Philip M. Parker
Professor of Marketing
Despite its obvious importance, very little marketing research focuses on how business-cycle fluctuations affect individual companies and/or industries. Often, one only has aggregate information on the state of the national economy, even though cyclical contractions and expansions may not have an equal impact on every industry, nor on all firms in that industry.Using recent time-series developments, the authors introduce various measures to quantify the extent and nature of business-cycle fluctuations in sales. Specifically, the authors discuss the notions of cyclical volatility and cyclical co-movement, and consider two types of cyclical asymmetry related, respectively, to the relative size of the peaks and troughs and the rate of change in upward vs. downward parts of the cycle.In so doing, they examine how consumers adjust their purchasing behavior across different phases of the business cycle. They apply these concepts to a broad set (24) of consumer durables, for which they analyze the cyclical sensitivity in their sales evolution. In this way, they (i) derive a novel set of empirical generalizations, and (ii) test different marketing theory-based hypotheses on the underlying drivers of cyclical sensitivity. Consumer durables are found to be more sensitive to business-cycle fluctuations than the general economic activity, as expressed in an average cyclical volatility of more than four times that of GNP, and an average co-movement elasticity in excess of 2.This observation calls for an explicit consideration of cyclical variation in durable sales. Moreover, even though no evidence is found for depth asymmetry, the combined evidence across all durables suggests that asymmetry is present in the speed of up- and downward movements, as durable sales fall more quickly during contractions than they recover during economic expansions.Finally, key variables related to the industry’s pricing activities, the nature of the durable (convenience vs. leisure), and the stage in a product’s life cycle tend to moderate the extent of cyclical sensitivity in durable sales patterns.