Price and advertising effectiveness over the business cycle

H.J. van Heerde, M. Gijsenberg, M.G. Dekimpe, J.E.B.M. Steenkamp

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Firms are under increasing pressure to justify their marketing expenditures. This evolution toward greater accountability is reinforced in harsh economic times when marketing budgets are among the first to be reconsidered. To make such decisions, managers must know whether, and to what extent, marketing's effectiveness varies with the economic tide; however, surprisingly little research addresses this issue. Therefore, the authors conduct a systematic investigation of the business cycle's impact on the effectiveness of two important marketing instruments: price and advertising. To do so, they estimate time-varying short- and long-term advertising and price elasticities for 150 brands across 36 consumer packaged goods categories, using 18 years of monthly U.K. data from 1993 to 2010. The long-term price sensitivity tends to decrease during economic expansions, whereas long-term advertising elasticities increase. During contractions, the long-term own and cross price elasticities increase. Moreover, throughout the observation period, the short-term price elasticity became significantly stronger. Finally, patterns differ across categories and brands, which presents opportunities for firms that know how to ride the economic tide.
Original languageEnglish
Pages (from-to)177-193
JournalJournal of Marketing Research
Volume50
Issue number2
DOIs
Publication statusPublished - 2013

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Economics
Business cycles
Advertising effectiveness
Marketing
Price elasticity
Elasticity
Marketing effectiveness
Contraction
Managers
Accountability
Time-varying
Cross-price elasticity
Price sensitivity
Expenditure
Consumer packaged goods

Cite this

van Heerde, H.J. ; Gijsenberg, M. ; Dekimpe, M.G. ; Steenkamp, J.E.B.M. / Price and advertising effectiveness over the business cycle. In: Journal of Marketing Research. 2013 ; Vol. 50, No. 2. pp. 177-193.
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Price and advertising effectiveness over the business cycle. / van Heerde, H.J.; Gijsenberg, M.; Dekimpe, M.G.; Steenkamp, J.E.B.M.

In: Journal of Marketing Research, Vol. 50, No. 2, 2013, p. 177-193.

Research output: Contribution to journalArticleScientificpeer-review

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