Weathering Tight Economic Times: The Sales Evolution Of Consumer Durables Over The Business Cycle
Despite its obvious importance, not much 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 need not have an equal impact on every industry, nor on all firms in that industry. Using recent time-series developments, we introduce various measures to quantify the extent and nature of business-cycle fluctuations in sales. Specifically, we discuss the notions of cyclical volatility and cyclical comovement, 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 versus downward parts of the cycle. In so doing, we examine how consumers adjust their purchasing behavior across different phases of the business cycle. We apply these concepts to a broad set (24) of consumer durables, for which we analyze the cyclical sensitivity in their sales evolution. In that way, we (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 the one in GNP, and an average comovement 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 much quicker 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.