{"content":{"sharePage":{"page":0,"digests":[{"id":"47944508","dateCreated":"1323501481","smartDate":"Dec 9, 2011","userCreated":{"username":"JasonYoungBSU","url":"https:\/\/www.wikispaces.com\/user\/view\/JasonYoungBSU","imageUrl":"https:\/\/ssl.wikicdn.com\/i\/user_none_lg.jpg"},"monitored":false,"locked":false,"links":{"self":"https:\/\/mbaeconfall2011.wikispaces.com\/share\/view\/47944508"},"dateDigested":1532762668,"startDate":null,"sharedType":"discussion","title":"Summary","description":"The author did a fantastic job describing how various regression statistics provide business with insight on how certain factors effect the demand curve.
\n
\nSpecifically, we learn how income and price effect the quantity demanded of a product based solely on statistics. This provides a fantastic basis for deciding what prices to charge for products.","replyPages":[{"page":0,"digests":[],"more":0}]},{"id":"47799686","dateCreated":"1323313155","smartDate":"Dec 7, 2011","userCreated":{"username":"ccatherine1","url":"https:\/\/www.wikispaces.com\/user\/view\/ccatherine1","imageUrl":"https:\/\/ssl.wikicdn.com\/i\/user_none_lg.jpg"},"monitored":false,"locked":false,"links":{"self":"https:\/\/mbaeconfall2011.wikispaces.com\/share\/view\/47799686"},"dateDigested":1532762668,"startDate":null,"sharedType":"discussion","title":"M","description":"Create and answer a case study similar to Memo 13 on Time Warner (Most relevant chapter 3) that illustrates how to use income and price elasticities in regressions to make pricing decisions.
\n
\n- Catherine Catherine
\n
\nGAPPkids Pricing Decision
\n
\nCompany Profile
\n
\nThe GAPP is a specialty retailer offering apparel, accessories and personal-care products for men, women, children and babies. The company has its operations spread throughout North America, Europe, the Middle East, Australia, and Asia, and the company has its headquartered in San Francisco, CA. The GAPP currently employs 82,000 people and has stores in 50 countries. A couple years ago The GAPP launched kids\u2019 apparels and accessories intended for kids age 3-10.
\n
\nGAPP has maintained strong profit margins compared with its competitors, but for the past three years, they have not seen a strong profit from their kids\u2019 apparel line of business. Based on SWOT analysis, one of its strengths of The GAPP is having kid\u2019s products line in their business, but no solid profit has been spotted since the launch of their kids\u2019 apparels and accessories. For the past three years, GAPP has been having difficulty pricing their kids\u2019 products. Since GAPP is famous for their affordable price, the management is trying to figure out what the affordable price is for kids\u2019 apparel is so that GAPP can increase next year\u2019s revenue. Therefore, the management team invited a statistician to give recommendation of what needed to be done to increase profit.
\n
\nStatistic comes to the rescue
\n
\nBelow is GAPPkids regression from their data for the past three years.
\n
\nGAPPkids
\n
\n
\nSUMMARY OUTPUT
\n
\n
\n
\nRegression Statistics
\n
\n
\nMultiple R
\n
\n
\n0.89
\n
\n
\nR Square
\n
\n
\n0.79
\n
\n
\nAdjusted R Square
\n
\n
\n0.75
\n
\n
\nStandard Error
\n
\n
\n15.75
\n
\n
\nObservations
\n
\n
\n36
\n
\n
\n
\nANOVA
\n
\n
\n
\ndf
\n
\n
\nSS
\n
\n
\nMS
\n
\n
\nF
\n
\n
\nSignificance F
\n
\n
\nRegression
\n
\n
\n2
\n
\n
\n39634.9
\n
\n
\n19817.45
\n
\n
\n81.81
\n
\n
\n0.00
\n
\n
\nResidual
\n
\n
\n47
\n
\n
\n11385.02
\n
\n
\n242.23
\n
\n
\nTotal
\n
\n
\n49
\n
\n
\n51019.92
\n
\n
\n
\n
\nCoefficients
\n
\n
\nStandard Error
\n
\n
\nt Stat
\n
\n
\nP-value
\n
\n
\nLower 95%
\n
\n
\nUpper 95%
\n
\nIntercept
\n
\n
\n128.31
\n
\n
\n24.29
\n
\n
\n5.28
\n
\n
\n0.00
\n
\n
\n75.77
\n
\n
\n173.15
\n
\nPrice
\n
\n
\n-0.78
\n
\n
\n0.56
\n
\n
\n-1.39
\n
\n
\n0.18
\n
\n
\n-1.96
\n
\n
\n0.38
\n
\nIncome
\n
\n
\n7.25
\n
\n
\n0.59
\n
\n
\n12.29
\n
\n
\n0
\n
\n
\n6.27
\n
\n
\n8.63
\n
\nFrom the above table, we can estimate the demand equation of GAPPkids for the past three years:
\n
\nQ = 128.31 \u2013 0.78 P + 7.25
\n
\nFrom this equation we can conclude that
\n
\n1) Income elasticity of demand for GAPPkids product is 7.25
\n
\n Income elasticity of demand measures the responsiveness of the demand for a good to changes in consumer income (Baye, Managerial Economics and Business Strategy).
