Global slowdown – opportunity or threat?

It is known fact that global economy is getting hit badly by rising feul prices, high interest rates largely. Market situation is going from bad to worse by the looming quarterly results by the corporate world. Recession has already happened or round the corners. There are too many questions without helpful answers. Focus is to tighten the costing nuts & bolts to increase operating margins and remain profitable. Is this the right time to create new opportunities or tap new set of consumers? Possibly yes. Let me share the ‘Lipstick effect’, rather L’Oréal effect.

‘Lipstick effect’ is that during a recession, the tendency of consumers to purchase small, comforting items such as lipstick rather than large luxury items. The reason is that women traditionally turn to lipstick when they cut back on life’s other luxuries. They see lipstick, which sells for as little as $1.99 at a supermarket to $20-plus at a department store, as a reasonable indulgence and pick-me-up when they feel they can’t afford a whole new outfit.

Finance gurus even have a name for shopping in stressful times: the “lipstick indicator.” For financial types, an indicator is an economic variable that shows the current state of some aspect of the economy. A leading indicator is an economic variable that shows the direction of future economic activity. Today’s phrase, which was coined by Leonard Lauder, suggested that lipstick sales can be used as both an indicator and a leading indicator. Indeed, Lauder’s original formulation for the phrase was leading lipstick indicator, because of the so-called lipstick effect.

‘Lipstick effect’ is a phrase coined by Leonard Lauder, Chairman of Estee Lauder, who saw a huge jump in lipstick sales during tough economic times. Estée Lauder Companies,(7BUS$) Inc. is one of the world’s leading manufacturers and marketers of skin care, cosmetics, perfume and hair care products. Estee Lauder noticed that whenever lipsticks sales went up, consumer confidence and spending went down. That happens, said Lauder, because women still want to feel good about themselves in tough times, but they can’t always afford higher-priced items. The compromise is lipstick.

Let me illustrate with L’Oréal example. L’Oréal, over the years has seen that their sales during economic downturn, recession stays consistent or increases. This trend has been observed since 1929, great depression in United States & in 1937 recession.

In fact, in 2002, Lindsay Owen Jones, Chairman and Chief Executive Officer of L’Oréal said, “We are fortunate to be operating in markets that are less sensitive than others to economic cycles. When the outlook is gloomy, a customer who delays the purchase of a consumer durable will continue to buy cosmetics products as they provide a sense of well-being at a reasonable price”. This phenomenon of L’Oréal doing well in sales during the economic downturn is called “L’Oréal effect”.

For men, ‘Lipstick effect’ can be visible for ‘Feel-good-AND-inexpensive’ products like ‘Deo’, ‘Tie’. That is the beauty of economy, when there is down-turn for everything else; there is niche opportunity for tapping/creating new markets. Issue is can we find new opportunity or we just are tightening the screw?

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