Price and advertising effectiveness over the business cycle
van Heerde, Harald J. × Gijsenberg, Maarten J. Dekimpe, Marnik Steenkamp, Jan-Benedict E.M. #
American Marketing Association
Journal of Marketing Research vol:50 issue:2 pages:177-193
Firms are under increasing pressure to justify their marketing expenditures. This evolution towards greater accountability is reinforced in harsh economic times when marketing budgets are among the first to be reconsidered. Such decisions require information whether, and to what extent, marketing’s effectiveness varies with the economic tide. However, there is surprisingly little research that addresses this issue. Therefore, we conduct a systematic investigation on the impact of the business cycle on the effectiveness of two important marketing instruments, price and advertising. To do so, we estimate time-varying short- and long-run advertising and price elasticities for 150 brands, across 36 CPG categories, based on 18 years of monthly U.K. data covering 1993-2010. The long-run price sensitivity tends to decrease during economic expansions, while long-run advertising elasticities increase. During contractions, the long-run own- and cross- price elasticities increase. Moreover, across the observation period, the short-run price elasticity has become significantly stronger. Finally, patterns are not the same across categories and brands, which offers opportunities for firms that know how to ride the economic tide.