Data-Driven Business Decisions

CHAPTER 17

Multicausal Relationships and Multiple Regression

RIGHTWAY MEATS: CASE BRIEFING

A major supermarket chain, Rightway, has recently opened a new store in a newly redeveloped shopping mall. The main competing supermarket chain, WellMark, already had an outlet in the same mall.

Store manager Chris Judson is looking at sales in the meat section over the past year. He has collected 48 weeks of data on total sales in units of kilogram during the first full year of operation. He adjusts these for seasonality by dividing by an industry index for fresh food and then plots them against time. It appears that sales have increased steadily over this first year, no doubt driven by customers learning of the new store.

The shopping mall is essentially a duopoly. The most obvious determinant is the price you charge and the price charged by your direct competitor. Chris knows this and has been monitoring price movements both of Rightway and of the competition. He has the price of a typical basket of meat products at Rightway for each week, measured in $/kg, as well as the price of the same basket of goods for WellMark. A “basket” of goods is a standard cross-section of products in a category. The data for the WellMark are collected by sending one of his employees there to survey prices of the meat items in the standard basket. Price surveillance is standard practice for large competing retailers.

What is the underlying sales growth of the meat section? How sensitive is demand to price, ...