• by Sarah Mahoney  @mahoney_sarah, February 12, 2009

Since the day's news brought us a bit of a bounce in retail sales, and Revlon just reported that while its total net sales are off, sales of color cosmetics are up, we decided it's time to take a closer look at the Lipstick Effect--the theory that holds that in rough economic times, a woman may not buy shoes, diamonds, or sofas, but she will comfort herself with lipstick and other affordable splurges.

Marketing Daily asked Nancy Upton, assistant marketing professor at Northeastern University College of Business Administration and an expert on hedonistic spending--what makes people feel happy when they go shopping--to explain a few things.

Q: What, exactly, is "The Lipstick Effect?"

A: During the Depression, we saw an increase in cosmetic sales, especially lipstick. It's a small, relatively inexpensive purchase that cheers you up. We're seeing similar patterns today. McDonald's sales are up, as are other lower-end restaurants--people know it's cheaper to eat at home, but it's an inexpensive way to lift their mood--especially if they're working late. Workplace morale is low, stress levels are high--people are looking for short-term gratification.

Q: Mass color cosmetic sales are up 3.6% in the last quarter. Yet fragrance sales fell in 2008. Isn't perfume an affordable splurge?

A: We put it on for somebody else, not for us. After a few minutes, we don't even notice we're wearing it. We notice that new lipstick all day long.

Q: Since lipstick is such a feel-good purchase, is it entirely emotional?

A: No. In fact, with the extensive trading down we're doing, consumers are very interested in finding out, for example, exactly what ingredients are in a skincare or cosmetic product. When they learn that there is little difference between an expensive department store product and a drugstore splurge, it doesn't just pick up their spirits--it makes them feel smart.

They think, "I don't have to pay $40 for a Lancome product--I can get one just as good for half that." It makes them feel rewarded for trading down in retail channels. That's why we're seeing so many of the mass merchandisers add things like cosmetics kiosks--it's giving consumers a bit of that department store feel, while letting them pay a much lower price.

Q: So do high-end cosmetic companies still have anything to offer consumers?

A: It depends. I think very high-end brands, like Crème de la Mer, for instance, may be able to keep that elite following. And some cosmetics offer a discreet opportunity for conspicuous consumption. So a consumer may very well pay more for a Chanel lipstick, which she can put in front of other people. But will she pay more for Chanel nail polish when no one will be able to tell what the brand is?

Q: What else, besides lipstick, provides that hedonistic benefit?

A:Consumers are really getting a lot of pleasure now out of price transparency--there are so many Web sites, for example, that allow them to research the cost of an item from many sources. It's not even so much that people need to save money, but it's almost a game mentality for many people. They say, "I'm not going to let Williams-Sonoma take advantage of me--I'll find the best price for that Calphalon cookware."

Q: What kind of purchases are least pleasurable?

A: When people are anxious, they want short-term gratification and very low-risk decisions. High-risk purchases, like cars, are very anxiety-provoking--forcing consumers to make all kinds of trade-offs between safety, style, mileage and price. It's so uncomfortable, many will just exit the shopping process and put off any decision.

Q: How long will this new frugality last?

A: Not very. People might become really careful about spending when they're anxious, but many of these changes just aren't sustainable--they are giving up things that make them happy, like having their hair colored and going out to dinner. Workplace morale is low, and they are going to return to the purchases that help them mood-regulate.

Q: So we'll go back to reckless spending?

A: No. People are learning new skill sets, and those will stick. Now that they're learning how to do extreme comparison-shopping, people won't go back to careless spending. Smart shopping makes them feel savvy--they like it. But they will return to their go-to services and products, the things that make them feel good.