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MIDDLE EAST TECHNICAL UNIVERSITY

I E 2 66 – ENGINEERING S T A T I S T I C S II

CASE
STUDY 2

Burcu YÜZÜAK
Cem YOĞURTCU
Onur YILMAZ

Instructor:
YASEMİN SERİN

May 2010, Ankara


Part I:

In the first part, as our manager assigned we are trying to find out whether or not there

is a relationship between sales amounts and “seasonality”, “price of one bottle of

`DAZNEDAR RAKI'”, “average rakı price per bottle in the national market” and “average

beer price in the national market”. We carried out a multiple linear regression analysis to

investigate these possible relationships.

In order to do multiple regression analysis, we set our variables as:

X1: average rakı price per bottle in the national market (market price)

X2: price of one bottle of `DAZNEDAR RAKI' („Daznedar Rakı‟ price)

X3: average beer price in the national market (beer price)

And in order to control the effects of seasonality on the sales, we assigned seasonal

variables with respect to months of seasons:

X4: spring months

X5: summer months

X6: fall months

We used only three variables because the rest of the months, which are in the winter

season, will be simultaneously set.

And our model:

Y = β0 + β1X1 + β2X2 + β3X3 + β4X4 + β5X5 + β6X6

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Following this, we applied regression analysis according to this hypothesis:

H0: β1= β2= β3= β4= β5= β6= 0

HA: otherwise

And results of the analysis are given as Minitab outputs:

The regression equation is


sales bottles = - 34867 + 11538 market price - 8347 daznedar raki price
+ 170 beer market price - 70 spring - 55 summer - 25 fall

Predictor Coef SE Coef T P


Constant -34867 3901 -8.94 0.000
market price 11537.7 205.0 56.27 0.000
daznedar raki price -8346.6 252.9 -33.00 0.000
beer market price 169.7 483.3 0.35 0.728
spring -69.6 592.2 -0.12 0.907
summer -55.3 616.3 -0.09 0.929
fall -25.4 632.2 -0.04 0.968

S = 1188.79 R-Sq = 99.5% R-Sq(adj) = 99.4%

Analysis of Variance

Source D SS MS F P
Regression 6 8263146690 1377191115 974.51 0.000
Residual Error 28 39570015 1413215
Total 34 8302716706

Residual Plots for sales bottles


Normal Probability Plot Versus Fits
99
Standardized Residual

3
90
2
Percent

50 1
0
10
-1
1
-2 0 2 4 20000 40000 60000 80000
Standardized Residual Fitted Value

Histogram Versus Order


10.0
Standardized Residual

3
7.5 2
Frequency

5.0 1
0
2.5
-1
0.0
-1 0 1 2 3 1 5 10 15 20 25 30 35
Standardized Residual Observation Order

Residual Plots for sales bottles (Retrieved from Minitab Output)

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These given Minitab outputs show that, only “average market price in the national

market” and “price of one bottle Daznedar Raki” are significant since only related p values

equal to zero. However, when we looked at the residual plots, we saw there is a pattern.

Therefore, we decided to use rather than Y to eliminate this pattern.

Now our model became:

=β0+β1X1+ β2X2+ β3X3+ β4X4+ β5X5+ β6X6

Following this change, when we tested the same hypothesis again with the new model

we acquired these outputs:

The regression equation is


kök bottles = 23.9 + 24.6 market price - 17.3 daznedar raki price
- 0.115 beer market price - 0.204 spring - 0.350 summer
- 0.065 fall

Predictor Coef SE Coef T P


Constant 23.877 1.972 12.11 0.000
market price 24.6433 0.1037 237.71 0.000
daznedar raki price -17.2593 0.1279 -134.96 0.000
beer market price -0.1155 0.2443 -0.47 0.640
spring -0.2038 0.2994 -0.68 0.502
summer -0.3503 0.3116 -1.12 0.270
fall -0.0654 0.3197 -0.20 0.839

S = 0.601078 R-Sq = 100.0% R-Sq(adj) = 100.0%

Analysis of Variance

Source DF SS MS F P
Regression 6 39420.1 6570.0 18184.62 0.000
Residual Error 28 10.1 0.4
Total 34 39430.2

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Residual Plots for kök bottles
Normal Probability Plot Versus Fits
99

