Any questions about what I covered up to this point?
This is a natural stopping
point, because what I've done is I've illustrated
what exactly is micro-marketing. I explained it in terms of what
we want to do to come up with a better pricing strategy
at the store level. I gave you some sense of what the data looks like
and I walked through some of the models. What's going to be
important after the break is
to think about the impact of the terms of
the posterior profit function, because that's what's really going to drive
these pricing strategies. Yes?
- Q (Gatsonis):
- What if Dominic's competes with each other?
Here you are assuming a hierarchical conditionally independent
model. So you are assuming independence between the stores. What do
you do if they compete with each other? You would need a spatial
model.
- A:
- Right, what I would want to do is augment the model
and include the prices not just from my store but also from all the other
stores. The problem is that since Dominic's essentially follows
a uniform pricing strategy right now, it'd be impossible
to parse out the effects of my pricing effects and prices
of the other stores. What may be interesting is to
augment the model by including Jewell's prices. Problem is, I
don't have Jewell's prices or the other competitor's prices. So
it's something that's missing from the model, but I'll come to
other experimental results that sort of coroborate what the
model is doing, that say that this does make sense, that
even though the competition and their effects are there,
they're not as important as you might think a priori.
- Q:
- Why is the 64 oz cheaper than the 96 oz?
- A:
- If we go back to the
table we can see that
what I've done is to standardize this stuff all to 64 oz, so
it's not that the 96 oz is cheaper than the 64 oz.
- Q:
- I would have thought 96 oz was cheaper per unit but that
doesn't happen either.
- A:
- Well, what happens is that the 64 oz are promoted
all the time, so if you think about the base level price,
the 96 is cheaper than the 64. But the 96 is promoted
maybe a tenth of the time, the 64 oz is promoted every week in
at least one of the brands, so if we think about
the average prices, the average 64 oz is less than the average 96.
- Q:
- My other question was, would it be possible in your model for
some stores to take certain brands out? For example, if I could
make a larger profit margin on Minute Maid, maybe I'd want to take
three other brands out and try to force someone in a particular direction.
- A:
- It would be possible -- that would be more of an assortment
difference, while what I'm really interested in is just
pricing. Let's figure out what the pricing effects are, and then
let's back up and think about what the demand
effects are. Just the base movement in demand. The other thing is, you
might want to use this to think about where you would want
to place a store, based on what the price
sensitivity is going to be? You know, there's a lot of things that
tie into it.
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