\n A positive income elasticity of demand greater than 1 means that the GAPPkids product is a luxury good.
\n The demand for luxury goods increases as income increases, and the demand for it will decline as income declines
\n $1000 increase in income will lead to an increase in quantity demanded by 7.25 units.
\n
\n2) Price elasticity of demand for GAPPkids product is -0.78
\n
\n Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in the price of that good (Baye, Managerial Economics and Business Strategy).
\n Price elasticity of demand between 0 and -1 means that demand is relatively inelastic.
\n Relatively inelastic demand means the percentage change in quantity demanded is smaller than percentage change in price. In other words, quantity demanded is not very responsive to the change in price.
\n $1 increase in price will lead to a decrease in quantity demanded by 0.78 units
\n If the curve is drawn, it will show a very steep, almost vertical line.
\n Relatively inelastic demand tells us that there are very few substitute products, which also means that regular buyers will not switch to the substitutes products unless the price gets too high.
\n
\nWhat does t-statistic tell us?
\n
\n Since the t-statistic associated with income is well over than 2, the income is statistically a significant factor in determining quantity demanded.
\n Since the t-statistic associated with price is less than the absolute value of 2, the price is not a statistically significant factor in determining quantity demanded.
\n
\nWhat does R-squared tell us?
\n
\nThe R-squared 0.79 is high, suggesting that this model explains 79% of the total variation in the demand for GAPPkids apparels and accessories. In other words, 79% of the future outcomes are likely to be predicted by this model.
\n
\nWhat does F-statistic tell us?
\n
\nThe F-statistic of zero tells us that the overall regression using the variables of price and income has significantly high joint relationship.
\n
\nWhat does P- value tell us?
\n
\n The Income P-value of 0 suggests that high level of significance shows strong correlation between level on income and the quantity demanded for GAPPkids apparels and accessories.
\n The Price P-value of 0.18, suggests that very high level of significance shows weaker correlation between changes in price and the quantity demanded.
\n
\nRecommendation
\n
\nFrom the regression analysis presented above, the statistician and GAPP strategic management team came up with a recommendation to help GAPPkids to increase their revenue in the following year.
\n
\nFrom the income elasticity of demand point of view:
\n
\nSince the economy has shown signs of recovery and since income plays a major role of quantity demanded, GAPPkids needs to act fast to find a target for their market entry or expansion move in more upscale areas. According to the research service MasterCard Advisors Spending Pulse. In July 2011, the luxury segment had an 11.6 percent increase, the biggest monthly gain in more than a year. Finding the right locations to place their stores will provide the rich a more convenient way to shop for their kids\u2019 needs. According to Bassolino and Smith whom took China for example, given the rapid pace of development throughout China, many companies find that negotiating a successful brand launch in a first-tier city is no longer a sufficient market entry or expansion move. More than 50 percent of the richest Chinese live outside traditional centers of wealth. Given current macroeconomic trends that support broad-based growth across the country, growth in China\u2019s middle class and wealthy consumer groups over the next five to seven years will occur primarily outside the traditional first tier cities. These customers have the desire and ability to consume branded products. They are also able to allocate a larger share of their income to these products because the cost of living in second- and third-tier cities is generally lower.
\n
\nFrom the price elasticity of demand point of view:
\n
\nHigh-end business like GAPPkids will be able to mark up rather than discount. By doing so, they will attract customers who compare price with the quality of the product. Since P-value and t-statistics have shown that price increase will have low correlation with quantity demanded, maintaining the high price of the goods will actually have no impact on quantity demanded. The rich will not easily notice the price increase in their kids\u2019 apparel prices. Maintaining the luxury brand image, opening more stores in strategic areas, offering no discount, and expanding globally will be a strategic movement for GAPP to increase the revenue of its GAPPkids product line.
