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It only takes a minute to sign up. I've tried grouping by accounts and comparing average prices, grouping by purchase and comparing average accounts purchase sizes, and basically a lot of grouping and doing things.

I guess I could approach this problem with a random forrest clasifier, or perhaps run it through a neural network, but i'm a little lost and looking for a point in the right direction at this point. But, as with much econometrics, the question you need to start with is this: what is my hypothesis? In the end, you have 1 items, with prices and quantities; 2 and orders with many items. It raises endless questions about what drives what.

Given that you are focusing on the top most-sold items, that helps a lot. My gut tells me - if you have adequate data - that you look first and hopefully at the relationship between units vs price for the top N items actually, if you want elasticity, you do log items sold vs. Deeper down, my intuition tells me you do this customer-by-customer.

**Price elasticity of demand using the midpoint method - Elasticity - Microeconomics - Khan Academy**

Suppose you are selling, as one item, razor blades. You can see the problem: Walmart buys more at any price than a small customer, and it has nothing to do with price elasticity and everything to do with scale.

### Food for Regression: Using Sales Data to Identify Price Elasticity

Most likely you really want to look at something like percent increase in sales per customer vs. Again, think through your hypothesis. Using statistics to 'find' the pattern seldom works.

You need to identify what pattern you think exists, build a hypothesis and null hypothesis, and test that. Sign up to join this community. The best answers are voted up and rise to the top. Home Questions Tags Users Unanswered. Calculate price elasticity from a history of sales data Ask Question. Asked 2 years, 4 months ago. Active 2 years, 4 months ago. Viewed 3k times. How many 'items' in total?Solution Idea. If you'd like to see us expand this article with more information implementation details, pricing guidance, code examples, etclet us know with GitHub Feedback!

Pricing is recognized as a pivotal determinant of success in many industries and can be one of the most challenging tasks.

Companies often struggle with several aspects of the pricing process, including accurately forecasting the financial impact of potential tactics, taking reasonable consideration of core business constraints, and fairly validating the executed pricing decisions.

Expanding product offerings add further computational requirements to make real-time pricing decisions, compounding the difficulty of this already overwhelming task. This solution addresses the challenges raised above by utilizing historical transaction data to train a demand forecasting model. Pricing of products in a competing group is also incorporated to predict cross-product impacts such as cannibalization.

A price optimization algorithm then employs the model to forecast demand at various candidate price points and takes into account business constraints to maximize profit.

The solution can be customized to analyze various pricing scenarios as long as the general data science approach remains similar. The process described above is operationalized and deployed in the Cortana Intelligence Suite. This solution will enable companies to ingest historical transaction data, predict future demand, and obtain optimal pricing recommendations on a regular basis. As a result, the solution drives opportunities for improved profitability and reductions in time and effort allocated to pricing tasks.

Download an SVG of this architecture. The Cortana Intelligence Suite provides advanced analytics tools through Microsoft Azure - data ingestion, data storage, data processing and advanced analytics components - all of the essential elements for building a demand forecasting and price optimization solution.

This solution combines several Azure services to create powerful advantages. Azure Blob Storage stores the weekly raw sales data. Apache Spark for Azure HDInsight ingests the data and executes data preprocessing, forecasting modeling and price optimization algorithms. Finally, Data Factory orchestrates and schedules the entire data flow. The 'Deploy' button will launch a workflow that will deploy an instance of the solution within a Resource Group in the Azure subscription you specify.

The solution includes multiple Azure services described below along with a web job that simulates data so that immediately after deployment you can see data flowing through the end-to-end pipeline. For post deployment instructions and more details on the technical implementation, please see the instructions here. You may also leave feedback directly on GitHub. Skip to main content. Exit focus mode. Is this page helpful?

Yes No. Any additional feedback? Skip Submit. Send feedback about This page. This page. Submit feedback. There are no open issues.A few hundred meters from our office, there is a little lunch place. It is part of a small chain that specializes in assemble-yourself, ready-to-eat salads.

When we moved into our new office a few years ago, this salad vendor quickly became a daily fixture. However, overtime, this changed. We still eat there regularly, but I am certain, if one were to look at their STATWORX — related turnover the trend would not delight management and the question is why?

The answer has a lot to do with the arrival of new competitors, improved cooking skills, elaborate promotions and certainly also pricing. It is the latter — pricing — that will be at the center of this series. When analyzing pricing related issues, it is often of essential interest to have a measure of how some change in price affects demand.

