Case Study: When Big Purchases Pause but Small Treats Survive
Riya, 27, works in marketing in Delhi. As growth slows, hiring freezes and rising prices create a background hum of anxiety. In response, she does what appears financially prudent: she postpones plans to buy a car, shelves the idea of moving into her own flat, and trims back on food delivery and holidays.
Her smaller purchases, however, tell a different story. Recent transactions include a mid‑priced lipstick, an occasional specialty coffee, a moderately priced perfume, and upgraded earphones. These items are neither essential nor extravagant. They sit in a “semi‑expensive” band: noticeable, but not ruinous.
If the economy is unstable, why maintain any discretionary spending at all? Psychologically, Riya is behaving in a highly patterned way. In periods of economic strain, many consumers withdraw from large, high‑commitment purchases yet preserve, or even increase, spending on modest luxuries. This tendency has come to be known as the lipstick effect, and more broadly as the preference for affordable luxuries during downturns.
Defining the Phenomenon: The Lipstick Effect and Affordable Luxuries
The lipstick effect refers to the observation that during recessions and periods of economic uncertainty, people reduce big‑ticket expenditures such as cars, homes, and high‑end electronics, while continuing to spend on relatively small indulgences, often in beauty and personal care. Instead of purchasing a luxury car or planning an international trip, they purchase a premium lipstick, a slightly more expensive coffee, or a higher‑quality skincare product.
These purchases function as affordable luxuries. They are psychologically meaningful but financially contained. They allow individuals to preserve a sense of pleasure, identity, and aspiration without exposing themselves to the risk associated with major financial commitments. Over time, the idea has expanded beyond cosmetics to encompass a wider “small indulgence” economy: artisanal desserts, specialty beverages, scented candles, mid‑range gadgets, and short, low‑cost experiences.
The underlying pattern is not a move from “spending” to “no spending”, but a reallocation from large, long‑term, status‑laden purchases to smaller, emotionally resonant ones.
Origins and Early Accounts
Juliet Schor and the Social Meaning of Small Luxuries
One of the earliest systematic descriptions appears in Juliet Schor’s work on consumer culture. In The Overspent American (1998), she noted that when budgets tighten, many consumers, particularly women, reduce private or invisible expenses while continuing to buy visible, branded beauty products. The key insight is that people do not only economise; they prioritise public, identity‑relevant goods over less visible ones.
Schor’s analysis situates the behaviour in a wider context of social comparison and status signalling. Small luxury items, especially those used in public, help individuals signal taste, competence, and belonging, even when they cannot afford larger symbols of success.
Leonard Lauder and the Lipstick Index
The term “Lipstick Index” was popularised in the early 2000s by Leonard Lauder, then chairman of Estée Lauder. He observed that after the dot‑com bust and the shock of 9/11, lipstick sales in his company’s portfolio appeared to rise while other discretionary categories weakened. Lauder proposed, somewhat playfully but influentially, that lipstick sales might serve as an informal indicator of consumer mood during downturns.
Although subsequent analyses have shown that the Lipstick Index is neither perfectly robust nor universally predictive, the concept captured a real and recurring pattern: when consumers feel economically constrained, they often shift their indulgence from large to small luxuries. This insight has since been extended to other categories, such as nail polish, skincare, and even premium coffee.
Psychological Mechanisms: Why Semi‑Expensive Items Become So Attractive
Several psychological processes converge to make modest luxuries especially attractive when the economy deteriorates.
1. Mood Regulation and Emotional Repair
Economic decline is experienced not only as a financial stressor but also as an emotional climate. People report heightened anxiety, anticipatory dread, and a sense of ongoing threat. In such conditions, small purchases can operate as mood‑repair strategies.
Buying a lipstick, a dessert, or a scented product creates a brief but tangible reward. The act of choosing, purchasing, and using the item becomes a ritual of self‑soothing. Empirical work on grooming and cosmetics suggests that these practices can elevate self‑esteem and positive affect, and sometimes improve subjective feelings of competence. It is therefore understandable that, under chronic stress, individuals defend these rituals even as they cut larger expenditures.
