Weathering Tight Economic Times: The Sales Evolution of Consumer Durables Over the Business Cycle

53 Pages Posted: 26 Aug 2006

See all articles by Barbara Deleersnyder

Barbara Deleersnyder

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

M. G. Dekimpe

Catholic University of Leuven (KUL) - Department of Applied Economics; Erasmus Research Institute of Management (ERIM)

Miklos Sarvary

INSEAD - Marketing

Philip M. Parker

INSEAD

Date Written: June 2003 6,

Abstract

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&apos's pricing activities, the nature of the durable (convenience vs. leisure), and the stage in a product&apos's life cycle tend to moderate the extent of cyclical sensitivity in durable sales patterns.

Keywords: business cycles, sales evolution, consumer durables, time-series econometrics

JEL Classification: M, M31, C44

Suggested Citation

Deleersnyder, Barbara and Dekimpe, Marnik and Sarvary, Miklos and Parker, Philip M., Weathering Tight Economic Times: The Sales Evolution of Consumer Durables Over the Business Cycle (June 2003 6,). ERIM Report Series Reference No. ERS-2003-046-MKT, Available at SSRN: https://ssrn.com/abstract=423656

Barbara Deleersnyder (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Marnik Dekimpe

Catholic University of Leuven (KUL) - Department of Applied Economics ( email )

Leuven, B-3000
Belgium
+32 16 326 957 (Phone)
+32 16 326 732 (Fax)

HOME PAGE: http://www.econ.kuleuven.ac.be/tew/academic/market/members/MarnikDekimpe.htm

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1715/9576 (Phone)
+31 10 408 9011 (Fax)

HOME PAGE: http://web.eur.nl/fbk/dep/dep3/about/members/people/mdekimpe

Miklos Sarvary

INSEAD - Marketing ( email )

Boulevard de Constance
Fontainebleau, 77305
France
(33) (0)1 60 72 40 0 (Phone)
(33) (0)1 60 74 55 00 (Fax)

Philip M. Parker

INSEAD ( email )

Boulevard de Constance
Fontainebleau, 77305
France
(33) (0)1 60 72 40 00 (Phone)
(33) (0)1 60 74 55 00/01 (Fax)

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