Brand advertising competition across economic cycles

Abstract

This study investigates how brands’ responses to competitors’ advertising actions change over the business cycle. In an empirical analysis of advertising activity by 105 brands in six consumer packaged goods categories over 10 years in a market that experienced severe economic swings, we show that managers become more aggressive in contractions. Brands respond not only more often to competitors’ advertising but also more intensely. Different brands react in contractions. Brand leaders respond less often and intensely in bad times; by contrast, premium-tier brands seem to avoid competition in good times but aggressively defend their position in bad times, especially against cheaper competitors, which are more popular in contractions. We corroborate the validity of our findings through in-depth interviews with executives and introduce two useful metrics, aggressivity and receptivity, to map changes in brand competition in an industry when economic conditions change. Collectively, the findings show how managers can better anticipate competitive advertising reactions in good and bad economic times.