2. Control and Agency in a Volatile Environment
Large purchases are strongly dependent on factors beyond the individual’s control: job security, interest rates, access to credit, and broader policy decisions. Postponing such purchases is often a recognition of uncertainty.
In contrast, a semi‑expensive treat is fully controllable. It requires no bank approval, no long‑term contract, and no exposure to macroeconomic risk. Deciding to buy one mid‑priced item today restores a sense of agency: “I cannot control the economy, but I can still make choices for myself.” This experience of agency is itself psychologically protective in conditions of uncertainty.
3. Evolutionary and Mating‑Related Considerations
Some research has advanced an evolutionary interpretation, particularly in relation to women’s spending on beauty products. Experimental studies have found that exposure to information about economic hardship can increase interest in attractiveness‑enhancing products more than in non‑attractiveness‑related luxuries. One proposed explanation is that during resource scarcity, competition for supportive partners and social allies intensifies, and individuals may invest more in traits that are perceived as enhancing desirability or social advantage.
This account is debated and does not cover all forms of small luxury spending, but it highlights that consumption can serve implicit relational and reproductive goals, not only conscious self‑care.
4. Identity and Social Signalling
Even in downturns, individuals remain embedded in social networks and hierarchies. Workplaces, peer groups, and digital spaces continue to evaluate people based on appearance, style, and consumption choices. When large, conspicuous symbols of success become unattainable, smaller items can function as compressed status signals.
A particular lipstick brand, a specific coffee habit, or a recognisable gadget can symbolise membership in an aspirational group at a fraction of the price of a car or a home in a prestigious locality. Riya’s purchases, for example, allow her to continue performing the identity of a competent, urban professional, even as she delays the conventional milestones associated with that identity.
5. Mental Accounting and the “Treat Budget”
Behavioural economics offers an additional perspective through the concept of mental accounting. People mentally divide their finances into categories such as essentials, long‑term goals, and treats. In difficult times, the “big purchase” account often becomes effectively frozen, while a smaller “sanity” or “self‑care” account remains active, though restricted.
Within this mental framework, a semi‑expensive item can feel “allowed” even when the overall financial situation is constrained. The individual experiences the purchase not as a reckless violation of prudence but as a controlled, pre‑allocated indulgence. This structure helps explain why people can rationally postpone a down payment while regularly justifying smaller luxury expenditures.
Historical Patterns: Repeating Behaviour in Different Crises
Although the specific products change with time and culture, the underlying pattern appears across different economic crises. During the Great Depression, segments of the cosmetics industry were surprisingly resilient relative to other consumer goods. Following the early‑2000s recession, lipstick sales drew attention for remaining strong when other discretionary categories weakened. In the 2008 financial crisis, some beauty and personal care categories again showed relative robustness.
The COVID‑19 pandemic offers a more complex case. Mask use reduced the salience of lipstick, and sales in that particular category fell in many markets. Yet consumers shifted to other forms of self‑care and small indulgence: skincare, at‑home beauty treatments, wellness products, and premium food items. The underlying logic remained: when larger horizons closed, people gravitated towards small, manageable sources of comfort, control, and identity.
Current cost‑of‑living pressures in many countries show a similar reallocation. House purchases, car upgrades, and long trips are widely postponed, while spending on certain modest luxuries persists. This suggests that the phenomenon is not tied to one product or era, but reflects a broader psychological response to prolonged uncertainty.
Contemporary Research Directions
Recent research extends the understanding of this phenomenon in several directions:
- Neurophysiological studies indicate that evaluating and using cosmetics engages reward‑ and value‑related brain regions, supporting the idea that such products carry emotional and motivational significance rather than being trivial extras.
- Perception and social cognition research shows that light makeup can alter how faces are processed and evaluated, with implications for social interaction, perceived competence, and likability.
- Self‑concept and performance studies report that appearance‑enhancing rituals can improve confidence and performance in tasks such as academic tests, suggesting that some “small luxuries” have functional psychological benefits beyond simple hedonic pleasure.
- Consumer behaviour analyses in the post‑pandemic era document the persistence of “affordable indulgence” spending, often shifting from one category to another as social norms and practical constraints change.
These strands of evidence collectively reinforce the view that small‑scale luxury consumption in hard times is not random noise. It is tied to enduring emotional, cognitive, social, and sometimes evolutionary mechanisms.
