Is the lipstick theory really true? I’ve been hearing a lot about it lately and I’m not so sure.
The “lipstick theory” is people will spend money on small, modest priced luxuries in a downturn to make up for not being able to afford big luxuries.
It’s been used to justify everything from increased fast food sales to Belgain chocolates to expensive beer to, well, lipstick.
I recently heard it used by a software developer as the rationale for investing in a software as a service product.
But is it true?
The Economist isn’t so sure and shows there’s little correlation between past recessions and lipstick sales.
My suspicion is if it was true in the twenties and thirties, it was more because better manufacturing and distribution techniques meant a better, cheaper product could get to the market.
Even if the lipstick theory is true, it’s dangerous to assume your product is the same.
For a start, some lipsticks will do better than others, partly because of marketing and partly because their price points are smarter.
Should your “lipstick” product be successful, it might not make much money for you anyway. In the last recession we saw McDonalds and other fast food chains introduce $1 and $2 meals, we’re seeing a similar trend at the moment with sub $500 computers.
These “recesssion busters” may keep your market share up, but they aren’t going to be particularly profitable. Indeed, for the computer manufacturers, the sub $500 laptops may well be cannibalising what’s left of their profitable product lines.
The reality is a lot of the products that are claiming the “lipstick theory” will save them are really doomed. The vast majority of shops selling expensive chocolate, lingerie, beer and other pricey but non essential products are simply marking time until the effects of the popped bubble reach them.
It’s best to base your business plans on sound evidence rather than blind hope in an idea that may or may not be true and may or may not apply to your products.