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Case Problem for Chapters 4 and 5 (6 points), due by 10/15/2004: University of Chicago/Dominick's Fine Foods Marketing Study The retail store is where the vast majority of today's consumer goods are sold. In any such store, but particularly in supermarkets, there are a number of variables subject to manipulation that could directly affect sales and/or profits. The University of Chicago (UC) and Dominick's Fine Foods (DFF), a Chicagoarea grocery chain, joined together a number of years ago to study some of these variables. If you go to our course website, you will find a number of experiments were conducted concerning factors such as pricing strategy, shelf space allocations, shelf position, etc. In this exercise, we will focus on pricing strategy. Go to the chapter 4 data excel file in our course site to obtain the data employed in this case Problem. This page describes one of the pricing experiments conducted during this UC study. Supermarkets tend to pursue two kinds of pricing, High-Low (Hi-Lo) and Everyday Low Prices (EDLP). Hi-Lo refers to stores that keep prices up in general but have weekly specials at very low levels so as to draw customers (who then also purchase the higher-priced goods). EDLP refers to stores that simply try to maintain the lowest prices in the trading area, minimizing changes and specials. This experiment was designed to measure customer reactions to these pricing strategies. DFF stores were divided into groups depending on historical price elasticities (degree of customer response to price changes), then randomly assigned a Hi-Lo, EDLP, or Control pricing strategy (control stores basically followed a competitive pricing strategy, not trying to be above or below trading area averages). Results of the experiment are seen in the reaction of private label (store brand) goods to the pricing strategy. Questions: 1. Construct a probability distribution of private label results for the two main pricing strategies (Hi-Lo and EDLP). Take the first ten stores assigned to each type and track the private label reaction. Show your results, and the consequent probability distribution in a table. 2. Interpret these results. If you were the experimenter, what would you conclude about the two strategies? Do they engender different results, based on these twenty stores? Which are the "better" results if you do see a difference? 3. In doing this type of work, experimenters assign stores to groups at random but often test their assignations to make sure that the groups are similar regarding some important variable. In this case, we may be interested in whether the elasticity profile of the Hi-Lo group is similar to that of the EDLP group. In doing these exercises, you can drop the negative signs during calculations (but, as a manager, you would want to keep in mind the meaning of those signs during any data analysis). Remember to add them back in for any conclusions you might draw. a. Calculate the mean and standard deviation of each sample of ten from question #1. Feel free to round the elasticities to two decimal places. b. What do you think about these groups? Would you consider them similar or not? c. As a further test, let's take a look at the probability distributions that we derive from these samples. Using these same twenty readings, construct a distribution with the following categories: x < 2.0 2.0 < or = x< 2.2 2.2< or = x< 2.4 2.4< or = x< 2.6 x> or = 2.6 Hi-Lo EDLP d) Do these distributions seem similar? Does either resemble any of the discrete distributions you have covered in class? Pricing Experiments Data Description Research Objectives: Overview: Three category-level pricing strategies were tested in the everyday pricing experiment. The prices of all items in each category were increased by 10% in stores assigned to the Hi-Lo test condition, decreased by 10% in stores assigned to the Hi-Lo test condition, decreased by 10% in stores assigned to the EDLP condition and left at DFF current retail as of 7/2/92 in stores assigned to the Control condition. Dominick's zone price differentials were kept intact. Description: Store Assignments: Through the analysis of historical data, the overall price sensitivity of each DFF store was determined. Stores were then assigned into three groups based on their price sensitivity. The analysis produced 23 stores as low elasticity stores, 41 stores as medium elasticity stores and 21 as high elasticity stores. Within each price sensitivity group, stores were randomly assigned to a Hi-Lo, a Control or an EDLP condition to ensure that stores of different price sensitivities were equally dispersed across the pricing conditions. Now go to the data in excel format and work out the aforementioned sections 1, 2, and 3.