\n
\nWork Cited
\n
\nBaye, M. Managerial Economics and Business Strategy. 7. McGraw-Hill\/Irwin, 2009. Print
\n
\nBassolino, F., & Smith, M. (2010). Find First-Tier Consumers -- in Hundreds of Cities. China Business Review, 37(6), 16-42.
\n
\nDickson, V. (2010). Cost pass-through elasticities, concentration and productivity growth. Applied Economics Letters,17(7), 663-666. doi:10.1080\/13504850802297962
\n
\nGraves, P. E., & Sexton, R. L. (2009). CROSS PRICE ELASTICITY AND INCOME ELASTICITY OF DEMAND: ARE YOUR STUDENTS CONFUSED?. American Economist, 53(2), 107-110.
\n
\nGoel, R. K., & Ram, R. (2004). QUANTILE-REGRESSION ESTIMATES OF CIGARETTE DEMAND ELASTICITIES FOR THE UNITED STATES. Journal Of Economics & Finance, 28(3), 413-421.
\n
\nReekie, W. (1976). The price elasticity of demand for evening newspapers. Applied Economics, 8(1), 69.
\n
\nQUIZ QUESTION:
\n
\n1. The demand for which of the following commodities is likely to be more price inelastic?
\n
\nAnswer: FOOD
\n
\n
\n
\nSince food is more of necessity goods then normal goods
\n
\n2. If there are few close substitutes for a good, demand tends to be relatively
\n
\nAnswer INELASTIC
\n
\n
\n
\nThis case is a perfect example of relatively inelastic goods, since there are only a few substitutes.
\n
\n3. You are the manager of a popular shoe company. You know that the advertising elasticity of demand for your product is .15. How much will you have to increase advertising in order to increase demand by 10%?
\n
\nAnswer66.7%
\n
\n
\n
\nSince the elasticity is the percentage change in quantity demanded divided by the percentage change in price of the good.
\n
\n4. Since most consumers spend very little on salt, a small increase in the price of salt
\n
\nAnswer
\n
\nwill not reduce quantity demanded by very much
\n
\n
\n
\n
\nSince salt does not cost much, increase in price will not affect quantity demanded.
\n
\n5. A price elasticity of zero corresponds to a demand curve that is:
\n
\nAnswer VERTICAL
\n
\n
\n
\nPerfectly inelastic demand occurs when buyers have no option to choose from or no substitute, so no matter what the price is, buyers will still buy it, such as cigarette.
\n
\nWEEKLY POST
\n
\nWEEK 1:
\n
\nCompany profile
\n
\nThe GAPP is a specialty retailer offering apparel, accessories and personal-care products for men, women, children and babies under. The company has its operations spread in North America, Europe, Middle Eastern, Australia, and Asia. It is headquartered in San Francisco, CA and currently employs 82,000 people and has stores in 50 countries. A couple years ago The GAPP launched kids\u2019 apparels and accessories intended for kids age 3-10.
\n
\nGAPP has maintained strong profit margins compared with its competitors, but for the past three years, they have not yet seen a strong profit from their kids\u2019 line of business. Based on SWOT analysis, one of its strength is having kid\u2019s products line in their business, but no solid profit has spotted since the launch of their kids\u2019 apparels and accessories. For the past three years, GAPP has been having difficulties pricing their Kids\u2019 products. Since GAPP is famous for their affordable price, the management is trying to figure out what the affordable price is for kids\u2019 apparels in order for GAPP to increase next year revenue. Therefore, the management team invited a statistician to give recommendation of what needed to be done to increase profit.
