as income falls with the onset of a recession, a similar should be the trend with expenditure on self-care products. The various types of research conducted to study the reason behind the concept of the lipstick effect have proposed three most likely origins. The first driver is the psychological motivation of women to present themselves well as the economic outlook keeps worsening. The self-care mechanism might change from purchasing new clothes to a more economical “purchasing just lipsticks”. The second does not hold much economic importance and assumes that the effect is rather a social psychology concept that women, by grooming themselves well believe that attracting a mate would be much easier. The third and last idea focuses more on attempts to retain employment. Considering that the unemployment rate in the economy increases, women tend to spend more on beauty-enhancing products and services, thereby becoming more socially visible which is assumed to affect the probability of getting a job or not losing a current job.
On the manufacturing end, as aggregate demand tends to settle during troughs, consumers save more and spend only on essential goods. Firms, as a result, are forced to cut down on their supply as revenue decreases, and in worse cases, might have to downsize too. What also needs to be taken note of is that not all the products would be affected and the lipstick effect pushes the ability of consumers to make a purchase rather than save. In simple words, when economic pressure is tightened, people would not be having enough disposable income in their hands to resort to buying houses and cars. Therefore they tend to make a comparatively cheaper investment in beauty products that would make them look good. It stands as proof to defend the idea that demand from a household does not necessarily plunge as their income drops.
Beauty care products are always found to be purchased by people who intend to look good emotionally. This is exactly the reason why these product markets do not succumb to the impact of the recession. Consumers find it worthwhile to put money into feeling good psychologically and therefore consume easily accessible and affordable luxury items. If firms happen to understand their consumer base accurately in such situations, they would be successfully able to tap into their interests, observe purchasing patterns, offer products accordingly and win a loyal consumer base.
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