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The measure generally agreed upon by economists to describe this relationship is that of price elasticity of demand. As a relative measure, it is unit independent, which turns it into a winner. Elasticity is defined as the percent change in quantity divided by percentage change in price:. Being able to deduce the actual price elasticity of demand for our salad bar would be of great help.

With a reliable elastic score at hand, we can answer questions like: How many salads can we expect to sell at a given price? Eventually, the salad bar can adjust its price in order to maximize profit or to increase sales — depending on their strategic objectives. It is the intricacies of deriving this price elasticities of demand with regressions that will be the subject of this short blog.

To be upfront — although this salad vendor exists, and it is in fact an integral part in the STATWORX food chain — all the data we work with is made up. The question of this blog post is simple: How can we use linear regression to derive price elasticities? To explore this, we need historic prices and sales information.

To begin, there will be no consideration of competition, no in-store alternatives, no new promotional activates, no seasonal-effects, or anything else. Daily sales prices of the past two years were simulated for our little salad bar by randomly selecting prices between 5. A multiplicative demand function was used to derive sales with some randomness added. And with that we are done simulating the data.

For more details, check out the code at our Githubpage. We want to know how a linear regression function relates to elasticity. It turns out that this depends on how the variables have been transformed. It is possible to deduce elasticity — a factor of relative of change — in almost any situation. Here you find the four most common transformations.

Dependent on the pre-regression variable transformation, different post-regression transformations are necessary in order derive the elasticity scores. This means that the choice of the model is indicative of the assumed demand curve. Choosing wrongly results in a misspecified model. This is great to know, but which model should one use?

To evaluate this, I simply ran each of these four models. The results you can find in the table below, but they are nothing like you will ever find in the real world, in that all effects are highly significant and the is ridiculously high for any social or economic analysis. This is by design as hardly any randomness was added. In addition, the data was setup up in a way that the log-log model was predestined to generate the winning model.

The argument is not that a log-log model is the best model to derive elasticities. Although, there are strong microeconomics arguments to be made about why the log-log model is the most reasonable model to describe demand elasticity. The underlying demand curve describes demand most like economists assume it to behave.

It ensures that demand cannot sink below zero as the price increases and on the other side demand exponentially grows as the price decreases. Yet, the deductibility of a constant elasticity value, as aforementioned, is its most desirable feature.Posted by Salem on June 10, We covered Price Elasticity in an accompanying post.

In this post we will look at how we can use this information to analyse our own product and cross product elasticity. You are the owner of a corner mom and pop shop that sells eggs and cookies. You sometimes put a poster on your storefront advertising either your fresh farm eggs, or your delicious chocolate chip cookies. You are particularly concerned with the sales off eggs — your beautiful farm chicken would be terribly sad if they knew that their eggs were not doing so well.

Over a one month period, you collect information on sales of your eggs and the different prices you set for your product. You can download the supermarket data set here. In it you will find:. Load data and output summary stats sales. Sales Price. Eggs Ad. Type Price. Cookies "integer" "numeric" "integer" "numeric". Since Ad. Type is a categorical variable, lets go ahead and change that and output the summary statistics of our dataset. Change Ad Type to factor sales. Type summary sales. Cookies Min.

Right now we want to see if we can predict the relationship between Sales of Eggs, and everything else.

We now want to run a regression and then do some diagnostics on our model before getting to the good stuff. We can run the entire regression or add each variable to see the impact on the regression model. Since we have few predictors lets choose the latter option for fun.

Cookies mtable m1,m2,m3. The results are pasted below. Our model is:. Type — 8. We look at our R 2 and see that the regression explains An interactive slicer containing different segments. Please note that this page makes sense only when a segment option is selected. The report looks awesome! Turn on suggestions. Auto-suggest helps you quickly narrow down your search results by suggesting possible matches as you type.

Showing results for. Search instead for. Did you mean:. Marketing Predictive Analytics. Executive Summary: The Dataset is from a Major retail firm that sells children's clothing. Intro Contains snippets of different segments.

Segmentation is done through a tool called Latent Gold. K-means clustering could also be used,but since this method has arbitrary Cluster and seed inputs, chose Latent Gold which provides segments based on Probability scores. Analysis: An interactive slicer containing different segments. Suggested price change and predicted revenue are displayed. An alternate way to do this is by using an R script with Power BI.

