When the economy is up, people tend to buy luxurious things and over-consume. When the economy is down, people try to save their money. Like it is explained, economic situations and consuming habits have a close relationship. Many factors influence people’s consuming patterns, so people try to make rational decisions according to their given situation. Long-term economic depression is the main problem in the world these days.
China could not sustain their economic growth and currency stabilization began in America, which has curtailed consumption greatly. With such a circumstance in the world, certain economic conditions and fears about an uncertain future have overwhelmed consuming patterns. This has started a new problem called ‘cost effective consuming pattern’. It has settled as a new trend and cost effectiveness has become an important element in peoples’ lives that they consider before they buy a product. Consumer sentiment is believed to decrease in an economic downturn, as buyers are trying to close their wallets. However, we can see that the sales rates of particular goods are increasing at a constant rate. There is an economic term that explains the phenomenon that arises in an economic situation like this: Lipstick effect.
This term first appeared during the Great Depression in the 1930s. It was when the sales rate of lipstick increased notably in an economic slump while consuming rates of other products did not increase as highly. Similarly, the sales rate of lipstick also increased during the 9.11 terror attack in 2001 and the 2008 Global Financial Crisis. People can’t easily get rid of their old consumer habits and satisfaction they used to have in a booming economy. That is why they desire to buy small luxury products and large quantities at a cheap price. Lipstick is a cosmetic product that shows a high makeup effect. The miniskirt is another example of an item that raises beauty easily. The necktie is another example in the case of men, which is used to improve one’s appearance without buying a new expensive suit. This is why the phenomenon is also called the “Necktie effect”. These products, which can meet a special need, lead various brands to start using low-price marketing to retain their customers. A consumer’s feeling is not different after buying an expensive product so their desire can be fulfilled with a lower cost.
The same situation happens in Korea right now. The economic growth of Korea has been shown a fixed low development. According to the National Statistical Office (NSO), from 2011 to 2016, the economic growth rate of Korea did not jump over 4% and has been almost fixed at 2-3% which means economic progression has been close to none. Over that time, in all of the newspapers published in Korea, ‘recession’ is the most common word which describes the state of the current economic condition. Also, the NSO predicted that it would be similar in 2017, and because of messy internal circumstances such as political issues and the social atmosphere, even consumption will be affected negatively.
In such a gloomy situation, companies are considering deeply what is facilitating the shrinking consumption. This leads to open competition to make a new “Lipstick” between companies. For example, “No Brand” merchandise has been sold like hot cakes because of its cost-effectiveness. The “No Brand” started in August 2015 and is famous because of the company E-Mart. They have deleted additional prices that follow brand names such as Nong-shim, CJ, and Samsung. By reducing subcontractors, E-mart can minimize the distribution stage. Therefore, the price also can be minimized causing the consumers to prefer their “No Brand”. Additionally, it has made a big dent in prices by launching a consignment production system with a supreme manufacturer from abroad. Customers think that even though these products are cheap compared to other merchandise, the functions are truly overtaking the price. From snacks to detergent, it is widely loved from all sides. This has led to the opening of several shops under the name of “No Brand Market”. Ironically, “No Brand” makes a brand. After it won great success, other companies have been trying to make and advertise their own PB (private brand) product. Even convenient stores such as GS25 and Seven-Eleven, which normally sell products at a high price, launched their own price-effective products. It is representative of the tendency to pursue cost-effectiveness because of a shrinking customer sentiment. On top of that, in the cosmetic field, sales rates of colored cosmetics have risen up compared to last year, and also the sales rate of big volume products is soaring upward. Instead of expensive and small products, consumers are willing to buy color cosmetics, which are relatively inexpensive and small products. This situation proves that although the GDP has raised little by little, the desire of customers pursuing the best quality with a minimum charge has not changed.
Even though the economic depression is pervading, this consuming habit facilitates the domestic economy. Therefore, consuming habits that follow the Lipstick effect are a reasonable and understandable tendency. Economists predict that even if the economic circumstances of Korea gets better, consumers pursuing small luxury products and cost-effective goods will not fade away. Consequently, customers can expect merchandise which will achieve high satisfaction with a lower price.
by Yu-jin Jung, CP Reporter/Ji-hyeon Son, CUP Reporter
Yu-jin Jung, CP Reporter firstname.lastname@example.org
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