Miklos Sarvary

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

Coauthor(s): Barbara Deleersnyder, Marnik Dekimpe, Philip M. Parker.

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Abstract:

Despite the obvious importance of understanding how business cycle fluctuations affect both individual companies and whole industries, not much marketing research focuses on the subject. Often, one only has aggregate information on the state of the national economy, even though cyclical contractions and expansions generally do not have an equal impact on every industry, nor on all firms in any given industry.

Using recent time-series developments, authors Deleersnyder, Dekimpe, Sarvary, and Parker introduce measures to quantify the extent and nature of the effect of business cycle fluctuations on sales. Specifically, they discuss the notions of cyclical volatility (that is, variability) and cyclical "comovement" with the general economy. They also consider steepness asymmetry (when consumers react more quickly to contractions than to expansions), and deepness asymmetry (when consumers react more extensively to contractions than to expansions). In so doing, they examine how consumers adjust their purchasing behavior across different phases of the business cycle. They apply these concepts to 24 categories of consumer durables, analyzing the cyclical sensitivity in their sales evolution.

Consumer durables are found to be more sensitive to business cycle fluctuations than the general economy is. This finding shows the need for an explicit consideration of cyclical variation in durable sales.

Moreover, even though the authors find no evidence for deepness asymmetry in durable sales, the combined evidence across all durables suggests that asymmetry is present in the speed of up- and downward movement, as durable sales fall much 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 versus leisure), and the stage in a product's life cycle tend to moderate the extent of cyclical sensitivity in durable sales.

Source: Quantitative Marketing and Economics
Exact Citation:
Deleersnyder, Barbara, Marnik Dekimpe, Miklos Sarvary, and Philip M. Parker. "Weathering Tight Economic Times: The Sales Evolution of Consumer Durables Over the Business Cycle." Quantitative Marketing and Economics 2, no. 4 (2004): 347-383.
Volume: 2
Number: 4
Pages: 347-383
Date: 2004