Economics of the Cosmetic/Beauty Industry

One afternoon in between my classes I was reading a beauty magazine. One of the articles in the magazine sparked the interest of this post which happens to be entitled the Economics of the Cosmetic Industry. The cosmetic industry was launched during the Great Depression (surprisingly). Americans at the time considered cosmetics affordable luxury. One article that I came across while doing research for this blog stated that during times of fear (or recessions) companies slash their marketing budget. Marketing is critical because it helps a company to maintain brand name recognition and public awareness. It usually takes a company around four to six months to reap the effects of a successful marketing campaign. I am employed by the company who started it all, Estee Lauder. Estee Lauder is a makeup conglomerate (owning as many as 13 other makeup companies). According to my Account Executive, Estee Lauder, was able to pick up 40 percent market share in 2008. How were they able to accomplish this? It is rather simple when we look at this situation as an economic paradox. Women have turned to cosmetic or beauty measures as a way to enhance their sexual appeal to attract the opposite sex since time began. As technology and medical procedures have gained popularity among the wealthy or those with disposable incomes the more women have turned to medical procedures as a way of obtaining the fountain of youth. However, in economic downturns, the medical market suffers. This is primarily due to the fact that consumers are not willing to splurge on these high end items as they were in the past. These luxury goods are being replaced with normal goods. With shrinking portfolios, dividends and incomes consumers are turning to a cheaper alternative. Cosmetics! According to most women, who already on average make 78 percent to their male counterparts, they are seeing the increasing demand for jobs in the overall market. The supply of jobs overall has decreased making the market more of a competitive industry than it was only a few years ago. One way that women feel that they are able to succeed in the job market is by looking their best. What better way to feel good than something as cheap as a $10 to $20 tube of lipstick which can last months? Not only is the demand for cosmetic products increasing as the demand for cosmetic procedures is decreasing, but there is also a substitution effect taking place in the cosmetic industry. These so called snob goods are being replaced by quality goods. For instance Chanel cosmetics suffered a loss in market share that was picked up by Estee Lauder. The cosmetic industry is not a perfectly competitive industry or else prices would not widely differ.