Lipstick effect

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The lipstick effect is the theory that when facing an economic crisis consumers will be more willing to buy less costly luxury goods. [1] Instead of buying expensive purses and fur coats, for example, people will buy expensive cosmetics, such as high-end brands of lipstick. [2] The underlying assumption is that a certain portion of consumers will still buy luxury goods even during a bad economy. When consumer trust in the economy is dwindling, consumers will buy goods that have less impact on their available funds. Outside the cosmetics market, consumers might be tempted to purchase other high-end goods such as expensive beers, or smaller, less costly electronic gadgets.

It has been rumored that lipstick sales doubled after the 9/11 attacks on the United States; [3] however, other sources say this is an overstatement. In a New York Times article published May 1, 2008, Leonard Lauder is quoted as saying that he noted his company's sales of lipstick rose after the terrorist attacks; [4] he did not claim they doubled. Juliet Shor in her book The Overspent American talks to consumers' purchase of higher-priced, more prestigious lipsticks, specifically Chanel, that are used in public, vs. lower-priced, less prestigious brands that are used in the privacy of the bathroom.

The Economist tested the lipstick effect in 2009 with statistical analysis, stating that "reliable historical figures on lipstick sales are hard to find, and most lipstick believers can only point to isolated, anecdotal examples as evidence of the larger phenomenon. Data collected by Kline & Company, a market-research group, show that lipstick sales sometimes increase during times of economic distress, but have also been known to grow during periods of prosperity. In other words, there is no clear correlation." [5]

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<span class="mw-page-title-main">Consumerism</span> Socio-economic order that encourages the purchase of goods/services in ever-greater amounts

Consumerism is a social and economic order in which the goals of many individuals include the acquisition of goods and services beyond those that are necessary for survival or for traditional displays of status. Consumerism has historically existed in many societies, with modern consumerism originating in Western Europe before the Industrial Revolution and becoming widespread around 1900. In 1899, a book on consumerism published by Thorstein Veblen, called The Theory of the Leisure Class, examined the widespread values and economic institutions emerging along with the widespread "leisure time" at the beginning of the 20th century. In it, Veblen "views the activities and spending habits of this leisure class in terms of conspicuous and vicarious consumption and waste. Both relate to the display of status and not to functionality or usefulness."

<span class="mw-page-title-main">Conspicuous consumption</span> Concept in sociology and economy

In sociology and in economics, the term conspicuous consumption describes and explains the consumer practice of buying and using goods of a higher quality, price, or in greater quantity than practical. In 1899, the sociologist Thorstein Veblen coined the term conspicuous consumption to explain the spending of money on and the acquiring of luxury commodities specifically as a public display of economic power—the income and the accumulated wealth—of the buyer. To the conspicuous consumer, the public display of discretionary income is an economic means of either attaining or of maintaining a given social status.

The theory of consumer choice is the branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves. It analyzes how consumers maximize the desirability of their consumption, by maximizing utility subject to a consumer budget constraint. Factors influencing consumers' evaluation of the utility of goods include: income level, cultural factors, product information and physio-psychological factors.

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<span class="mw-page-title-main">Pricing</span> Process of determining what a company will receive in exchange for its products

Pricing is the process whereby a business sets the price at which it will sell its products and services, and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it could acquire the goods, the manufacturing cost, the marketplace, competition, market condition, brand, and quality of product.

<span class="mw-page-title-main">Local purchasing</span> Not buying goods or services from far away

Local purchasing is a preference to buy locally produced goods and services rather than those produced farther away. It is very often abbreviated as a positive goal, "buy local" or "buy locally', that parallels the phrase "think globally, act locally", common in green politics.

<span class="mw-page-title-main">Giffen good</span> Product that people consume more of as the price rises

In economics and consumer theory, a Giffen good is a product that people consume more of as the price rises and vice versa—violating the basic law of demand in microeconomics. For any other sort of good, as the price of the good rises, the substitution effect makes consumers purchase less of it, and more of substitute goods; for most goods, the income effect reinforces this decline in demand for the good. But a Giffen good is so strongly an inferior good in the minds of consumers that this contrary income effect more than offsets the substitution effect, and the net effect of the good's price rise is to increase demand for it. This phenomenon is known as the Giffen paradox. A Giffen good is considered to be the opposite of an ordinary good.

<span class="mw-page-title-main">Inferior good</span> Concept in economics

In economics, an inferior good is a good whose demand decreases when consumer income rises, unlike normal goods, for which the opposite is observed. Normal goods are those goods for which the demand rises as consumer income rises.

<span class="mw-page-title-main">Veblen good</span> Luxury good for which the demand increases as the price increases

A Veblen good is a type of luxury good, named after American economist Thorstein Veblen, for which the demand increases as the price increases, in apparent contradiction of the law of demand, resulting in an upward-sloping demand curve. The higher prices of Veblen goods may make them desirable as a status symbol in the practices of conspicuous consumption and conspicuous leisure. A product may be a Veblen good because it is a positional good, something few others can own.

