Download Case Problem for Chapters 4 and 5 - Welcome to the Home Page for

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.