The growth of private labels over the past decades has been attributed to various factors. This article formally addresses the link between private-label success and economic expansions and contractions using recently developed time-series/econometric techniques. The findings confirm conventional wisdom that a country's privatelabel share increases when the economy is suffering and shrinks when the economy is flourishing. However, asymmetries are found in the extent to and speed with which private-label share changes in cyclical up-versus downturns. Consumers switch more extensively to store brands during bad economic times than they switch back to national brands in a subsequent recovery. In addition, the switch to private-label brands is faster than the opposite movement to national brands after the recession ends. Finally, not only are consumers more prone to buy private labels during economic downturns, but some keep buying them when bad economic times are long over as well, leaving permanent "scars" on national brands' performance level. The authors argue that national-brand manufacturers can mitigate the effect of an economic downturn on their shares by intensifying their marketingsupport activities in recessions. Such a proactive strategy is not often observed. On the contrary, available evidence suggests that many manufacturers exacerbate their predicament by cutting back on their marketing expenses when the economy turns sour. Most retailers invest more strongly in their private-label program when the economy deteriorates, making it even more difficult for national brands to catch up with the share lost during contractions.

The authors conduct a systematic investigation into the cyclical sensitivity of advertising expenditures in 37 countries, covering four key media: magazines, newspapers, radio, and television. They show that advertising is considerably more sensitive to business-cycle fluctuations than the economy as a whole. Advertising behaves less cyclically in countries high in long-term orientation and power distance, but it is more cyclical in countries high in uncertainty avoidance. Furthermore, advertising is more sensitive to the business cycle in countries characterized by significant stock market pressure and few foreign-owned multinational corporations. The authors provide initial evidence on the long-term social and managerial losses incurred when companies tie ad spending too tightly to business cycles. Countries in which advertising behaves more cyclically exhibit slower growth of the advertising industry. Moreover, private-label growth is higher in countries characterized by more cyclical advertising spending, implying significant losses for brand manufacturers. Finally, an examination of 26 global companies shows that stock price performance is lower for companies that exhibit stronger procyclical advertising spending patterns.

The authors investigate whether, and to what extent, marketing conduct varies over the business cycle and how this contributes to the growing popularity of private labels. To address this issue, they examine a unique data set that combines a broad set of seven marketing-mix instruments with private-label share, using two decades' worth of data for 106 consumer packaged goods categories in the United States. The results show that private-label share behaves countercyclically and that part of the boost in private-label share during contractions is permanent. Retailers' observed practice of supporting their own labels in contraction periods while cutting back in expansion periods helps this cyclical sensitivity even further. In addition, national brands' procyclical behavior in terms of (1) major new product introductions, (2) advertising, and (3) their promotional pressure compared with private labels is associated with more pronounced cyclical fluctuations in private-label share and even with permanent private-label market share gains. Although brand managers cannot be held responsible for the occurrence of economic downswings, they can be held accountable for how much contractions help strengthen their fiercest competitor, the store brands owned by their very customers.

Despite their 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 concept of cyclical volatility, and derive a dynamic comovement elasticity between the economy as a whole and the cyclical fluctuations in various performance series. To further enhance our understanding of how consumers adjust their purchasing behavior across different phases of the business cycle, two other notable features related, respectively, to the relative size of the peaks and troughs and the rate of change in upward and downward parts of the cycle, are explicitly considered. Of specific interest in this respect are the notion of deepness and steepness asymmetry. 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 dynamic comovement elasticity in excess of 2. This observation calls for an explicit consideration of cyclical variation in durable sales. Interestingly, 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. Copyright Springer Science+Business Media, Inc. 2004business cycles, sales evolution, consumer durables, time-series econometrics,