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The Commercial Consequences of Collective Layoffs: Close the Plant, Lose the Brand?

The Commercial Consequences of Collective Layoffs: Close the Plant, Lose the Brand?

Vardit Landsman and Stefan Stremersch

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The authors focus on collective layoffs, defined as the simultaneous termination of the labor contracts of a large group of workers. Once consumers are aware of collective layoff announcements, they may (1) find the brand less likable and trustworthy and (2) become more uncertain about the brand. The authors empirically focus on the automotive industry and investigate 205 collective layoff announcements. We find that following a collective layoff announcement, firms experience lower sales, lower advertising elasticity, and higher (more negative) price elasticity.

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Related Marketing Courses: ​
Principles, Core, and Intro to Marketing Mgmt; Brand Management; Salesforce Management​​​​ ​​​​

Full Citation: ​
Landsman, Vardit and Stefan Stremersch (2020), “The Commercial Consequences of Collective Layoffs: Close the Plant, Lose the Brand?Journal of Marketing, 84 (3), 122–41.

Article Abstract
This article examines the effects of collective layoff announcements on sales and marketing-mix elasticities, accounting for supply-side constraints. The authors study 205 announcements in the automotive industry using a difference-in-differences model. They find that, following collective layoff announcements, layoff firms experience adverse changes in sales, advertising elasticity, and price elasticity. They explore the moderating role of announcement characteristics on these changes and find that collective layoff announcements by domestic firms and announcements that do not mention a decline in demand as a motive are more likely to be followed by adverse marketing-mix elasticity changes. On average, sales for the layoff firm in the layoff country are 8.7% lower following a collective layoff announcement than their predicted levels absent the announcement. Similarly, advertising elasticity is 9.8% lower and price elasticity is 19.2% higher than absent the announcement. Conversely, layoff firms typically decrease advertising spending in the country where collective layoffs have occurred, yet they do not change prices. These findings are relevant to marketing managers of firms undergoing collective layoffs and to analysts of collective layoff decisions.

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Special thanks to Kelley Gullo and Holly Howe, Ph.D. candidates at Duke University, for their support in working with authors on submissions to this program.

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Vardit Landsman is Professor of Marketing, Erasmus School of Economics, Erasmus University Rotterdam, Netherlands.

Stefan Stremersch is Chaired Professor of Marketing and Desiderius Erasmus Distinguished Chair of Economics, Erasmus School of Economics, Erasmus University; and Professor of Marketing, IESE Business School, Universidad de Navarra.