Lipstick Effect

Lean in to the Lipstick Effect as cost-of-living spikes 

Ceira Rutledge, Prina Ruparelia

How to make luxury products attainable during an economic crisis

Nevermind that food and energy bills are at an all-time high, our research tells us a significant portion of the population still justify the cost of small indulgences – a phenomenon known as the ‘Lipstick Effect’. With this in mind, high end brands intent on marketing luxury content walk a fine line between hitting the mark and alienating audiences. Selling small luxuries during an economic crisis is entirely possible, but navigating this terrain takes knowhow.   

Buy cheap, buy twice is a false economy

The Lipstick Effect, also known as the Lipstick Index, is believed by many to be an important economic indicator. The concept being that in times of recession, people will invest in discretionary purchases that deliver the feel-good factor without breaking the budget. Makeup – specifically lipstick – is priced lower than other luxury items, such as clothing or designer accessories, which makes it the most affordable and attainable indulgence.

According to NPD Group, lipstick was the fastest growing area of makeup sales in the first quarter of 2022, with revenue up 48% compared to 2019. Ownership of small luxuries like lipstick acts as a mood enhancer – and in tough times, people seek the confidence boost that luxury indulgences create. Having witnessed the impact of the Lipstick Effect over the course of two decades, Brinn Garner, Chief Revenue Officer of premium beauty brand Orveon, calls the beauty industry “recession resilient”.

So, as we look to the year ahead, what should brands wanting to cultivate resilience know about the wider customer landscape?

Align messaging with customer appetite

Given all of the above, businesses can reasonably predict a positive return when they optimise opportunities arising as a result of the Lipstick Effect. That said, there’s even more to be gained by exploring more general upcoming trends in customer behaviours. Yonder Clockface enables this by layering and analysing data to demonstrate how and why different customer demographics behave – therefore predicting real-world outcomes based on complex data. The analytical model has recently shed previously unseen light on changing consumer habits during the cost-of-living crisis – especially in the way people spend their money.

An unsurprising majority of the UK population (76%) are paying much closer attention to where their coin goes. This doesn’t necessarily mean they’ve stopped spending altogether – rather, they’re more inclined to buy products that add real value to their everyday lives.

Just over half (56%) say the way they think about and value their money has fundamentally changed, which suggests they’re willing to invest in quality over quantity. Research also tells us this could be a lasting habit, with 60% of respondents saying the changes they’ve made to their lifestyle will stick once the cost of living crisis is over. If many are becoming more open to paying a little extra for one high end item that saves on future spending, perhaps this is the white space in which you target new audiences.

While the majority are undoubtedly buying fewer beauty products than they were six months ago, inflation increases are still lower on these than essentials like food or gas – which also renders them more accessible to those who’d rather invest in one posh product over five cheaper versions. With this in mind, can you align your brand with shifting attitudes by communicating more clearly the added value of your offering?   

Holistic approach helps brands ‘read the room’

Economic crisis calls for greater sensitivity when marketing luxury products. While this seems likes an obvious statement to make, we don’t see many brands encompassing it – but you can buck the trend with deep insight into needs, values, beliefs and concerns of your audience. This allows you to align your narrative with your customers’ reality, which reinforces brand trust and loyalty, even when times are tight.

Be mindful of your messaging and exercise transparency when it comes to price changes. And be prepared to reconsider your hero product – if it’s historically been a £100 face cream, for example, focus on the £22 lipstick instead. Embracing and responding to data allows you to navigate the changed (and changing) landscape by truly understanding what makes a customer choose one brand over another.

It enables you to identify where their needs are not yet being met, and where you can make the most impact. You’ll need to test and tweak your messaging repeatedly to keep reading the room, too, because this isn’t a one-off exercise that ends when the cost of living crisis is over. It is a process of continuous evolution that vastly reduces reputational risk now and in the future, plus it sets you in good stead for better days to come.