Goods can be divided into several categories. One can roughly find 3 categories of goods: inferior goods, normal goods and luxury goods. Unlike the other two, the luxury goods category is utterly subjective, once what is perceived as luxury in one country may not be as so in another.
Luxury is a multifaceted concept. It depends on context, generations and nationalities, originating different kinds of consumers among luxury goods. Nevertheless, we can find some aspects of luxury that are common to all its products, such as high price, rarity, exclusivity, a connection with history and an even tighter one with art, an heritage, a close relationship with time, being both timeless and contemporary and above all, it must include a component of dream or aspiration desire. Likewise normal goods, when there is a rise in households’ income, the individual demand for luxury goods also rises. Indeed these are products that are not truly necessary but they do have a tendency to increase quality of life. 1
The lipstick effect is a theory that states that during a recession people tend to buy less costly luxury goods, also known as entry products. A good example of this is the lipstick itself. The concept behind this theory is that people still buy luxury goods but they tend to choose the ones that do not have a big effect on their budget.
According to The Economist “recessions mean that Ferraris stay in showrooms and designer dresses on shop racks, but lipstick bucks the trend: in difficult times, women buy more of it, since it is an affordable indulgence”.
In 1990 and 2001 recessions, while the overall employment was falling down, employment in cosmetics industry was rising. NPD Group, a market-research firm, backs that it is important to understand that lipstick theory is not about lipstick alone but instead it is more reasonable to talk about a ample category of beauty products, since this is the category that during recessions, against all expectations, increase sales. Has presented in The Guardian, L’Oreal revealed that sales during the recession year of 2008 suffered a growth of 5.3%, a year when the rest of the economy was suffering record declines in sales.
According to a paper called “Boosting Beauty in an Economic Decline: Mating, Spending, and the Lipstick Effect” by researchers at Texas Christian University, the University of Minnesota, the University of Texas at San Antonio and Arizona State University, women tend to increase their expenditure on beauty products in proportion to the insecurity of the economy.
This phenomenon is not considered recent. The lipstick effect dates back to the 1930s during Great Depression, when sales of beauty products rose unexpectedly. Over the past two decades woman have reallocated their income from other elements, such as groceries and vacations, to beauty products. A bad economic situation is found to be related with the decrease in consumers desire to invest in products that are not related with appearance. Lipstick theory has holding through the years showing that consumers will buy luxury goods even if there is a recession.
1 Kapferer, Jean-Noel & Bastien, Vicent. (2009) The Luxury Strategy, 2nd edition. Kogan Page
Maria João da Silva