The Lipstick Effect: A Small Indulgence When Times Get Bad

 Have you ever wondered why when the economy is down or consumers are anxious about finances, some of those small indulgences yet keep selling? That phenomenon is what marketers and economists refer to as the Lipstick Effect. 

What is the Lipstick Effect? 

Simply put, the Lipstick Effect is that when customers are tight-lipped about spending, they no longer purchase large, costly luxuries (such as a new designer purse or a luxury car) but do indulge in small, cheaper luxuries. 

The most well-known illustration, which provided the effect with its label, is lipstick. 

• At difficult moments, many will not spend a small fortune on a holiday or a watch. 

• But they have money to splurge on a good-quality, high-end lip lipstick, an extra perfume bottle, or a specialty coffee. 

This small splurge is a psychological lift—a feeling of indulgence, of normalness, of a “treating myself” without really costing an arm and a leg. 

Where Did the Idea Come from? 

This word became famous among people through Leonard Lauder, a former Estée Lauder Companies (large cosmetology brand) chairman. Following the 9/11 attacks of 2001, when America’s economy was in a time of uncertainty, it was pointed out by Lauder that sales of lipstick actually increased even as sales of most other businesses declined. He suggested that lipstick sales might be an unofficial predictor of a recession and dubbed it the “Lipstick Index.” 

Nevertheless, comparable remarks have been recorded through time even going as far as the Great Depression of the 1930s when sales of cosmetics have been good. 

Why does it happen? 

The Lipstick Effect is a principle from consumer psychology: 

1. Frugal Indulgence: Indulgences are still desired and a human requirement even among people who have to be cheap. Indulgence in small ways meets this human need without inducing financial pressure. 

2. Preserving Morale and Appearance: At a time of uncertainty, an individual wishes to preserve his self-image, feel good about himself, or improve his appearance if he is currently seeking employment or wanting to make a good impression. An onion of prestige from something small makes him feel a little better. 

3. Substitution: Consumers essentially are substituting a large item (luxurious clothes, jewelry) for a small item (luxurious lipstick, nail polish). They experience luxury once near their reach.