Riding the Waves: Revealing the Impact of Intra-year Category Demand Cycles on Advertising and Pricing Effectiveness

Maarten J. Gijsenberg
Article Snapshot
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Key Takeaways
  • ​Intra-year category demand cycles have an important impact on advertising and pricing effectiveness and observed advertising and pricing actions in consumer packaged goods categories.

  • Overall, consumers are less responsive to price decreases at demand peaks; however, they are more responsive to price decreases of lower-priced mass brands.

  • Cheaper brands tend to increase their prices at demand peaks, whereas more expensive brands tend to lower them

Article Snapshot: Executive Summaries from the Journal of Marketing Research

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This article investigates how intra-year category demand cycles affect advertising and pricing effectiveness and actions, and shows that consumers in general are more responsive to advertising but less to price decreases at demand peaks, while brands in general increase their advertising at peaks.


Although numerous studies have examined advertising and pricing effectiveness and decisions, this study is the first to systematically investigate how intra-year category demand cycles may influence both advertising and pricing effectiveness and observed advertising and prices.

The findings of this study should alert managers to the fact that their advertising and pricing effectiveness is not constant throughout the year


Research

This study is the first to systematically investigate how intra-year category demand cycles may influence both advertising and pricing effectiveness and observed advertising and prices. Past studies have often regarded  such cycles and their impact on brands’ sales as a mere nuisance in the analysis of brands’ marketing mix effectiveness, limiting them to coarse seasonal control variables. This study argues that acknowledging the existence of these cycles and understanding their hypothesized impact on both advertising and pricing effectiveness and practice is critical for marketers.

Methods

The study explores how both advertising and price elasticities and observed advertising and prices evolve along intra-year category demand 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. The analysed weekly sales, advertising and pricing data come from the UK, and cover 2002-2005.  Insights are obtained by means of time series analysis using spectral filtering techniques and Vector AutorRegressive Models.

Findings

Intra-year category demand cycles have an important impact on advertising and pricing effectiveness and observed advertising and pricing actions in consumer packaged goods categories.Overall, both advertising effectiveness and observed advertising are stronger at demand peaks. Surprisingly, consumer reactions to price decreases tend to be weaker at demand peaks,  while reactions to price increases remain unchanged. Brands generally increase advertising at peaks, and while low-price brands tend to increase prices at peaks, high-price brands tend to lower them.

Implications

Firms are under constant and ever-increasing pressure to both prove and improve the effectiveness of their marketing investments in general, and thus, more specifically, of their advertising and pricing actions. The findings of this study should alert managers to the fact that this effectiveness is not constant throughout the year. They need to take this into account when deciding on their advertising and promotional agendas. This research was carried out in the consumer packaged goods sector, so primarily relevant to all firms active in such categories.

Questions for the Classroom

  • Do you expect consumers to be more or less responsive to advertising and price changes at demand peaks relative to troughs?

  • Do you expect consumers to be more or less responsive to price increases relative to decreases?

  • Do you expect brands to advertise more/less and charge lower/higher prices at demand peaks relative to troughs?

Article Citations

Maarten J. Gijsenberg (2017) Riding the Waves: Revealing the Impact of Intrayear Category Demand Cycles on Advertising and Pricing Effectiveness. Journal of Marketing Research: April 2017, Vol. 54, No. 2, pp. 171-186.



Author Bio:

 
Maarten J. Gijsenberg
Maarten J. Gijsenberg is Associate Professor of Marketing, University of Groningen (e-mail: M.J.Gijsenberg@rug.nl)
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