\n
\nWEEK 2:
\n
\nRegression statistics and ANOVA table
\n
\nGAPPkids
\n
\n
\nSUMMARY OUTPUT
\n
\n
\n
\nRegression Statistics
\n
\n
\nMultiple R
\n
\n
\n0.89
\n
\n
\nR Square
\n
\n
\n0.79
\n
\n
\nAdjusted R Square
\n
\n
\n0.75
\n
\n
\nStandard Error
\n
\n
\n15.75
\n
\n
\nObservations
\n
\n
\n36
\n
\n
\n
\nANOVA
\n
\n
\n
\ndf
\n
\n
\nSS
\n
\n
\nMS
\n
\n
\nF
\n
\n
\nSignificance F
\n
\n
\nRegression
\n
\n
\n2
\n
\n
\n39634.9
\n
\n
\n19817.45
\n
\n
\n81.81
\n
\n
\n0.00
\n
\n
\nResidual
\n
\n
\n47
\n
\n
\n11385.02
\n
\n
\n242.23
\n
\n
\nTotal
\n
\n
\n49
\n
\n
\n51019.92
\n
\n
\n
\n
\nCoefficients
\n
\n
\nStandard Error
\n
\n
\nt Stat
\n
\n
\nP-value
\n
\n
\nLower 95%
\n
\n
\nUpper 95%
\n
\nIntercept
\n
\n
\n128.31
\n
\n
\n24.29
\n
\n
\n5.28
\n
\n
\n0.00
\n
\n
\n75.77
\n
\n
\n173.15
\n
\nPrice
\n
\n
\n-0.78
\n
\n
\n0.56
\n
\n
\n-1.39
\n
\n
\n0.18
\n
\n
\n-1.96
\n
\n
\n0.38
\n
\nIncome
\n
\n
\n7.25
\n
\n
\n0.59
\n
\n
\n12.29
\n
\n
\n0
\n
\n
\n6.27
\n
\n
\n8.63
\n
\nWEEK 3:
\n
\nReading textbooks and try to figure out what the statistics numbers mean
\n
\nWEEK 4:
\n
\nFind some good sources:
\n
\nCROSS PRICE ELASTICITY AND INCOME ELASTICITY OF DEMAND: ARE YOUR STUDENTS CONFUSED? - GRAVES
\n
\nAnchor - DICKSON
\n
\nWEEK 5:
\n
\nQUANTILE-REGRESSION ESTIMATES OF CIGARETTE DEMAND ELASTICITIES FOR THE UNITED STATES. \u2013 GOEL
\n
\nThe price elasticity of demand for evening newspapers - Reekie
\n
\nWEEK 6:
\n
\nFrom the above table, we can estimate the demand equation of GAPPkids for the past three years:
\n
\nQ = 128.31 \u2013 0.78 P + 7.25 M
\n
\nFrom this equation we can conclude that
\n
\nIncome elasticity of demand for GAPPkids product is 7.25
\n
\n\u00b7 Income elasticity of demand measures the responsiveness of the demand for a good to changes in consumer income (Baye, Managerial Economics and Business Strategy).
\n
\n\u00b7 A positive income elasticity of demand greater than 1 means that the GAPPkids product is a luxury good.
\n
\n\u00b7 The demand for luxury goods increases as income increases, and the demand for it will decline as income declines
\n
\n\u00b7 $1000 increase in income will lead to an increase in quantity demanded by 7.25 units.
\n
\nWEEK 7:
\n
\nPrice elasticity of demand for GAPPkids product is -0.78
\n
\n\u00b7 Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in the price of that good (Baye, Managerial Economics and Business Strategy).
\n
\n\u00b7 Price elasticity of demand between 0 and -1 means that demand is relatively inelastic.
\n
\n\u00b7 Relatively inelastic demand means the percentage change in quantity demanded is smaller than percentage change in price. In other words, quantity demanded is not very responsive to the change in price.
\n
\nWEEK 8:
\n
\n\u00b7 $1 increase in price will lead to a decrease in quantity demanded by 0.78 units
\n
\n\u00b7 If the curve is drawn, it will show a very steep, almost vertical line.
\n
\n\u00b7 Relatively inelastic demand tells us that there are very few substitute products, which also means that regular buyers will not switch to the substitutes products unless the price gets too high.
\n
\nWEEK 9:
\n
\nWhat does t-statistic tell us?
\n
\n\u00b7 Since the t-statistic associated with income is well over than 2, the income is statistically a significant factor in determining quantity demanded.
\n
\n\u00b7 Since the t-statistic associated with price is less than the absolute value of 2, the price is not a statistically significant factor in determining quantity demanded.
\n
\nWEEK 10:
\n
\nWhat does R-squared tell us?
\n
\nThe R-squared 0.79 is high, suggesting that this model explains 79% of the total variation in the demand for GAPPkids apparels and accessories. In other words, 79% of the future outcomes are likely to be predicted by this model.
\n
\nWEEK 11:
\n
\nWhat does F-statistic tell us?
\n
\nThe F-statistic of zero tells us that the overall regression using the variables of price and income has significantly high joint relationship.
\n
\nWEEK 12:
\n
\nWhat does P- value tell us?
\n
\n\u00b7 The Income P-value of 0 suggests that high level of significance shows strong correlation between level on income and the quantity demanded for GAPPkids apparels and accessories.
