The Lipstick Effect

The Lipstick Effect

Emotions dictate many facets of our lives, including our spending behavior. It should come as no surprise that during times of crisis, like the COVID-19 pandemic, spending becomes tighter, and retail companies see a decrease in sales. This spending behavior goes beyond just common sense and is actually ingrained in our biology. According to a study conducted by Rutgers University, when our bodies face a threat, we release the hormone cortisol, commonly known as the stress hormone. Cortisol causes us to focus on the threat or danger we perceive, switching us into “survival mode” where we “protect resources as a means to ensure survival.” This translates to retail as well; when we are facing a crisis like a recession, we are in survival mode and direct our spending only to things that we view as protection.

Interestingly, people experiencing stress may spend very differently, as they may have different perceptions of what provides safety. According to the study, people who were anxious about a job they already had would cut spending on retail products like clothing, while someone who was anxious about a new job would splurge on new clothes so as to create feelings of security. An interesting phenomenon is the “lipstick effect,” which was coined after Leonard Lauder reported to the New York Times that lipstick sales spiked following the 9/11 attacks. It refers to the interesting consumer habit that in times of crisis, people often cut spending but will splurge on one “unnecessary” item as a method of self-soothing. It serves as almost a reward the consumer gives themself for surviving a crisis.

Applying this concept, along with the knowledge that a crisis leads to tight spending, retailers could market their products as a “lipstick”—a luxury worth splurging on. As we are slowly emerging from a global pandemic, most consumers are in their survival mode still, showing tentative return to normal spending habits yet still remaining frugal at times. As a result, an effective business strategy for retail companies who are selling non-essential products is to take advantage of the lipstick effect. Instead of trying to convince consumers your product is a necessity, convince them it is a non-essential product worth rewarding themselves with for enduring a difficult year.

Image courtesy of Andyone