Market Basket Analysis: Find which products to combine to get the most out of the segments. Challenges faced: To pick which variables to segment on. Zeroed in on important behavioral and product attributes to achieve this. Since Original Dataset had features, choosing which ones to visualize required significant data munging. Price Elasticity Analysis was done for 21 products each in 5 segments.

Market Basket Analysis involved performing logistic regression for 20 different products in every segment. Involved Python code, power queries and pivot tables in Excel to bring data to a clean format. Screenshot Labels: Business How To Technology. Message 1 of 4. Re: Marketing Predictive Analytics. Hi, How can i download this or get a copy to use and test for modification for my own purposes. Message 2 of 4. Legend Regular Visitor.

Thanks you in advance. Message 3 of 4. Can you provide me the. Message 4 of 4. All forum topics Previous Topic Next Topic.Unit 3. Some products are elastic buyers are price sensitiveand some products are inelastic buyers are not price sensitive. The availability of close substitutes. If a product, such as salt, is very inexpensive, consumers are relatively indifferent about a price increase.

Therefore, salt has a low price elasticity of demand. Therefore, cars have a higher price elasticity of demand. The period of time under consideration. Price elasticity of demand is greater if you study the effect of a price increase over a period of two years rather than one week.

Over a longer period of time, people have more time to adjust to the price change. If the price of gasoline increases considerably, buyers may not decrease their consumption much after one week. However, after two years, they have the ability to move closer to work or school, arrange carpools, use public transportation, or buy a more fuel-efficient car. If a government increases the sales tax on a product by 50 cents, does that mean that the equilibrium price of the product will increase by 50 cents?

The answer is no. Typically, the equilibrium price will increase less than 50 cents. This means that the cost of supplying the gasoline increases by 50 cents. In the graph below, the supply curve shifts leftward. Note that the vertical difference between supply curve S1 and supply curve S2 is 50 cents the increase in the cost of supplying the gasoline. The equilibrium price, however, did not increase by 50 cents, because the demand curve is sloped at an angle.

The burden of any tax is typically shared between consumers and suppliers. In the graph below, the tax is shared equally as the price increases by 25 cents.

In the graph below, the demand curve is steeper than the demand curve in the graph above. This means that the product is less elastic. Consequently, most of the burden of the tax is born by the consumers.

In general, for less-elastic products steeper demand curvesthe burden of the tax is mostly on the consumers. For more-elastic products flatter demand curvesthe burden of the tax is mostly on the suppliers. Your email address will not be published.In one of my previous post here I described how to evaluate regressions, using the most used metrics and plots. Tools in R for a better data exploration will be shown in this post, showing a good way to prepare the data for a high performing predictive modeling.

If you want to start from data sets without using the above suggested experiment, you can get them here. Opening the price elasticity experiment in Azure Machine Learning Studio we can see that, after the join between three different data set, there are just very few basic data transformations before all the data is transferred into the modeling phase:. Since a data set may contain a wealth of potential pitfalls as said before, a detailed data exploration has to be applied before any modeling phase in a machine learning experiment.

The pressure on costs makes it necessary to revisit prices in excess. In fact the price elasticity is the degree with which the price of a product affects the its demand. Depending on its slope, the demand curve can be elastic or inelastic. It becomes more complex when more variables are involved such as selling burgers in combo with other products. The first thing to do is try to have the best understanding of the data.

This is gained by exploring it using some specific statistical tools. A comprehensive guide to Data Exploration is out of the scope of this post. A very good one by Analytics Vidhya can be found here. From this guide we can get the steps involved to get a reasonable feeling with data:.

There are three data set to analyze. Here are the variables of this data set. This data set contains the calendar info with some external data. Some of these variables can be manipulated and then joined as a unique data set, to be used as the source of our machine learning experiment.

Here the operations to perform:. Therefore we have to transform the data set from a long format to a wide one.

## Price Elasticity

This task is implemented in the following simple and quite arcane R code snippet, into the Execute R Script module in fig. For any detail about this function, refer to this link. Then these variables are removed thanks to the Select Columns in Dataset module. The output is the following one:. The resulting data set can be downloaded here in CSV format. Once we have the input data set ready, every single variable of it has to be explored.

According to the nature of the variable, different statistical methods central tendency, measure of dispersion and plots are required to do the job.

At the end, this job is always repetitive for a data scientist.

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