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The Interplay Between Rising Demand for Services and Evolving Consumer Preferences

The phenomenon of pent-up demand has been observed across various sectors of the economy. Initially, this demand was directed towards the purchase of physical goods. However, as time has progressed, there has been a notable shift towards services. This transition is significantly evident in the purchasing managers’ index (PMI) figures, which illustrate an increased demand for services such as travel, tourism, and hospitality. As individuals venture out to enjoy these services, there is an inherent inclination to dress up, consequently boosting the demand for beauty products. Interestingly, in the aftermath of the global pandemic, there has been a surge in the supply of entertainment options. These range from movie releases to international concerts, alongside conventional classical music and regional language performances. This has predominantly led to millennials and Gen-Z individuals engaging more in outings, thereby escalating the demand for products associated with appearance, as looking good becomes a priority when attending such events.

Cost Dynamics in the Beauty Industry

The pricing strategy for beauty products has exhibited distinct characteristics compared to other consumer goods. Initially, beauty product companies refrained from increasing prices despite rising input costs in 2022. This was a strategic move to ensure that customers were not adversely affected by price hikes. Gradually, however, there has been a moderate increase in prices, as reflected in the inflation category for ‘personal care and effects’. Nevertheless, consumers have absorbed these price changes relatively well. This can be attributed to the fact that, although consumption has increased, the overall expenditure remains modest due to the small quantities used. This scenario contrasts with the budgetary impact of essential commodities like vegetables or cereals. Consequently, the demand for beauty products and services exhibits relative inelasticity. Interestingly, higher prices may even stimulate demand due to the ‘snob effect’, whereby consumers perceive higher-priced items as more desirable.

Income Distribution and Consumer Behavior

The income distribution pattern within the country has undergone significant changes. Despite high levels of inequality, there has been an improvement in the incomes of individuals in the lower and middle segments. This economic upliftment has led to job creation, particularly in sectors like delivery services, increasing the consumption class. The ‘demonstration effect’, a theory proposed by Thorstein Veblen and later formalized by economist James Dusenberry, plays a crucial role in this context. It suggests that individuals are inclined to emulate the consumption patterns of influential groups. This phenomenon has notably fueled the demand for beauty services, including tattooing and grooming, which now attract male customers as well. Two decades ago, these products and services were predominantly consumed by women.

The Proliferation of Beauty Services and Products

With the rising demand for beauty products and services, there has been a corresponding increase in their supply. This is evidenced by the proliferation of beauty parlors, even in slum areas, as well as in rural and semi-urban regions. Additionally, the informal sector has become increasingly involved in the production of these beauty products, making them more accessible and affordable. Consequently, the prices of these products in the informal sector tend to be lower than those in the organized sector, contributing to their widespread availability.

The Lipstick Effect in the Context of Economic Growth

The lipstick effect or theory has proven to be particularly relevant in the context of the Indian economy. It illustrates how both demand and supply dynamics work synergistically, each reinforcing the other. This symbiotic relationship holds promise for the future as the economy continues to expand and create more job opportunities. As a result, the consumption of such products is likely to become habitual. In this evolving economic landscape.