As Covid-19 streaked the globe in March, many businesses soared or plummeted as the pandemic wrought sudden sweeping change on the market environment. While some businesses like medical suppliers, drugs and chemists, small scale mask manufacturers, online education platforms, digital gadget markets soared high while many other businesses like restaurants, bars, hotels, malls etc were forced to shut down. Imposing lockdowns led to panic buying wherein consumers started buying essential goods like monthly groceries and hoarding them. Some switched to selective and cheaper buying. Unemployment soared and consumer spending fell causing major global economies to slide into recession.
This shift in consumption pattern created an altogether different trend where less costly consumer goods dominated purchases. The stock market reached its highest level with Nifty crossing 15000 mark and Sensex soaring as high as 35000. All this seems contradictory to what the situation validates.
Economists accredit these gains to ” The Lipstick effect “.
What is ‘The lipstick effect’
The lipstick effect is a theory in economics propounded in 2001 by ‘Leonard A Lauder’ chairman of a cosmetic company ‘Estee Lauder’. It states that at times of economic crisis or in periods of recession consumers demand shifts from costly and expensive luxury goods to less costly luxury goods. Consumers buy luxury goods even if there is crisis. During times of such economic distress consumers confidence in economy falls and their demand shifts to such goods that doesn’t affect their income much. In other markets besides the cosmetic industry For eg: instead of going on a tour to some country or buying expensive fur coat or jacket consumers prefer to go to cinemas, restaurants or simply buy less costly gadgets.
During the great depression American economy saw 25% increase in cosmetic sales, while in 2008 when economies were under recession cosmetic company L’Oreal saw 5.3% increase in sale of its products. In 2001 during 9/11 attacks when the US economy was under pressure Lauder saw a significant increase in sale of lipsticks in his company. He, thus appraised that there was a negative effect between economic condition and lipstick sales. This is how ‘The lipstick effect’ came into existence. However, all these examples majorly focus on lipstick but the word ‘lipstick’ is used in generalized sense and includes all other luxury goods that consumers purchase even at the time of crisis.
What the lipstick effect has to say in Indian context ?
Pandemic has impinged economy leading to tremendous fall in GDP, employment, Investment and most important of all consumer’s demand. The lockdown and the period afterwards saw a mixed bag of varied demand patterns. Broadly three different demand patterns were working simultaneously – normal demand, pent-up demand and inventory build-up. In August 2020 Boston consulting group reported that while there has been a rise in consumption of essential goods like health products, and home entertainment, positive sentiments ware also noticed around other essential items like personal care products, packaged foods and discretionary segment like apparel, cosmetics, consumer electronics. In September 2020, Shopper stops reported 33% increase in eye-makeup sales. In quarter two of 2020-21, Godrej consumers’ business saw 5% increase in its sales. Share prices of many such brand rose for eg: share price of Cinthol soap rose to 36% from 33% before the pandemic.
Is the lipstick effect glimmer of hope for the brands in the new normal ?
The lipstick effect offers an interesting insight that even during slump, trusted brands find a place in consumer’s wallet and are purchased as usual. However, this can be observed only in the case of less expensive goods and doesn’t apply to all the categories. Ceding many of their activities and expenditures including eating out due to growing fear consumers seem reluctant to spend at costly restaurants. Due to travelling restrictions their outing trips have reduced leading them to save more money for their future expenditure. Apart from saving for future, consumers have adapted themselves to this new normal and started spending on things like refurbishing their homes, decorating rooms with less costly luxury goods maybe a vase or pot that they always wanted to spend on, buying things for their new hobbies and all those small acts that cheer and give hope to them. A new car purchase might have been postponed, or a foreign tour has been cancelled but small pleasures every now and then have taken a toll over other spending. by small acts that keep them happy just like purchasing a lipstick is.
As J.K Rowling has rightly said “Happiness can be found even in the darkest of times; if only one remembers to turn on the light”. Even after the fatality of the pandemic demand by consumers will still be exceptionally characterized by irrationality and altogether opposite behavior. But what brings light to the overall situation is how well these branded businesses grab this opportunity and contribute their parts in comforting this economic crisis. Advertising can rekindle this hope. Using creative themes like togetherness, warmth, joy can help. Be kind, hopeful, positive and get the consumer to see more of your brand as a friend, supporter and a well-wisher.