EMPIRICAL

MEASUREMENT
OF PRICE-CHANGE
RESPONSE
The Regression and Experimentation Approach Presented by: Rica Joy Cura
Regression Approach

• involves systematically examining

the product’s price specifically, the
product’s past prices and past sales
levels to determine the degree of
correspondence.
Data equired for the Regression
r

Approach

•
on a rectangular array
It is necessary to base the analysis

of numbers, or data matrix

• Each row equals data from a
particular period of time
• Each column contains a variable in
the analysis
 •
data from a
Include

sufficiently large number

of time periods.
• Have sufficient variation
Sample in the price variable over
the time span of the
Data analysis
Matrix: • Have sufficient
independence between
price and other
independent variables that
affect sales.
 The Regression Coefficient of the
price variable:
Sample data matrix: •
Th e sales variable would be considered as a
linear combination of price and the other
independent variable in the analysis.
• Sales = a + b1 (month) + b2 (price) + b3
(unit sales or Adv$)
• B1, B2 and B3 are known regression
coefficients,the expected change in
dependent variable when the independent is
changed by one unit , holding constant the
effect of other effect of the other
independents
 CALCULATING the Price Elasticity From a Price Coefficient

•
ACH.
P r i c e e l a s t i c i t y i s t h e p r ed i ct i o n o f t h e ma r k e t ' s p r i c e c h a n g e r e sp o n se t h a t co u l d b e o b t ai n ed f r o m t h e r e g r e s si o n a p p r o

• G I V E N T H I S P R O D U C T ' S H I S TO RY, O U R B E S T
G U E S S W O U L D B E T H AT T H E M A R K E T W O U L D
B E O N LY M O D E R AT E LY R E S P O N S I V E TO A
PRICE CHANGE
• E = REGRESSION COEFFICIENT OF PRICE
VA R I A B L E × ( P M / S M )
 Experimentation
Sample data matrix: Approach
•
ation can be used to predict the market's
Experiment

price-change response. It involves

establishing two or more customer groups
that are equivalent. The product's price is
then varied between these equivalent groups
and responses of the customers measured.

Designing Controlled
a
Experiment
•
C reating two equivalent groups of
customers
• Arrange to change something in one
of the two equivalent groups
• Arrange to measure both groups
after the change in the test group
has occurred
Calculating the Price
Elasticity From a Sales
Experiment
• · rice change and the sales change that
Calculating the p
resulted from the price change.
• Convert both this price change and sales change
into percents
• Divide the two percents
Note: When converting the price change and resulting
sales change into percents, the price and sales levels in
the control group should be used as the base values.
• First,calculate the percent price change

• Next, we would calculate the percent

by which sales changed in response to
the price change

• , we would divide the percent sales

Finally

change by the percent price change to

arrive at the price elasticity that would be
indicated by this experiment
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