You're probably sick and tired of hearing about the cost of living crisis by now and the seemingly increasing price of absolutely everything. But, is the old adage of 'The Lipstick Effect' still relevant and true? If analysts are to believed, a cost of living crisis should be a window of opportunity for beauty brands.
What is the Lipstick Effect?
Financial strain can be tough across the board, but for the beauty industry, it might bring a surprising perk - the lipstick effect. This theory suggests that when budgets tighten, consumers turn to smaller luxuries, like a new lipstick, for a mood boost.
Instead of that designer bag, a splurge on a high end lipstick offers a taste of luxury at a fraction of the price. It's a way to indulge in a prestigious, designer brand like Dior or Chanel, but without breaking the bank.
A Shift in Spending: Beyond Lipstick
The lipstick effect isn't limited to lipstick, or even to makeup. It could be swapping a luxurious holiday for a shorter city break, or delaying a car upgrade for a high end car wash. Beauty products are a clear example of this spending shift, but the trend goes beyond cosmetics.
Interestingly, the lipstick effect isn't always about 'downgrading'. For example, some consumers, squeezed by the cost of living, might forego a holiday but might still have a little disposable income which could lead to them investing in higher quality skincare products or upgrading from drugstore brands to 'masstige' (mass + prestige) ranges. On the flip side, some consumers are moving from luxury brands such as Kiehls or Chanel to more affordable options.
The Key to Customer Satisfaction: Affordable Indulgence
Consumers crave a sense of normalcy, even in challenging times. One way to approach this for luxury brands could be to introduce more accessible ways of enjoying a product, brand or experience, for example a lower-priced line from a designer brand.
This approach allows customers who might trade down from a Gucci bag to Gucci makeup during tough times, to eventually trade back up when finances improve.
The Delicate Balance: Attracting New Customers and Remaining On-Brand
For beauty brands, the main challenge lies in striking a balance. They need to attract new, budget-conscious customers, whilst staying true to their brand identity and potentially encouraging them to spend more in the future.
It's important to avoid getting into some sort of bidding war and to understand your brand's unique value proposition, focusing on customers who resonate with it, regardless of their current budget.
Ultimately, beauty goes beyond the surface. Some products, whether affordable staples of those that address specific skincare concerns, transcend financial constraints. They offer a sense of wellbeing and self-care, which can be a small but important luxury during challenging times.
For many brands, discounts aren't the key to long-term loyalty and customer lifetime value; it's product quality.
Building Trust Through Testers
With the cost of living crisis pushing consumers towards new products, brands need to make sure they get the right fit and understand how to use them for maximum benefit. This presents a trial opportunity for both the brand and the customer.
Trialing products is key and that's why testers exist. A non-beauty industry example of this includes HelloFresh who offer introductory discounts. If someone tries a brand and likes it, they're more likely to keep buying from them.
The Power of Purpose
A brand's purpose of social impact is often overlooked in the beauty industry, but it can be a very powerful tool for building customer loyalty.
Brands that give back to charities, communities or focus on ethical and sustainable practices are often additional ways to keep customers coming back. Consumers gain a 'feel good factor' from purchasing from purpose-driven brands.
Stay Calm and Adapt
Economic downturns can be a shock for businesses, and uncertainty can cloud judgement. They key is to understand the market dynamics and to stay focused.
Try not the panic when things are so changeable. A change in trends or sales is natural, so it's important to be more strategic, focus on the long-term and to stay true to your brand. Whilst you might lose some customers initially due to cost, others will be drawn to you for the same reason.
At Honchō, we're experts in supporting beauty brand growth. Learn more about how we could help your beauty brand by getting in touch now.
Lottie Hippisley