Standardized Residual
2
90
1
Percent

50 0

-1
10
-2
1
-2 -1 0 1 2 150 200 250 300
Standardized Residual Fitted Value

Histogram Versus Order


8

Standardized Residual
2
6
1
Frequency

4 0

2 -1

-2
0
-2 -1 0 1 2 1 5 10 15 20 25 30 35
Standardized Residual Observation Order

Residual Plots for kök bottles (Retrieved from Minitab Output)

When we check the new residual plots it is seen that the pattern is gone and still only

“market price” and “Daznedar raki price” are significant since only their p-values are equal to

zero as highlighted in the Minitab output above. P-values of “beer market price”, “summer”,

“spring” and “fall” seasons are 0.640, 0.502, 0.270 and 0.839 respectively. These values

indicate that there is no linear relationship between these conditions and sales volume on the

other hand it is evident from the output that there is a relationship between “average raki price

per bottle in the national market” and “price of one bottle of `DAZNEDAR RAKI'” and sales

volume.

We realized that “beer market price”, “summer”, “spring” and “fall” seasons resulted

as insignificant but we need to check whether they are significant when we make regression

analaysis for each of them indivudally. So we tested the hypothesis for four of insignificant

variables, but results didn‟t change. They were still insignificant and an example from these

individual significance analyses which is conducted for „beer market price‟ could be seen

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below. As reported in the Minitab output below, beer market price has a p-value of 0,950 and

it shows that “beer market price” is still insignificant for the volume of sales.

The regression equation is


kök bottles = 23.3 + 24.6 market price - 17.2 daznedar raki price - 0.014
beer market price

Predictor Coef SE Coef T P


Constant 23.301 1.788 13.03 0.000
market price 24.6225 0.0962 256.03 0.000
daznedar raki price -17.2348 0.1151 -149.79 0.000
beer market price -0.0141 0.2231 -0.06 0.950

S = 0.586642 R-Sq = 100.0% R-Sq(adj) = 100.0%

Analysis of Variance

Source DF SS MS F P
Regression 3 39420 13140 38180.70 0.000
Residual Error 31 11 0
Total 34 39430

Part II:

In part II, Ms. Bahar is considering a price promotion to increase revenues and she

wants us to determine the price that maximizes expected revenue for the next month.

Moreover it is stated that the price could be decreased at most to 32 TL and we should

determine the price level from {32, 33, 34, 35, 36}.

Now we have only these variables:

X1: average rakı price per bottle in the national market (market price)

X2: price of one bottle of `DAZNEDAR RAKI' („Daznedar Rakı‟ price)

With these variables our model become as

=β0+β1X1+ β2X2

Then we did a regression analysis on Minitab again to determine the correct model

and the outputs are shown below:

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The regression equation is
kök bottles = 23.2 + 24.6 market price - 17.2 daznedar raki price

Predictor Coef SE Coef T P


Constant 23.226 1.321 17.58 0.000
market price 24.6205 0.0891 276.37 0.000
daznedar raki price -17.2317 0.1022 -168.59 0.000

S = 0.577440 R-Sq = 100.0% R-Sq(adj) = 100.0%

Analysis of Variance

Source DF SS MS F P
Regression 2 39420 19710 59110.93 0.000
Residual Error 32 11 0
Total 34 39430

From output we could state coefficients as

β0=23.2 β1=24.6 β2=-17.2

and using these, our correct model is:

=23.2+24.6X1-17.2X2

Using our model, we calculated expected revenues for the prices in the given range.

Calculation for price = 32TL

P( )=

P( )= P(Y) =

P( )=

E(Revenue) = 0.3* + 0.6* + 0.1* = 565215.488

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Calculation for price = 33TL

P( )=

P( )= P(Y )=

P( )=

E(Revenue) = 0.3* + 0.6* + 0.1* = 442703.976

Calculation for price = 34TL

P( )=

P( )= P(Y) =

P( )=

E(Revenue) = 0.3* + 0.6* + 0.1* = 331814.16

Price Level (TL) Expected Revenue (TL)


32 565215.488
33 442703.976
34 331814.16
Summary of calculations

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As it can be seen from the summary of calculations above, total expected revenue is

decreasing as the price level increases. The decrease of revenues in spite of the increase of

price level could be interpreted as the decrease in the sales volume because the increase of

prices affects buyers negatively. Moreover, considering this rising down effect, there is no

need to for further calculations for higher prices such as 35 and 36 TL. To sum up, in order to

increase the expected profits and also revenues, price promotion level should be 32 TL.