Is Lipstick a Recession Indicator?

During the worst years of the Great Depression, industrial production in the U.S. was halved, yet sales of cosmetics generally rose, or at least remained steady. This curious phenomenon later inspired Estee Lauder’s chairman, Leonard Lauder, to coin the term “Lipstick Index” during the 2001 recession. It was observed that lipstick sales rose when the economy fell. This phenomenon directly relates to how consumers behave in uncertain circumstances. People tend to think more about their larger purchases, such as cars and housing, and put them off, if possible. Low income during a recession contributes to a lack of confidence in the economy. So, then the question arises, “Where can I derive my own personal luxury, my own feeling of well-being?’’ Consumers, therefore, opt to purchase “micro-luxuries”.

The Psychology of Micro-Luxury

These purchases are driven not by extravagance but by psychology. It was observed that consumer psychology is directed by their “mood” and therefore, lipstick acts as a mood enhancer during times of recession. The consumer simply tries to feel better during difficult times.

Not only is the lipstick theory plausible, “it’s perfectly consistent with all kinds of economic theory,” said Richard DeKaser, the chief economist with National City Corporation, a financial holding company and bank in Cleveland.

This phenomenon extends beyond just lipstick. The purchases include champagne, self-care products, candles, and even kitchen utensils, whose sales increased by 10% during the 2009 financial crisis. It was found that spending on 16 alcoholic beverages increased during the Great Recession; it is possible that purchases of craft beer or a nice bottle of whiskey increased for similar reasons. Consumers felt the need to “reward” themselves in economically manageable ways.  

People seek to preserve normalcy, self-esteem, and identity when larger financial security feels threatened. Behavioural economics explains this as “self-reward” spending- a coping mechanism to balance stress and uncertainty. The “expensive” product makes one feel good. It acts as a little boost to their day. This phenomenon highlights a fundamental truth about human behaviour: our desire for comfort and control that persists even in times of scarcity.

Even during downturns, demand doesn’t disappear; it shifts. This shift in consumer demand, although challenging, can present an opportunity for self-care brands. Businesses will have to ‘reframe’ their products for the new consumer base. They have to pivot their focus and align their marketing to the core psychological needs of the stressed consumer.

Strategic Adaptation: Selling Escapism and Control

Between 2008 and 2010, the National Association of Theatre Owners (NATO) primarily focused on navigating the major economic downturn and transitioning to digital cinema. The Great Recession of 2008 created economic challenges for the movie industry. However, NATO promoted the exclusive and unique experience of seeing a film in a theatre. It was found that U.S. movie ticket sales increased by 4.5% during the 2008 recession. Hence, low-cost, high-impact entertainment acts as a key “affordable escapism” mechanism.

Strategic pricing by brands also proves to be very important during a recession. The micro-luxury has to maintain its high perceived quality while remaining highly accessible. The price point is therefore crucial. It must be low enough to induce consumers to buy during a recession, yet high enough to still feel like a meaningful and luxurious reward. Brands like Bath and Body Works, during the 2008 downturn, successfully positioned their products as “affordable self-care”, saw sales rise. 

For example, even amidst economic uncertainty and rising prices, subscription streaming services have emerged as a resilient and recession-proof category in America. According to a recent report by the National Research Group, while approximately two-thirds of U.S. consumers understand they must reduce overall spending due to inflation, only about a quarter plan to cancel their subscriptions, such as Amazon Prime, Netflix, and Spotify. This is a similar manifestation of the same psychological principles that drive the ‘Lipstick Index’. 

With large purchases like travel, cars, and housing halted during a recession, consumer spending shifts to improving the immediate environment. Therefore, sales in home improvement, like small and decorative items, kitchen accessories, and “cosy” goods like high-quality coffee and blankets, become disproportionately important.

In essence, positioning for a recession means temporarily shifting the sales focus from the wallet to the mind. If a business can provide some escapism by providing a little joy, comfort, or immediate gratification, it will flourish even during a recession.

Repositioning Micro-Luxury Brands

For instance, Starbucks can be classified as a micro-luxury. During a period of economic downturn, the central challenge would be to sustain the customer base and engagement when people are cutting back on costs. The goal can therefore be to reposition Starbucks as a ‘treat’ and a ‘comfort’ to people during difficult economic times. The brand could also offer smaller cup sizes, combo deals, or refill discounts that encourage people to try Starbucks for the first time during a recession. This is because consumers become more cautious of spending but still seek affordable indulgences.

Starbucks could position itself through campaigns with taglines such as “You Deserve a Little Treat” or “Comfort in a Cup”, which appeal to a consumer’s desire for small amounts of indulgence that encourage them to purchase its beverages. The marketing must emphasise an experience that transforms their normal tough reality into a brief and affordable escape.

Applying Micro-Luxury Psychology to Macro-Purchases

During a recession, car purchases are among the first to be delayed or cancelled. However, if we apply the insights from the Lipstick Index, a car company can reposition itself not by denying economic anxiety, but by empathising with the consumers. It could position the car around affordability, highlight durable features, and provide extended warranties, service packages, and flexible financing options. The focus must be on easing consumer hesitation and positioning the car as a ‘partner’ during tough times.

For example, during the 2008 recession, Hyundai successfully repositioned itself with its “Hyundai Assurance Program,” which allowed customers to return their cars if they lost their jobs. This empathetic and innovative approach turned consumer anxiety into trust. Hyundai’s sales rose while competitors declined.

Conclusion:

The fascinating truth is that even during a recession, demand doesn’t die; it shifts. The ‘Lipstick Index’ is not just an arbitrary economic observation, but rather it highlights a deep consumer psychology that businesses need to pay heed to. It reveals that demand in recessions becomes emotionally driven as well, rather than purely functional. It serves as a reminder that markets are not just powered by income but rather emotion as well. Businesses that are able to recognise the change in customer preferences and are able to adapt to the changes will not only endure the economic recession but also emerge with a higher customer base and more brand loyalty.

Citations:

Murgea, A. (2012b). LIPSTICK EFFECT IN ROMANIA: PROPENSITY TO BUY COSMETICS AND STOCK MARKET EVOLUTIONS. Annales Universitatis Apulensis Series Oeconomica, 14(2), 512–513. http://193.231.35.122/upload/lucrari/1420122/19.pdf

The New York Times. (n.d.). Hard Times, but Your Lips Look Great. The New York Times.

Monllos, K. (2020, March 31). ‘Right thing to do at the right time’: The definitive oral history of Hyundai’s assurance program. Digiday. https://digiday.com/marketing/right-thing-to-do-at-the-right-time-the-definitive-oral-history-of-hyundais-assurance-program/

Dickler, J. (2022, October 6). Despite inflation worries, Americans are less likely to cancel Amazon Prime, Netflix than cut spending on food. CNBC. https://www.cnbc.com/2022/10/06/consumers-prioritize-netflix-amazon-prime-over-groceries-and-gas.html

Bor, J., Basu, S., Coutts, A., McKee, M., & Stuckler, D. (2013). Alcohol use during the Great Recession of 2008–2009. Alcohol and Alcoholism, 48(3), 343–348. https://doi.org/10.1093/alcalc/agt002