\n
\n\u00b7 The Price P-value of 0.18, suggests that very high level of significance shows weaker correlation between changes in price and the quantity demanded.
\n
\nWEEK 12:
\n
\nRecommendation
\n
\nFrom the regression analysis presented above, the statistician and GAPP strategic management team came up with a recommendation to help GAPPkids to increase their revenue in the following year.
\n
\nFrom the income elasticity of demand point of view:
\n
\nSince the economy has shown signs of recovery and since income plays a major role of quantity demanded, GAPPkids needs to act fast to find a target for their market entry or expansion move in more upscale areas.
\n
\nWEEK 13:
\n
\nFind some interesting article
\n
\nAccording to the research service MasterCard Advisors Spending Pulse. In July 2011, the luxury segment had an 11.6 percent increase, the biggest monthly gain in more than a year. Finding the right locations to place their stores will provide the rich a more convenient way to shop for their kids\u2019 needs. According to Bassolino and Smith whom took China for example, given the rapid pace of development throughout China, many companies find that negotiating a successful brand launch in a first-tier city is no longer a sufficient market entry or expansion move. More than 50 percent of the richest Chinese live outside traditional centers of wealth. Given current macroeconomic trends that support broad-based growth across the country, growth in China\u2019s middle class and wealthy consumer groups over the next five to seven years will occur primarily outside the traditional first tier cities. These customers have the desire and ability to consume branded products. They are also able to allocate a larger share of their income to these products because the cost of living in second- and third-tier cities is generally lower.
\n
\nWEEK 14:
\n
\nFrom the price elasticity of demand point of view:
\n
\nHigh-end business like GAPPkids will be able to mark up rather than discount. By doing so, they will attract customers who compare price with the quality of the product. Since P-value and t-statistics have shown that price increase will have low correlation with quantity demanded, maintaining the high price of the goods will actually have no impact on quantity demanded. The rich will not easily notice the price increase in their kids\u2019 apparel prices. Maintaining the luxury brand image, opening more stores in strategic areas, offering no discount, and expanding globally will be a strategic movement for GAPP to increase the revenue of its GAPPkids product line.
\n
\nWEEK 15:
\n
\nCitation work
\n
\nWork Cited
\n
\nBaye, M. Managerial Economics and Business Strategy. 7. McGraw-Hill\/Irwin, 2009. Print
\n
\nBassolino, F., & Smith, M. (2010). Find First-Tier Consumers -- in Hundreds of Cities. China Business Review, 37(6), 16-42.
\n
\nDickson, V. (2010). Cost pass-through elasticities, concentration and productivity growth. Applied Economics Letters,17(7), 663-666. doi:10.1080\/13504850802297962
\n
\nGraves, P. E., & Sexton, R. L. (2009). CROSS PRICE ELASTICITY AND INCOME ELASTICITY OF DEMAND: ARE YOUR STUDENTS CONFUSED?. American Economist, 53(2), 107-110.
\n
\nGoel, R. K., & Ram, R. (2004). QUANTILE-REGRESSION ESTIMATES OF CIGARETTE DEMAND ELASTICITIES FOR THE UNITED STATES. Journal Of Economics & Finance, 28(3), 413-421.
\n
\nReekie, W. (1976). The price elasticity of demand for evening newspapers. Applied Economics, 8(1), 69.
\n
\nWEEK 16:
\n
\nFinding quizzes to add.
\n
\nWEEK 16:
\n
\nDONE!","replyPages":[{"page":0,"digests":[],"more":0}]},{"id":"47076578","dateCreated":"1322496375","smartDate":"Nov 28, 2011","userCreated":{"username":"kmwesterfiel","url":"https:\/\/www.wikispaces.com\/user\/view\/kmwesterfiel","imageUrl":"https:\/\/ssl.wikicdn.com\/i\/user_none_lg.jpg"},"monitored":false,"locked":false,"links":{"self":"https:\/\/mbaeconfall2011.wikispaces.com\/share\/view\/47076578"},"dateDigested":1532762668,"startDate":null,"sharedType":"discussion","title":"Scholarly article","description":"Here's a good article on how the pricing decision is made for retailers.
\n
\nhttp:\/\/www.ruthnbolton.com\/Publications\/DeterminantsofRetailerPricingActivity.pdf<\/a>","replyPages":[{"page":0,"digests":[],"more":0}]}],"more":false},"comments":[]},"http":{"code":200,"status":"OK"},"redirectUrl":null,"javascript":null,"notices":{"warning":[],"error":[],"info":[],"success":[]}}