Economic Implications
At the micro level, the lipstick effect can be seen as a coping‑compatible consumption pattern. Individuals conserve resources by avoiding large financial commitments while still generating intermittent positive experiences and sustaining social identity.
At the sectoral level, industries oriented towards modest luxuries—cosmetics, affordable fashion, premium snacks and beverages, small electronics—often show relative resilience when durables, travel, and high‑end discretionary categories contract. As a result, brands increasingly position offerings as “everyday luxury” or “small indulgence”, and calibrate price points, pack sizes, and messaging to align with this psychology.
At the macro level, however, the limits are clear. Sustained spending on small luxuries cannot compensate for declines in housing, automotive, or capital investment. The Lipstick Index, appealing as it is narratively, does not replace conventional economic indicators. It is best viewed as an insight into consumer sentiment and coping behaviour, rather than as a precise forecasting tool.
Psychological and Clinical Implications
From a psychological and mental‑health perspective, the behaviour has both adaptive and maladaptive potentials.
On the adaptive side, preserving small pleasures can protect against emotional burnout. Maintaining grooming routines, occasional treats, or minor upgrades may support self‑respect, social participation, and motivation. For some individuals, these acts are part of their strategy to remain functional under chronic strain.
On the risky side, “treat” spending can slide into compulsive buying, debt accumulation, or avoidance of deeper financial and emotional issues. When purchases become the primary way of managing distress or sustaining a fragile sense of self‑worth, they may offer short‑term relief at the cost of long‑term instability.
For practitioners, discussing spending habits can open a non‑threatening route into themes of control, self‑image, comparison, and safety. For clients, reflecting on questions such as “What am I trying to feel or prove when I buy this?” and “Is this indulgence truly compatible with my longer‑term security?” can foster more intentional, self‑aware consumption.
Conclusion
When the economy falters and people postpone a car or a home but continue to buy semi‑expensive items, they are not simply acting irrationally. They are engaging in a patterned form of psychological adaptation. Small luxuries help individuals regulate mood, preserve agency, signal identity, and sustain a coherent sense of self when larger life projects feel frozen.
The lipstick effect, and the broader shift toward affordable luxuries, thus occupies a revealing space at the intersection of psychology and economics. It reminds us that consumption is not only about income and prices, but also about meaning, emotion, and social belonging. Understanding this pattern can help individuals choose their indulgences more consciously, help psychologists interpret spending as a window into inner life, and help policymakers and businesses recognise the very human motives that persist beneath the abstract curves of an economic downturn.
References
- Hill, S. E., Rodeheffer, C. D., Griskevicius, V., Durante, K., & White, A. E. (2012). Boosting beauty in an economic decline: Mating, spending, and the lipstick effect. Journal of Personality and Social Psychology, 103(2), 275–291.
- Schor, J. B. (1998). The overspent American: Upscaling, downshifting, and the new consumer. New York: Basic Books.
- Sharma, S., & Chandra, J. (2021). The lipstick effect during COVID‑19 lockdown. Journal of Cosmetic Dermatology, 20(11), 3704–3706.
- Wikipedia contributors. (n.d.). Lipstick effect. In Wikipedia, The Free Encyclopedia (overview of concept, Lauder’s Lipstick Index, and criticisms; use mainly as a background source, not a primary citation).
- Etcoff, N. L., Stock, S., Haley, L. E., Vickery, S. A., & House, D. M. (2011). Cosmetics as a feature of the extended human phenotype: Modulation of the perception of biologically important facial signals. PLoS ONE, 6(10), e25656. (On makeup, attractiveness, and social perception; useful to justify sections on self‑esteem and social signalling.)
- Nash, R., Fieldman, G., Hussey, T., Lévêque, J. L., & Pineau, P. (2006). Cosmetics: They influence more than Caucasian female facial attractiveness. Journal of Applied Social Psychology, 36(2), 493–504. (Any similar paper on cosmetics and perceived competence/attractiveness can fill this slot if you prefer another)
- Dodd, M. D., et al. (2017). Does make‑up make you feel smarter? The “lipstick effect” extended to academic achievement. Cogent Psychology, 4(1), 1327635.
