The Role of National Culture in Advertising's Sensitivity to Business Cycles: An Investigation across Continents

Abstract

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.

Getting a Grip on the Saddle: Chasms or Cycles?

“…However, for kitchen/laundry products, recovery is more likely to occur during periods of economic expansion. This finding supports prior studies that have established a close relationship between sales and economic growth (e.g., Deleersnyder et al 2004). However, our contribution is that we found an asymmetric impact of economic cycles on the two classes of products.…”

“…However, researchers have not studied the differences between the effect of economic contractions on sales of information/ entertainment and kitchen/laundry products. Recently, researchers have shown the impact of business cycles on the sales of consumer durables (Deleersnyder et al 2004), growth of private labels (Lamey et al 2007), and role of marketing strategy (Srinivasan, Rangaswamy, and Lilien 2005). In the excitement of post-takeoff growth, managers may believe that their new product's sales will be immune to economic contractions and continue to increase.…”

“…As a result, consumers are likely to cut back on discretionary expenditures, such as purchases of consumer durables. Second, consumers may lose trust during a contraction more quickly than they gain confidence during the ensuing expansion, leading to cyclical asymmetries in the purchase of durables (Deleersnyder et al 2004;Lamey et al 2007). Third, firms engage in cyclical marketing strategies, such as cutting advertising expenditures (Deleersnyder et al 2004;Lamey et al 2007) or investments (Mascarenhas and Aaker 1989) during contractions.…”

Business cycle research in marketing: a review and research agenda

“…Firms within the same industry may react differently to changing demand conditions. Deleersnyder et al (2009) Advertising Advertising is considerably more sensitive to the BC than the economy as a whole. Cutting advertising in contractions results in long-term social and managerial losses.…”

“…Advertising Studies on the extent of advertising spending over the BC cycle have repeatedly shown that a majority of firms cuts back significantly on advertising in a contraction, while advertising spending rebounds in the subsequent expansion period (Deleersnyder et al, 2009;Kashmiri and Mahajan 2014;Lamey et al 2012;Özturan et al, 2014). Deleersnyder et al (2009), for example, document pro-cyclical advertising adjustments across 37 countries worldwide in four traditional media (TV, radio, newspapers, and magazines).…”