Maarten Gijsenberg

Price and Advertising Effectiveness over the Business Cycle

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, marketings effectiveness varies with the economic tide; however, surprisingly little research addresses this issue. Therefore, the authors conduct a systematic investigation of the business cycles 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.

Losses Loom Longer Than Gains : Modeling the Impact of Service Crises on Perceived Service Quality over Time

Service providers sometimes face mass service failures. These problems occur across service industries, ranging from severe Internet outages to major delays for airlines or trains. The literature has not yet addressed the following key question: How do service crises affect perceived service quality (PSQ) over time? To answer this question, the authors introduce a Double-Asymmetric Structural Vector Autoregressive model. It captures not only the short- and long-term effects of objective service performance on PSQ but also the differential effects of service crises versus service restoration. The authors analyze a unique data set from a major European railway company, spanning seven years of monthly observations. During this period, severe winter weather caused dramatic service crises. The authors find that performance losses loom larger than gains in the short run and also have permanent negative effects on PSQ in the long run. Consequently, a crisis followed by a restoration will result in a net negative long-term effect on PSQ. The impact of a crisis also depends on the prior trend in objective service performance.

Advertising and price effectiveness over the business cycle

In this study, the authors conduct a systematic investigation on the evolution in the effectiveness of two important marketing mix instruments, advertising and price, over the business cycle. Analyses are based on 163 branded products in 37 mature CPG categories in the UK, and this for a period of 15 years. The data are a combination of (i) monthly national sales data, (ii) monthly advertising data, (iii) data on the general economic conditions, and (iv) consumer survey data. Consumers are shown to be more price sensitive during contractions. In addition, spending patterns will be less consistent, implying smaller brand loyalty. Advertising elasticities, however, do not seem to be affected by economic downturns. Product involvement was shown to be an influential moderator of the final effect of advertising, price and carry-over effects on sales. Finally, although short run effectiveness of price differs between expansions and contractions, the long run effectiveness of both advertising and price is not altered by differences in the general economic conditions.

Understanding the Timing and Magnitude of Advertising Spending Patterns

Notwithstanding the fact that advertising is one of the most used marketing tools, little is known about what is driving (i) the timing and (ii) the magnitude of advertising actions. Building on normative theory, the authors develop a parsimonious model that captures this dual investment process. They explain advertising spending patterns as observed in the market, and investigate the impact of company, competitive, and category-related factors on these decisions, thereby introducing the novel concept of Ad-sensor. Analyses are based on a unique combination of (i) weekly advertising data on 748 CPG brands in 129 product categories in the UK, (ii) household panel purchase data, and (iii) data on new product introductions. The analyzed brands include both large and small brands, both frequent and infrequent advertisers, thus providing a morecomplete and correct overview of the market. The results show that advertising spending patterns can be explained as real-life applications of the normative literature, in which advertising andadvertising goodwill management are embedded in dynamic (s,S) inventory systems. Adstock and Ad-sensor show a positive effect on both timing and magnitude decision. Competitive reasoning is found to have little to no effect on advertising decisions, whereas category-related factors do show an impact. The extent to which campaigning strategies are more or less the outcome of advertising goodwill management systems, however, varies across brands as a function of their relative size and advertising frequency.

Riding the Waves: Revealing the Impact of Intrayear Category Demand Cycles on Advertising and Pricing Effectiveness

Going beyond traditional seasonality, this research introduces the concept of the intrayear category demand cycle. This phenomenon reflects demand cycles most consumer packaged goods categories experience throughout the year, with periods of higher demand following periods of lower demand. The author argues that acknowledging the existence of these cycles and understanding their impact on both advertising and pricing effectiveness and practice is critical for marketers. Specifically, the author demonstrates how both advertising and price elasticities and observed advertising and prices evolve along these cycles for a unique set of 252 brands—ranging from high-advertising, high-priced “premium mass” brands to low-advertising, low-priced “value niche” brands—in 61 consumer packaged goods categories. Overall, both advertising efectiveness and observed advertising are found to be stronger at demand peaks. Surprisingly, consumer reactions to price decreases are weaker at demand peaks, whereas reactions to price increases remain unchanged. However, effectiveness evolutions and observed action patterns along these intrayear cycles are both markedly diverse across the different types of brands.