<span class="mw-page-title-main">Substitute good</span> Economics concept of goods considered interchangeable

In microeconomics, two goods are substitutes if the products could be used for the same purpose by the consumers. That is, a consumer perceives both goods as similar or comparable, so that having more of one good causes the consumer to desire less of the other good. Contrary to complementary goods and independent goods, substitute goods may replace each other in use due to changing economic conditions. An example of substitute goods is Coca-Cola and Pepsi; the interchangeable aspect of these goods is due to the similarity of the purpose they serve, i.e fulfilling customers' desire for a soft drink. These types of substitutes can be referred to as close substitutes.

<span class="mw-page-title-main">Law of demand</span> Fundamental principle in microeconomics

In microeconomics, the law of demand is a fundamental principle which states that there is an inverse relationship between price and quantity demanded. In other words, "conditional on all else being equal, as the price of a good increases (↑), quantity demanded will decrease (↓); conversely, as the price of a good decreases (↓), quantity demanded will increase (↑)". Alfred Marshall worded this as: "When we say that a person's demand for anything increases, we mean that he will buy more of it than he would before at the same price, and that he will buy as much of it as before at a higher price". The law of demand, however, only makes a qualitative statement in the sense that it describes the direction of change in the amount of quantity demanded but not the magnitude of change.

<span class="mw-page-title-main">Luxury goods</span> Good for which demand increases more than what is proportional as income rises

In economics, a luxury good is a good for which demand increases more than what is proportional as income rises, so that expenditures on the good become a greater proportion of overall spending. Luxury goods are in contrast to necessity goods, where demand increases proportionally less than income. Luxury goods is often used synonymously with superior goods.

<span class="mw-page-title-main">Pricing strategies</span> Approach to selling a product or service

A business can use a variety of pricing strategies when selling a product or service. To determine the most effective pricing strategy for a company, senior executives need to first identify the company's pricing position, pricing segment, pricing capability and their competitive pricing reaction strategy. Pricing strategies and tactics vary from company to company, and also differ across countries, cultures, industries and over time, with the maturing of industries and markets and changes in wider economic conditions.

The lipstick index is a term coined by Leonard Lauder, chairman of the board of Estee Lauder, used to describe increased sales of cosmetics during the early 2000s recession. Lauder made the claim that lipstick sales could be an economic indicator, in that purchases of cosmetics – lipstick in particular – tend to be inversely correlated to economic health. The speculation was that women substitute lipstick for more expensive purchases like dresses and shoes in times of economic distress.

The market for luxury goods in China composes a significant proportion of all luxury goods sales worldwide. In 2012, China surpassed Japan as the world's largest luxury market. According to a report by McKinsey in 2019, Chinese consumers are the engine of worldwide growth in luxury spending According to a report by Bain in 2021, China’s luxury spending is expected to reach more than half the global market value of luxury goods by 2025. This rapid growth has been explained partly by the luxury consumption habits of the post 1980's generation influenced by the Chinese economic reforms of the 1990's leading to rapid growth in economic conditions and China's one-child policy.

e.l.f. (cosmetics) American cosmetics brand

e.l.f. Cosmetics is an American cosmetics brand based in Oakland, California. It was founded by Joseph Shamah and Scott Vincent Borba in 2004. Items include bath and skin-care products, mineral-based makeup, professional tools, eyeliners, lipstick, glosses, blushes, bronzers, brushes, and mascara, among others.

<span class="mw-page-title-main">Pink tax</span> Higher pricing of products marketed to women

The pink tax refers to the tendency for products marketed specifically toward women to be more expensive than those marketed toward men. This phenomenon is often attributed to gender-based price discrimination, however research shows that the primary cause is women sorting into goods with higher marginal costs. The name stems from the observation that many of the affected products are pink.

Economists and marketers use of the Search, Experience, Credence (SEC) classification of goods and services, which is based on the ease or difficulty with which consumers can evaluate or obtain information. These days most economics and marketers treat the three classes of goods as a continuum. Archetypal goods are:

References

  1. Kushick, Maia (June 24, 2009). "Area Mary Kay employee earns 18th new car". news-journal.com. Archived from the original on June 28, 2009.
  2. Cuthbertson, Dawn (April 3, 2009). "Lipstick effect grips consumers". Archived from the original on 2009-04-08. Retrieved 2009-04-05.
  3. "The lipstick as an economic indicator". economictimes.indiatimes.com. May 2, 2008. Retrieved 16 December 2016.
  4. Schaefer, Kayleen (May 1, 2008). "Hard Times, but Your Lips Look Great". The New York Times. Retrieved Apr 10, 2013.
  5. "Lip reading". The Economist . January 22, 2009. Retrieved 2018-04-30.