Use the Lipstick Effect to Grow Your Business in a Recession
During recessions there are dozens of economic theories that are thrown around, many of them point to more bad news. However there is one concept that’
Economic history shows us that when the economy goes into a recession or a depression, the sale of lipstick increases. Really, it does! Marketers call this “The Lipstick Effect” for the apparent rise in sales of cosmetics rise in the four years from 1929 to 1933 during the Great Depression.
It’s not so much the lipstick but the small indulgences that matter. Most of what we know of the lipstick effect comes from the cosmetic industry, where the sales of color cosmetics were up 3.6% in the last quarter of 2008. However, we see evidence of this effect all over the economy. McDonalds and lower end restaurants are seeing sales spikes while companies selling small luxuries ranging from decorative cell phone covers to sensibly priced quality writing instruments may benefit from the public seeking small, “feel good” luxuries and forgoing riskier purchases like cars, vacations and the like.
The lipstick effect signals a real change in consumer behavior. While consumers don’t sustain habits like this for long, the current recession coupled with the power of the Internet has made comparison shopping (between brands and even between items with identical ingredients) a virtual full contact sport. According to Nancy Upton, assistant marketing professor at Northeastern University College “When people are anxious, they want short-term gratification and very low-risk decisions.” Upton went on to say that “People are learning new skill sets, and those will stick. Now that they’re learning how to do extreme comparison-shopping, people won’t go back to careless spending. Smart shopping makes them feel savvy–they like it.”
Most businesses can cash in on the lipstick effect at some level. Very few of us are in the cosmetics industry, but most businesses have something to offer that our customers can “trade down” to and still feel good about their purchase. Here are a few tips to take advantage of the lipstick effect in your business:
- Be proactive – Determine which products are acceptable small luxuries and market those through cost-effective means like email.
- Make it a luxury – Coffee shops have found that a daily staple has moved into something “customers treat themselves with” on Fridays. Capitalize on this perceptual shift by offering a variety of “customer treats” to level out business during the week.
- Make a “bite size” version – Take your core offering and make it into something that customers can buy in a package deal with another value added item. Bite size bundling can have great effects on your profits!
During a downturn, putting your knowledge into action is a source of power. Use what you know about your own “lipstick effect” in your industry together marketing & sales opportunities that will help you emerge from a market downturn with a stronger position and increased market share.
