Chapter 1, Problem 6PE

Use the model developed in Example 1.5 to predict the total sales for weeks 2 through 16, and compare the results to the observed sales. Does the accuracy of the model seem to be different when coupons are used or not? When advertising is used or not?

EXAMPLE 1.5 A Predictive Sales-Promotion Model

In the grocery industry, managers typically need to know how best to use pricing, coupons, and advertising strategies to influence sales. Grocers often study the relationship of sales volume to these strategies by conducting controlled experiments. That is, they implement different combinations of pricing, coupons, and advertising, observe the sales that result, and use analytics to develop predictive models of sales as a function of these decision strategies.

For example, suppose that a grocer who operates three stores in a small city varied the price, coupons (yes = 1, no = 0), and advertising expenditures in a local newspaper over a 16-week period and observed the following sales:

To better understand the relationships among price, coupons, and advertising, an analyst might have developed the following model using business analytics tools (we will see how to do this in Chapter 8):

Total Sales = 1105.55 + 56.18 x Price + 123.88 x Coupon + 5.24 x Advertising (1.4).