Professor of Marketing
The purpose of this exercise is to provide students with a precise, hands-on tool to measure the effect of price promotions. Specifically, the exercise exposes students to, and allows them to work with, real store-level scanner data of the sort that retailers are collecting store-by-store on a weekly basis. The exercise provides students with an opportunity to estimate regular and promotional price elasticities of demand for two disguised soft-drink brands.The exercise is designed to illustrate the analytical and statistical machinery that underlies sophisticated market research and pricing decisions in a manner that makes this machinery accessible not only to students who are interested in market research careers, but also those who will have to interpret research results as input into strategic pricing and promotion decisions in packaged goods industries. The approach taken here, to estimate price promotion effects, is based on a more general model of estimating the price elasticity of demand. The exercise is well suited as an integrative capstone assignment in second-year MBA or other advanced elective courses on Market Research, Database Marketing, Pricing Policy, or Brand Management because it integrates material from microeconomics, statistics and econometrics, and marketing. MBA students very much enjoy working on a technical problem of practical relevance whose solution requires such an integration of material.The exercise has also been successfully used at the end of first-year and executive MBA Marketing Management core courses. Finally, it can be used in advanced undergraduate courses in marketing and economics, and in specialized executive education programs in packaged goods industries. The objectives and material that are covered in the present teaching note under Questions 1 and 2 will be sufficiently challenging for basic undergraduate, executive, and first-year MBA courses.