Saturday, June 30, 2012

Counter Cyclical Companies

Twenty years ago, when I worked for DEC in Dallas, one of my customers was Mary Kay. As you work with a company you have to get to know how, when and why they make money - otherwise you can't sell them anything. What was interesting about Mary Kay was that their sales went up during a recession. The IT folks I worked with attributed this to an increase in independent sales reps during hard times and a subsequent decrease when times were better.

I found this argument persuasive, but perhaps we were wrong.

Although consumer spending typically declines in economic recessions, some observers have noted that recessions appear to increase women’s spending on beauty products—the so-called lipstick effect. Using both historical spending data and rigorous experiments, the authors examine how and why economic recessions influence women’s consumer behavior. Findings revealed that recessionary cues—whether naturally occurring or experimentally primed—decreased desire for most products (e.g., electronics, household items). However, these cues consistently increased women’s desire for products that increase attractiveness to mates—the first experimental demonstration of the lipstick effect.

As they say, read the whole thing.

Summary article here.

HT: Marginal Revolution


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